Nesco


(Shiv Kumar) #326

When visitors to Mumbai cancelled bookings in the wake of the 26/11 terror
attacks, NESCO’s profitability fell sharply for, I think, two quarters
before picking up. Stock price fell a lot more allowing good entry points
to value investors.

disclosure: invested


(Shiv Kumar) #327

Traffic cops set rules for exhibition venue after huge jams last month
Huge Snarl Seen In Nov Spurs Action

Mumbai: After an international pharmaceuticals convention was held at Bombay Exhibition Centre (BEC) in Goregaon brought traffic on Western Express Highway (WEH) to a standstill last month, the traffic police have given directions to Nesco Ltd on modifications to be made before holding future events.

Senior officers in the traffic department had meetings with officials from Nesco Ltd and with exhibitors. “Directions have been given to Nesco Ltd to not accept bookings for more than 50% of the capacity of BEC for events to be conducted on weekdays. Full bookings can be accepted for events to be held on weekends,” said a highly placed official in the traffic department. “The biggest problem is of parking. Nesco Ltd has been asked to take up additional parking space nearby,” the official

This led to severe congestion on Western Express Highway and JVLR with backlogs stretching up to several kilometres said. During the convention, the police observed that visitors left the venue during evening peak hour, causing bottlenecks on WEH and JVLR. “We have issued directions that entry to exhibitions has to be stopped after 4 pm. Bandobast would have to be paid for and traffic wardens need to be hired,” the official said.

The traffic department has

Motorists, including patients and schoolchildren, were delayed by an average of 3 hrs already put up a one-way sign outside BEC; motorists wanting to go south need to head north a bit and take a U-turn. The cops have also objected to Nesco Ltd. using open spaces at the venue to put up more stalls, which only increases the number of visitors. “The organisers have been taking an NOC from the civic body but not from us,” said a senior police official.

Banker Dinesh Rane, who drives daily from Borivli to Lower Parel, says he gets stuck for 30 minutes outside BEC. “When there is absence of supporting infrastructure, exhibitions of such massive scale cannot be given the go-ahead… I have witnessed congestion as late as 11.30pm. There are other factors for snarls,” said Rane. who has tweeted to the authorities.

“BEC has been hosting exhibitions and conventions since 1992. In the past month there were some traffic build-ups, which could be attributed to factors like the construction work of the Metro project, damaged bridge in Aarey Colony, unauthorised parking, hawkers on the service road and incomplete service road. Nesco’s reaction has been immediate and proactive by collaborating with the traffic authorities to take steps to reduce and contain the traffic build up. Suggestions made by traffic police are being discussed further to manage the situation since any change to exhibitions will have significant economic impact on the city," said Dipesh Singhania, chief financial officer, Nesco Ltd.


(Jaclyn) #328

Insider buys, but the transactions seem to be of small value.


(Aman Goklani) #329

The below reports list out leasing trends of commercial spaces in Mumbai and rest of India in 2017 -


(vagator10) #330

To begin with, the ROE north of 20pc is becoz they value assets at historical cost. If the commerical property was revalued basis today’s going rates, then the ROE will paint a different picture. For eg. If you bought a building in 1990 for 2 crores which today fetches 40 lakhs as rent with a net income of 30 lakhs. The RoE per books is 15 pc. If the building today sold for 6 crores after tax and u banked the proceeds, the FD will return more revenue at 7pc i.e. 42 lakhs.

The profit for such companies shud be measured I feel on the revalued amount of the capital and not historic.


(vagator10) #331

I mean the replacement cost method.


(jajushobhit) #332

I beg to disagree with your conclusion. By marking the land to its current market price, you are eliminating capital appreciation (which gets built in the lease rentals) from your overall yields from the property. The company owns the land and any appreciation belongs to the company and shareholders…therefore it must not be revalued at current market price. If would have used your rationale, if I wanted to calculate marginal ROE for projects in future if the company needed to buy land at the current market price to develop and grow…which is not the case. The company has already invested its capital in the past to acquire land and does not need capital to invest to buy land in Mumbai, it can just develop and redevelop its existing land holdings to grow.

Regards
SJ


(vagator10) #333

Thanks SJ for your comments.

From what I know, the commercial space lease rentals don’t depend on the age of the premises but is market-based pricing. The rentals are driven by the location, brand and other commercial factors. Hence if for instance Reliance were to compete @ BKC with their exhibition space constructed at today’s costs, the rentals would depend on the competition and other strategic factors.

I feel they should revalue the real estate assets in the books and amortize the revaluation reserves over time agnst the rentals given the opportunity costs involved. As for new projects, they have the real estate inventory bought long back (gives them the time factor advantage) and their pricing will still be driven by market-based and not cost-based pricing. Hence the profit margins would be high based on historical cost assets valuation and this may be their moat.

If I were to flip the scenario, the market cap definitely reflects the today’s values of their real estate assets, however one wouldn’t assume they’ll sell it off and invest at a higher ROE business. Revaluing the assets will give a true picture of the ROE of the monetization of the assets. FCF will give a further better picture.

Secondly, some other interesting points:

  1. Traffic congestion has led to them being asked to do weekday exhibitions at I think 50% capacity utilization. Any social interference possible as a disruption?
  2. If Reliance issues were to be cleared and the new airport happens, how can it impact the BEC business?
  3. The 4th IT park building is underway, fully funded thru internal accruals (amazing!), will add to their revenue.
  4. Bright prospects of their engg business.
  5. Sound management with focus on capital allocation and no equity dilution.
  6. Who’s their competitors in the leasing space and what is their ROE?

(jajushobhit) #334

I agree with your thoughts completely @vagator10. I feel that the advantage of not having debt is that they were never under the pressure to sell their office spaces in the IT parks and they believe that there is a lot of scope for the appreciation in Goregaon’s real estate.

Regards
SJ


(nprao) #336

IMG_8194

Good progress at IT Building 4.


(Kamlesh Patel) #337

Hi nprao, you are doing job of giving differential insights :slight_smile: . Thanks.


(Shiv Kumar) #338

so they have constructed three floors in about six weeks! I am comparing this picture with the one posted in November last. Looks like they are constructing one storey every 15 days or so. At this rate the building will be ready for occupation by April or so.


(nprao) #339

‘We expect to complete the IT building in Q1 of FY19’ http://www.moneycontrol.com/news/business/companies/expect-to-complete-it-building-in-q1fy19-nesco-2475353.html


(SAMIR SHAH) #340

By this logic, you should also take not only operating earnings into account, but also the appreciation in the land value.


(SAMIR SHAH) #341

Sorry, did not notice that the same point had already been made more eloquently earlier


(Shiv Kumar) #342

A recent report in Business India magazine.

nesco1


(Growth_without Debt) #343

Why promotors want such publicity…are they going for QIP?


(Abhishek) #344

Thats a real cynical view of the world. Just because someone appears in a magazine, it does not mean that there are intentions behind it. People work hard all their life not just for money but to create - and in the process would like to feel recognized and appreciated. I doubt that there are many people with the exception of a few media shy people, who would turn down an offer to be recognized for their work either in a magazine, TV interview or a newspaper article.


(harini.dedhia) #345

Also just from a balance sheet perspective- why would they go ahead for a QIP and dilute themselves with so much cash on books and zero debt. They have a lot of other options before it comes to that.


(Kumar Saurabh) #346

At least 20 such magazines in India which cover at least 10 such article of listed companies in monthly edition ,so, 200 such articles monthly means 2400 articles annually which means approx ,every 2 year every listed company should go for a QIP. Does it happen really ? Is there any correlation , even an average one ?