As per the research report by Prithvi Finmart, the BKC space is of 0.30 mn sq ft.
The present NESCO BEC size (usable) is 0.64 mn sq ft. and works have already been started for extending the BEC size by another 0.45 mn sq ft, thereby covering an usable area of 1.09 sq. ft by the beginning of FY21-22.
In recent Annual report of 2018-19, management mentions building 4 is now complete. No further information. Does anyone know if what is the progress on renting out the building
Nothing concrete as far as updates go. Though looking from the western express highway one can clearly see the glass facade covering the building is yet to be completely put up (it’s been like this for months now). Though, while passing the building in the night one notices work going on certain floors. Maybe interior work on certain offices has started.
While on a visit to WeWork BKC I noticed them stating that they will be starting at Nesco in Q3 this calendar year. So, maybe the building will be functional by then.
I hope to attend the agm again this year. If I do, will try and provide proper updates.
As per Nirmal Bang latest report if I remember , 40% of the space has been signed, interior work has started which will go for 6 months . So, somewhere between Nov - Dec , we should expect occupants . Rest I think we will come to know in AGM
The latest update from Nirmal Bang forecasting the upcoming results (the report came out today). No mention about building #4 in this update. Does anyone has access to reports from Equirus Capital? Their analysts are also following the company. Maybe they have an update in one of their reports.
In case of NESCO, the revenues from the business and convention centre are expected to increase 2% QoQ and 45% YoY because of renting out the BEC for election purposes. The revenues are expected to be flat on QoQ basis because of its Building 1 being vacated on account of planned IT park restructuring
and its Building 2 is also in the process of vacating.
Nesco Ltd Fy19 AR Notes
Not much detail has been given about the occupancy of IT Building IV. One good thing was that company has started it’s own Exhibition Division. So going forward they will earn as organisers as well which will further improve the occupancy of exhibition centre as well as bring in new source of revenue. Food division and then Exhibition division indicates management’s intention to fully leverage it’s asset value by adding these ancillary income streams. Food division has shown good growth on lower base. Exhibition has done well despite all the scare last year with the local municipality. Company gave good results despite lower numbers from IT Park division which set to improve this year.
Key Points
Your Company achieved a consolidated turnover of 39,266.43 lakhs as compared to previous year consolidated turnover of 35,799.50 lakhs.
Consolidated profit before tax was higher at 24,789.45 lakhs as compared to 23,793.35 lakhs in the year 2017-18.
Consolidated earnings per share amounted to 25.61 (previous year 25.36).
Nesco Limited is a diversified Company in four business segments. Nesco IT Park provides space to some of the world’s leading companies. Its Bombay Exhibition Centre is the largest Exhibition Centre in the private sector. Nesco’s Foods division on the days of exhibitions prepares and serves over 20,000 meals per day. Nesco’s Indabrator division is a leading manufacturer of surface preparation equipment with facilities in Gujarat.
IT Park
During the year, revenue from IT Park was 13,696.98 lakhs (previous year 14,544.33 lakhs).
An amount of ` 49,414.05 lakhs has been spent so far for construction of Tower 4 which is now completed. The building is Platinum rated for Core & Shell under the LEED India rating system by the Indian Green Building Council.
Towers 2 and 3 are fully occupied by renowned Companies.
Hall 3 provides Incubation Centre; and a Child Care Centre for children of employees working in Nesco IT Park.
Guest Exhibitions and Events:
During the year 118 guest exhibitions and conventions were held in our Centre, out of which 19 were by new organizers. Some of our new clients include MIDC, Thai Trade Center, Jain International Trade Organization and Stylus Arts.
Income for the year was 15,597.13 lakhs compared to 12,970.34 lakhs in the previous year.
Bombay Exhibition Centre continues to bring more visitors to Mumbai than any other venue and is spread over six air-conditioned halls. Plans for further expansion are being finalized.
Nesco Exhibitions: A new division – Nesco Exhibitions - will organize its own exhibitions. During the financial year 2019-20, Company will organize exhibitions including India Auto Show; Machine Tools, Manufacturing and Technology Expo; Hobby & Lifestyle; Edutech India; etc. Nesco’s own exhibitions and events will increase the hall occupancy.
Nesco Foods: Income for the year was ` 3,357.57 lakhs. Nesco Foods caters to the needs of visitors to exhibitions and conventions and employees working in Nesco IT Park. The kitchen facility is fully operational.
Nesco Hospitality Private Limited, a wholly owned subsidiary of your Company, earned revenue of 60.24 lakhs during the current year, profit before tax was 20.64 lakhs. Your Company has decided to merge Nesco Hospitality Private Limited with Nesco Limited subject to members approval.
In the year under review, Indabrator income was higher by 23.33% at 3,253.65 lakhs (previous year 2,638.13 lakhs). Indabrator has recently won several large contracts. It is expanding capacity of its Abrasive plant at Karamsad. Your Company is also planning to enter into some new product lines.
Income from investments and other income was 3,305.47 lakhs (previous year 3,606.48 lakhs).
Your Company had no debt as on 31 March 2019. Company’s liquid resources (fixed maturity plans, mutual funds, cash & bank balances) increased by 5.63% to 53,403.80 lakhs from 50,557.22 lakhs.
Capex of Rs. 150 cr during the year.
Freehold Buildings include Karamsad factory which is situated on land taken on rent from Mr. Sumant J. Patel, Executive Chairman.
Investment Property shown in the Balance sheet are IT Buildings on which rental income is earned. A very interesting note on it was shared in the AR. “The extent to which the fair value of investment property (as measured or disclosed in the financial statements) is based on Stamp Duty Ready Reckoner published by Government of India every year. As at 31 March 2019, the fair value of the investment property is ` 1,26,891.51 lakhs.”
Now since the latest capex is still in CWIP so I am guessing that this value of Rs. 1268 cr does not include the fair value of new IT Building IV.
Regards
Harshit Goel
Some new insights in the article regarding the completion of IT Building 4 and and reconstruction of Building 1 and Building 2.
Regards
Harshit Goel
Since it’s a premium content, not able to access. Will you be able mention key highlights from this report?
nothing new in the article which long-term investors in NESCO do not know. Once IT Building 4 starts bringing in revenues, company will start redevelopment of the IT Building 1 and 2. It will be three years before the new building is up. Management is moving faster now. Construction of IT building 3 took longer. Work on IT Building 4 began in 2016 and the building was mostly ready in 2018. There were some problems like reduced supply of sand, etc which delayed construction.
The article missed newer ventures like NESCO Events and Nesco Exhibitions into which management is now venturing into.
disclosure:holding
Source: Nirmal Bang
Tower 4 occupancy commitments at 50%
We recently met the management of NESCO Limited. The key takeaways are: (1) Fit-outs started in the newly built Tower 4 and it is expected to start contributing to revenue from 1QFY21E (2) Building 2 to be vacated by Dec’19 for the construction of new Tower 2, (3) Bombay Exhibition Center to add 0.15mn sq. ft. of space by FY21E (4) Changes in cost of equity and capitalization rate and (4) Capex of approximately Rs14.7bn to be incurred during FY20E-FY25E.
Post our discussion with management we have revised our estimates for NESCO. The key revisions are: (1) Building 2 to continue operations till Dec’19 (2) Revision in the average lease rates of the NESCO IT Park (3) Revision in the area of new Tower 2 to be constructed (4) Addition of 0.15mn sq. ft. in BEC in FY21E (5) Revision in the occupancy and lease rate per sq. ft. per day for BEC and (6) Changes in cost of equity to 14.5% (earlier 16.1%) and capitalization rate to 8.5% p.a. (earlier 10.2%).
Our valuation is driven by the restructuring of the NESCO IT park, increase in rentable space of BEC and the expected increase in rental rates. The upward revision of TP is due to: (1) Increase in the area to be constructed for the new Tower 2 and (2) Changes in cost of equity to 14.5% (earlier 16.1%) and capitalization rate to 8.5% p.a. (earlier 10.2%).
NESCO IT Park: The IT park contributes Rs488/share to NAV (earlier Rs369/share). The increase in NAV is due to: (1) 2mn sq. ft. of space to be constructed in new Tower 2 (earlier estimate 1mn sq. ft.) by FY25E and (2) Upward revision in average lease rate per sq. ft. for the existing IT park buildings. The existing Building 2 is to be vacated by Dec’19 and construction of the new Tower 2 is expected to be completed by FY24E. The new Tower 2 is expected to start contributing to revenue from FY25E. The recently completed 1.2mn sq. ft. Tower 4 had 50% lease occupancy as on FY19 and has been leased to four tenants. Two tenants have begun fit-outs and two other tenants are expected to begin fit-outs in Aug’19 and Oct’19. The fit-out period ranges between six and nine months. We expect Tower 4 to start contributing to revenue from FY21E and the occupancy is expected to increase to 70% in FY21E.
Bombay Exhibition Center (BEC): BEC contributes Rs188/share to NAV (earlier Rs276/share). The decline in NAV is due to: (1) Lower lease rate per sq. ft. per day estimate (2) Lower occupancy estimates beyond FY21E due to addition of new space and competition from newer exhibition centers coming up in Mumbai, which according to management will affect revenue from BEC by 15%. The company plans to add 0.15mn sq. ft. of space in BEC till FY21E. Rs1.2bn of capex is expected to be incurred for the same.
Disc: Invested. Continues to be my second largest holding.
I know Mumbai rain was tough, but just checking if anyone attended the Nesco AGM today? If yes, it would be great to know any key takeaways…
Nesco 60th AGM: Notes (Aug 5, 2019)
Here are my notes from today’s AGM. Also, attached herewith are some pictures that I took of Bldng # 4. Apologies if I have stated something incorrectly.
Management spoke about results, investment income, dividend declared etc. in FY19 (vs FY18). Not writing about it here as the information is easily available.
The AGM was being conducted before the Gems and Jewellery exhibition was to commence (last year the exhibition was on during the AGM). It remains one of the largest exhibitions for BEC.
BEC:
BEC had 118 exhibitions last year. Off these 19 were from new exhibitors.
Problems faced by BEC last year due to traffic are abating as the metro work has progressed considerably. This should mostly not be a concern going forward.
New division ‘Nesco Exhibitions’ will be launched this year and it will launch its own exhibitions starting FY20. This division will launch five new ‘Nesco owned events’ this year. These will be India Auto Show, Edutech, Machine Tools and Manufacturing Expo, Technology Expo, Hobby and lifestyle expo. The company owned and operated exhibitions are being launched to increase utilisation rates of the exhibition centre through the year and also because the margins on it are better / higher. Eventual goal (over the years) is to have same number of company owned and operated events as guest events taking place at BEC now.
They will continue to host ‘Nesco Events’ too. These events will include Rangilo Re and Paddy Fields.
One new exhibition hall added measuring 1,16,000 sq. ft. This has cost Rs. 25 crs.
Govt. policies permit construction of hotels within exhibition centres. As part of company’s long term plans, they may construct 1 to 3 hotels as part of the exhibition centre. Though management hasn’t decided on the time frame for the same and also whether they will manage these properties or let some external chain manage it. The company at the moment is quite busy with their existing growth plans over the next few years (new exhibition halls and IT building # 2) and hence will look at and exploring this down the line.
Competition from Reliance convention centre: REC Is a multi-purpose facility. They will face competition for small and medium sized events. Though for large sized events or ones which require larger space / machinery (which is what Nesco has additional capacity for) they will continue to draw business for it. Reliance convention centre will impact the companies revenue to a certain extent. Only time will tell as the company will have to wait and observe.
Another new exhibition hall will be added measuring 2,00,000 sq. ft. This will be completed / added by Aug 2020.
IT Park:
The meeting was being held in the lobby of IT building 4. Built up area of building 4 is 17 lakh sq. ft. Building has been constructed at a cost of Rs. 570 crs.
50% of the space in building #4 has been licensed to TS Solutions (I think, Mr. Sumant Patel wasn’t audible to me here), WeWorks, KPMG and India First. Management working on licensing out the remaining 50%. The lease rental rates will be in the range of Rs. 140 - 150 per sq. ft. When fully occupied, the building will generate gross revenues of Rs. 200 crs per year. Building #4 has received the OC and some of the companies have started their fit outs. All new tenants get 6 months rent free period for setting up as per company policy. Some revenues are expected from Building 4 in Q4FY20, most revenues will start accruing FY21 onwards.
With IT building 4 completed, the company is looking to undertake two new projects. New Hall at BEC (2,20,000 sq. ft) and IT Building number 2 (24,00,000 sq. ft). They are also going to demolish the existing IT Building number 2 as it is quite old which will be replaced with the new IT building number 2. Expected cost to build all of this would be Rs. 1700 - 2000 crores. All of this will be funded through internal accruals and no debt will be taken. In the next few months, the drawings and plans will be charted out for the IT Building Number 2. The building will be completed in 4-5 years. Development of it will start in 2020. Will be developed in two phases. First phase two years and the next phase in remaining years.
Even after IT Building 2 will be created, company will be left with a lot of FSI.
Foods Division:
Their world class kitchen now can serve up to 10,000 people when large exhibitions take place.
It’s well setup. One of the largest kitchens in Mumbai. Can serve 10k - 15k meals a day. All kinds of cuisine offered by the kitchen. Have 10 main chefs. See good growth in this division with more events that will happen over time.
Indabrator:
Other notes:
Liquid resources have increased to Rs. 534 crs in FY19 (vs 504 crs in FY18). As of today, they stand at Rs.548 crs. Liquid funds have increased despite Rs.150 crs being spent on capex for IT bldng 4 and other capex.
Company has implemented SAP starting Apr 1, 2019.
Total land size 60 acres. Rumours that company had acquired additional land are false. There were some people that encroached on their land and they have just reacquired that land after a high court order. So, land size remains the same as earlier.
Growth guidance given for FY20 (by Mr. Sumant Patel):
Cheers!
Disc: Invested!
![Nesco_Lobby1|666x500,50%]NESCO AGM Notes
The AGM was held in the lobby of the new IT Building 4. It looks like the lobby of a five-star hotel complete with receptionists, greeters and experienced stewards at the food counter. The Patels are not stingy about spending money for quality and it shows in the building. Construction is by L&T and professional companies have been hired for property management. Rs 570 crore have been spent on the construction.
IT Building 4 is a big improvement over IT Building 3 which was constructed some years ago. One executive told me, the earlier building was their first initiative and they got better while constructing IT Building 4. One can expect a qualitative improvement when the IT Building 2 facing the Western Express Highway is redeveloped in the next few years.
Already, NESCO has tied up with companies like Here Solutions, WeWorks, KPMG and India First Life Insurance for renting space in IT Building 4. It will take six months for the tenants to fit out the property since they have to apply for permissions from the BMC. The entire building will be rented out in 6-12 months. Gross revenue of about Rs. 200 crores per year is expected from IT B 4.
Executive Chairman Sumant Patel said NESCO was entering the exhibition business after years of hiring space to exhibitors from around the world.
NESCO Exhibitions has a number of events lined up over the coming months of this financial year - India Auto Show, Edutech, Machine Tools, Manufacturing & Technology Expo; Hobby & Lifestyle
India; and Arogya Expo. In the auto sector alone, NESCO Exhibitions has planned three exhibitions in this FY: Carnival - an expo of used cars, the Auto Show in October and Car Care Expo in October.
(If I am not mistaken, some of these expos would be ticketed even for visitors. This is likely to get bigger in the coming years as NESCO builds up a database of exhibitors, participants and visitors attending various events in this complex.)
Bombay Exhibition Centre continues to attract newer organizers. Nineteen organizers held their shows for the first time here in the last FY.
Another division - NESCO Events organizes two events Paddy Fields and Rangilo Re. We have to see if the number of events increase in the coming years.
Patel said the company has spent Rs 25 crores to build a new hall admeasuring about 1,16,000 sq. ft.
Nesco Foods has become another big revenue generator earning Rs. 34.13 crores in 2018-19 as against Rs. 20.40 crores the previous year. With several thousand people working in IT B 4 the foods business would see a major uptick in earnings.
The Indabrator division increased by 23 per cent with its abrasive plant expanding into new products.
NESCO has Rs 584 crore in hand and the company is debt free.
Newer projects include re-development of IT Building 2 on which a new tower of 24 lakh sq ft (double of IT B 4) will be constructed. Simultaneously a new Exhibition Hall of 2,50,000 sq ft is to be constructed.
Expected cost of both projects is Rs 1700 crores which will be financed from internal acruals. Management is working on detailed drawings and would soon begin applying for approvals from the BMC. (Going by past experience with the two earlier buildings, NESCO will take three to four years for the new structures to be completed. By then the rentals from the IT B 3 and 4 and the Exhibition Centres will start accumulating and help pay for the construction of the new buildings).
After the AGM shareholders were invited to take a look at the new building. The eighth floor of the building afforded a good view of the entire complex. Even with the redeveloped IT Building 2, less than a third of the complex will have been built up. The Exhibition Halls and Kitchen are single storeyed sheds like structures. Earlier plans disclosed by the management envisages construction of a convention centre and hotel at the site of the exhibition halls. But these will take a couple of decades, IMHO.
company expanded BEC hall by 125,000 sq ft by 25 cr capex and IT park4 , 17 lac sq ft space for 570 cr. but expansion plan of BEC for 250,000 sq ft ( 2x of current expansion), and 24 lac sq ft for IT park2 (1.4x) is expected to cost 1700 cr . if we assume similar capex, BEC shall cost 50 cr, and IT 2 shall cost 805 cr . so total cost of around 850 cr, why is expansion costing almost 100% higher than cost of current expansion?
This was inquired about at the AGM too. The managment clarified the cost for building number 2 is higher as they had to pay more to the govt to get the additional FSI. Hence, the cost of this building is higher as compared to earlier. This is the only reason.
Anyone knows how old is IT 2 that it has to be reconstructed?
firstly thanks for the summary!
ignoring the exhibition space increment as its about 10 pc of the total.
say 1500-1700crs for 2.4m sq feet for it building. and i guess if building 4 expected to get 200crs when fully rented out. building 2 would be at about 300crs on the current prices. that is a 20pc expected yield. this will be higher as the rents should increase between now and when the building is ready. but i guess it will still below the 30pc expected yield on building 4. building 1, if i remember correctly, had a cost of 200 crs and the first year yield was close to 50pc.
20+pc is still very good. but there seems to be a 50->30->20+ downward trend in expected first year yield. this when land is essentially free for nesco. i wonder how the rest of the developers survive.
basically IT building 2 is an old shed belonging to the erstwhile New Standard Engineering Company (NESCO) which was modified and turned into IT B 2. All the old Exhibition Halls are also basically old factories with the machines removed.
regarding your calculations, pl note that IT Building 4 has 12 lakh sq feet carpet area while the redeveloped IT Building 2 will be double that with 24 lakh sq ft carpet area.
