The management during the AGM had indicated that capex cycle for the NBEC Phase 1 will begin after IT Bldng 4 is completed. Bldng 4 is expected to be completed in 2018 and will begin to be leased out in the first few months of 2019.
Mgmt expects for it to be fully leased out in 18 months (middle / end of 2020).
I think the worst case scenario one is looking at when invested in a company like Nesco is the delay in project execution.
Everything else about the business seems straight forward. Buildings are going to be built, they will eventually get occupied, exhibition centre is going to come up. Crowds attending the exhibitions are going to go up, number of exhibitions / events are going to increase.
I think all one needs to do here is to be patient, stay invested, let the mgmt do their thing and wait for the story to play out over the next 5 - 7 - 10 years.
They name it as IT building but actually its not just IT companies that occupy the buildings. Infact, good proportion of companies are into financial services like KPMG, Blackrock, HSBC etc.
How I see it as, there is structural shift in Mumbai where companies want to get out of expensive South Mumbai and re-locate to suburbs like Andheri, Goregaon, Borivali etc (like how we saw from Public sector banks to Private banks!!).
This trend is likely to continue since areas like Goregaon and Andheri are much cheaper and as such there is no option for financial services companies except Mumbaiā¦its still financial capital of India and there is no choice for the companies. So, nothing to worry about on occupancy front.
That reminds when south mumbai started shifting , people were too optimistic on Vashi but the shift was gradual from Mumbai to BKC. So, now if Mumbai corporate needs needs to shift further, question is how much BKC, Andheri-Goregaon and Vashi will consume. I think there are strong reasons that the way residential mumbai progressed in straight line, commercial mumbai will also progress (at least until navi mumbai airport comes up).
So three slabs in 6 months ā¦ canāt say itās fast enough although at least there is progress. I think the overall project is highly unlikely to complete by next year given that post structure activities do take more than 50% of the time in large complexes like this.
And given that whatever may be NeSCO management credentials, we certainly do not have a full view of their "project management " competency. This is an altogether different ball game that an operating company may or may not have.
Disc - Iām invested from lower levels and see this as high margin of safety bet. However, getting cautious on the time frame this theme may take to play out.
Work was at standstill for around 2 months (I had flagged this in my post from April) due to some issue with availability of building material. This had affected other projects in Mumbai too.
I have a daily view of construction at Nesco and I would describe the current progress as being on a war footing.
Many industries are experiencing jobless growth due to rising productivity and automation. So while industries like financial services and IT will grow, I am skeptical of how many jobs they will add.
About moving from South to North Mumbai, it is a trend that is going on for years and it will continue but we have Lower Parel and BKC to fill up before Goregaon and points north will see higher demand. So I am skeptical about that too. There is a good amount of construction activity in Lower Parel and BKC. Also price differential between Lower Parel/BKC and Goregaon should have narrowed over last few years. Worsening traffic on WEH is also a disadvantage for Goregaon.
I am also skeptical about impact of new DAICEC on BEC. i was not so worried about it until I saw impact of Jio on incumbents and same could happen with BEC when DAICEC becomes operational.
Overall, I think Nesco is an excellent company with not too many moving parts but next 2 to 3 years could be cloudy and some negative surprises are possible. With revenue growth muted until building 4 is ready, the only margin of safety will come from lower stock price. Waiting for that.
NESCO reported good set of numbers in-line with expectations. Overall run-rate for exhibition and IT park remains intact. CWIP of ~270+ Cr on balance sheet gives indication of IT Park 4 construction going on track.
Also, to highlight I think @nprao was right . Qoq balance sheet position of IT park highlights stagnation of work for few months . Exhibition center progress looks ok. @vivek_mashrani I was reading an article on tentative commercial rental hikes cities are expecting . Do you have any research reports on these lines with some granular information for Mumbai . If yes, kindly share
Recently I have started reading blogs written by Amit Jeswani of Stallion Asset to understand what he believes are the trends / sectors that are going to do well going forward. In his blogs he has pointed out following sectors / trends that can do well going forward - a) Housing Finance / NBFCs (a common trend picked by many) b) Real Estate (contrarian trend). Here are two of his blogs on why he believes Real Estate could be a trend to watch out for the next 5/10 years. He also points out Commercial Real Estate in particular should do better going forward. Here are the blogs. Hope it helps provide some information on the info you are looking for -
As regards 70-acre land usage of NESCO, does anyone have the split between real estate (IT Parks) & exhibition businesses? Please do share, if available.
People are demanding to stop NESCO from organizing exhibitions on weekdays till Metro line work is complete. This is due to severe traffic woes. Lot of complaints on Twitter. Friends from Mumbai, how is the situation on ground? Is this because of metro work, or this is the usual scene on JVLR?
Traffic is generally bad on days with major exhibitions at NESCO. Its become worse due to the ongoing Metro construction. When the Pharma conference took place about a week ago, travelling from Powai to NESCO (around 9-10 kms) took 3 hours one way.
As the idiom goes āIts all water under the bridgeā. Mumbaikars go through traffic woes almost every day of their lives. Sometimes normal, at most times bad and on some occasions wherein every Mumbaikar will mutter through their breath āthis city is going to the dogsā¦blah blahā. As I see it (having lived here all my life)ā¦people will forget about the inconvenience caused and move on with their lives (and in a few days forget they were stuck in a horrible jam 2 months ago). Hence āits all water under the bridgeā if you ask me.
I wouldnāt ignore this issue @amangoklani . Government in India tends to be erratic and public perception driven and if this social movement catches on, you never know that Nesco may be told to lay off for few months or worse. In such a situation, what kind of impact they would get operationally and will they have ability to sustain. My guess is that they would get short term shocks (in price and performance ) but would recoup due to low debt and the fact that thereās nowhere else for people to go if they want to conduct conventions.
Brother, metro work has been going for 15+ months now. This isnāt the first time Mumbaikars have been inconvenienced due to metro work + Nesco exhibition. In fact, Iāve personally suffered due to exhibitions at Nesco and metro work making driving to south of Mumbai a nightmare. So nothings really changed in the last 15+ months.
Now letās assume the govt. does wake up to this situation and does decide to to do something about it - wonāt the Nesco management try and work out a solution with the government? Wonāt that be the most practical thing to do? Problem solve! Maybe rickshaws that are parked outside can form a queue inside Nesco (they have ample space in their campus), maybe they can deploy more man power (including traffic constables) to manage the situation better, maybe they donāt allow cars to stop there etc etc. The govt. asking a legitimate business with relevant permissions to shut down completely sounds a little too drastic and draconian.
Now, letās assume they do ask them to shut down on certain days or months due to a social movement. Sure the revenues/profits will suffer for a few quarters (metro work is scheduled to be over by Mar 2019). However, to me as a long term investor do a few quarters of hiccups matter? Not really (personal preference / opinion). Iāve been invested in Nesco for the last 4+ years with every intention to stay put till the story continues (5,7 or 10 years). So in the larger scheme of things, to me this is really irrelevant (again personal preference / opinion) . The mgmt being shareholder friendly (theyāve increased dividends each year, have done buybacks and most importantly reinvested the cash back in the business) Iām very comfortable just hanging in there if the worst ever transpires. Those are my 2 cents on this. Cheers.
Precisely my point if you read my note carefully. I would have been worried if they had a ton of debt to service but thatās not the case. So I agree with you @amangoklani
