Even I’m hoping that they can maintain some growth within the existing buildings. But it will not be as much as when a new building becomes operational like last year.Exhibition business saw 30% growth last year without much expansion. I believe it will do well this year as well with better economy overall.
Sometime back there was a talk of expanding the exbition business. Didn’t see much update on that front.
Discl: invested
Can someone please tell me how much is the average rent per sq. ft. they are getting for the IT buildings?
IT Building 3 with built up area of 0.8 mn sqft increased revenues for IT Park & Realty segment from Rs279mn in FY13 to Rs1205mn in FY16, a jump of Rs926mn.
IT Building 4 has more than double the built up area at 1.7mn sqft. So it can easily add Rs1968mn to sales.
Every thing else remaining same this implies company topline when IT4 is fully occupied would be Rs1968mn + Rs2734mn (FY16 sales) = Rs4701mn. Assuming same PAT margins as in FY16 we are looking at PAT of Rs2286mn which is an EPS Rs162.
So conservative the EPS would be Rs162 when IT 4 is fully occupied. It should be more than this if we assume growth in rentals, growth in exhibition business rentals etc.
So the key question is what multiple will stock trade at 10x, 15x or 20x is the question?
Disclosure: Patient shareholder for more than 4 years. No transaction post Jan 2016
Hi Venkatesh!
Great analysis. Agree with you totally. I am also holding since 2010 in large quantity and feel the stock is worth holding for another 20/30 years. We may add at least 5/- per year additional EPS for another 3 years by the time building no.4 is fully rented. So appox 15/- eps should be added to your very reasonable calculations.
For PE- at present it is around 17 and with a possible split and bonus it should go upto 20/- X 175/- EPS a conservative price of 3500/- should not be too much. By the way 2 years before it was quoted around a PE of 19/-
Plan to hold NESCO forever till any big negative surprise is there.
Company to benefit from REIT.
Amit
Management is very conservative. With Rs 400 cr cash in the kitty, the Patels are still developing the property in incremental doses. They are said to be waiting for clarity regarding the Mumbai municipal corporation’s Development Plan which is undergoing a major change.
Much will depend on how much additional FSI is allotted to Exhibition Centres. Please note that work on the Metro Line on the highway outside the NESCO complex will begin after the monsoons. A train station will come on the other side of the road which is owned by the Mahananda Dairy. Already additional FSI has been allotted to buildings 500 mtrs on either side of the line.
At last AGM management had indicated that IT Building 5 which will come up after IT Building 4 is completed will be much bigger. There was also some talk of IT Building 1 and 2 being demolished and bigger structure constructed in their place after IT Building 4 is completed. In that case IT Building 5 could be delayed.
The footnotes indicate that topline of NESCO Hospitality is growing in a big way, but with low margins bottomline is anaemic. But these are early days yet. During a visit to an exhibition late one afternoon last year, i noticed how crowded the complex was. It will become more crowded when the other buildings are completed. The Hospitality business will then become much bigger.
IT bldg IV under construction - 17 lac sq ft
IT bldg III already leased out - 6.6 lac sq ft
156 exhibitions in fy16 vs 130 in fy15 vs 114 in fy14 vs 95 in fy13
no debt
Are these IT buildings in the same complex? Is the exhibition center part of the complex? I had attended an event in the exhibition center last year organised by Microsoft and the whole place was pretty huge
Disc: Not invested but interested
yes same complex. exhibition center has a separate entrance.
company has no debt but is very conservative in doling out dividends. agreed that it requires capex for IT building construction but existing cash flows are good enough.
7 cr of cash and cash eq + 442 cr of quoted mf investments.
on the business front, annuity income from lease is increasing but promoter seems to be tight fisted and seems to prefer holding on to mf investments. This may be in response to the upcoming Reliance exhibition center at BKC when he may need capital to upgrade/augment bombay exhibition center.
I occasionally visit a nearby area for my work and the place is already an urban mess. Colleagues who live in other parts of mumbai (not around the western highway) tend to prefer BKC office and not this for meetings.
undoubtedly BKC is a far superior location and the space and access (from airport) that BKC provides is unparalleled. Once Reliance exhibition center comes up, i foresee Nesco’s center to remain terribly underutilized. All the more reason for Nesco to speed up IT buildings IV and V (if at all this is on the anvil) to make good any shortfall in BCEC.
it all depends on how much area is allocated for exhibition centre at the BKC.
This metro line passes by NESCO. The Mahanand station falls across the road from NESCO.
disclosure: holding
Do anyone attending AGM?
Prashant
am planning to attend. pl fwd your questions on this forum. will try to ask them.
Dear All,
I have some questions to be raised in AGM but i am unable to attend AGM, if anyone attending AGM pl. raise these questions?
Thanks
Prashant
Please bear with my somewhat long list 
Your last question can be answered right away. The Maharashtra government is still working on the development plan, so a lot will depend on how much FSI is given to convention centres.
However I will ask Mr Patel about the plans for the exhibition centres and IT buildings.
Takeaways from the NESCO AGM:
Construction on IT Building 4 is going in full swing. Contractors for the project, Larsen and Toubro, have deployed 450 people on the site and the number will go up to 1000 in the coming months as more storeys are constructed. Work is going 24/7, the supervisors at the site told me.
Concrete for the project is being manufactured on the site and there were long queues of trucks waiting to pour the ready-mix where required.
Three storeyed basement is already completed and work is going on the ground floor. According to management they have got the permissions to construct all the 14-storeys in one go from here on. The building is due to be completed and ready for fit outs by end-2017.
Once completed, the building will have 9 lakh sq ft carpet area and will be leased out on the basis of 12 lakh sq ft – it will be almost four times IT Building 3.
The company has so far spent Rs 240 crores towards the construction of IT Building 4. Much of it has been spent on purchasing additional FSI for construction of the new building.
The management announced that it would demolish and rebuild much taller structures in place of IT Buildings 1 and 2 following changes in Maharashtra government’s Development Control rules.
Chairman Sumant Patel revealed that NESCO stands to benefit immensely from the new development control rules unveiled by the Maharashtra government this month.
The government has allowed FSI of 2 instead of 1 earlier for IT/ITES buildings. For exhibition centres FSI of 3 instead of 1 is now allowed.
Company management is meeting with architects in the next few days to prepare a detailed plan for the entire complex following the new DC rules.
According to Chairman Sumant Patel, redevelopment of the Exhibition
Centres will begin in one to one-and-a-half years – ie after the completion of IT Building 4.
Area of the exhibition centres could go up to 50 to 60 lakh sq. ft. if required, Mr Patel said.
During the post-AGM interaction with the management I got the feeling that the company is keeping an eye out on the Dhirubhai Ambani Convention and Exhibition Centre coming up at the Bandra Kurla Complex. As of now very little information is available on this new entrant even among the market players.
With the number of footfalls in the NESCO complex all set to explode, the management is betting heavily on NESCO Hospitality Ltd. There are food courts in the premises and ultra-modern kitchen is in the process of being constructed. Permissions are still to be obtained, so not much info on the planned kitchen.
Regarding Indabrator, management is bullish about the revival in the capital goods sector. Mr Patel said company has a very good order book (he did not give details) which would grow further in the coming year. He further said profits from Indabrator could go up by 50 per cent in the current year.
