AGM was held in one of the Exhibition Halls after a gap of two years. The last two AGMs were held in IT Building 3. Now the building is completely rented out with big names like HSBC, Blackrock/Blackstone and other marquee names as tenants.
Chairman Sumant Patel was on the chair and answered the questions of investors patiently.
Main takeaways:
IT Park
Clearing of land for IT Building 4 has begun. Construction will begin soon. Designed by an international firm of architects, the building will confirm to the LEEDS Green Building norms. Construction will be undertaken by Larsen and Toubro which built IT Building 3.
As mentioned earlier IT Building 4 will have 17 lakh sq ft built up area. It will be taller than IT 3 building which is just 8 lakh sq ft. Already Rs 95 cr have been spent in purchase of FSI/TDR for the building. Sumant Patel expects the building to be completed in two years’ time. (He said the same thing when IT Building 3 was being constructed, but construction took three years.)
For the first time management presented some kind of a roadmap on how it plans to use the land available with NESCO. Sumant Patel has indicated that there would be two more IT Buildings- that is ITB 5 and 6 and these would be much taller. NESCO will stand to benefit from the new Maharashtra government policy which allows for 200 per cent of base FSI for IT Parks.
When the land bank at NESCO is fully utilized, by current estimates, it will have an IT Park spread over 40 lakh sq ft built-up area. Patel said it is still not decided whether IT Buildings 1 and 2 would be redeveloped or whether ITB 5 and 6 would come up in available land. I got the feeling that they may redevelop the two old buildings after exhausting the land bank.
Bombay Exhibition Centre:
Revenues from Bombay Exhibition Centre fell in FY 2015 because of the downturn in the economy. Many exhibitions were cancelled and a few were combined as organizers were not getting response from exhibitors.
The situation is improving and more exhibitions are being held at NESCO this year.
The management is still negotiating with the Maharashtra government for permissions to develop the Bombay Exhibition Centre. Some clearances had come from the previous Congress government, but talks are being held with the present government to complete the process. (This problem is familiar to all those in the real estate business. Politicians will always look into the clearances given by previous governments.)
At present Bombay Exhibition Centre is scattered over several halls spread throughout the NESCO complex. These will make way for multi-storeyed exhibition centres which will have a total area of 15 lakh sq ft when complete. The Maharashtra government has allowed hotels to be part of exhibition centres, but NESCO management is not very keen on building a hotel because of poor economics. But they may consider a four-star hotel if required, Sumant Patel said.
Nesco Hospitality
As promised in earlier AGMs, the management has put up at least two food courts - one near the exhibition centre and another at IT Building 3 under the NESCO Hospitality subsidiary. Several big brand names including niche companies have set up shop at the food court which is basically an open air facility with overhead tarpaulin during the monsoons. With several young people flocking to the complex, these establishments are expected to become very profitable in the coming years.
NESCO Hospitality has also tied up with Kangaroo Kids to set up child care faclities for children of employees working in the IT offices.
Patel indicated that the subsidiary would be entering the entire hospitality value chain.
Indabrator
The capital goods division of NESCO has received good orders with the turning of the business cycle and is expected to be very profitable.
Other takeaways:
There was persistent demand for bonus shares and higher dividends. But Patel said funds were required for further expansion of NESCO Park.
I asked him about the Rs 400 crore worth of investments in the balance sheet. Patel replied saying the funds were required for constructing IT Park 5 and 6. I told him his projects were proceeding so slowly it would be at least ten years before IT Park 5 and 6 and free cash flow thrown by existing businesses alone would help fund capex. Patel replied saying things would move a lot faster now and ITB4 would be ready in two years and work on the other two buildings would also begin soon.
Other observations;
I reached the venue 30 minutes early and used the time to go around the premises since it the weather was pleasant. (It rained during the past AGMs). With ITB 3 completed the entire area resembled a lively college campus with many young people hanging around smoking and chitchatting.
ITB 3 occupies just five per cent of physical land area. The land being cleared for ITB4 falls at the back of ITB 3 and extends towards the end of the plot taking an ‘L’ shape. I got the feeling that the management wants to prevent giving away land to the municipality for road expansion and hence the built-up area is at the edges of the plot leaving the centre open for roads, gardens and other civic amenities.
I may have missed a few points, so I will post them as and when I they are available.
