Analysis on Nesco
Not good for bulls of NESCo!!
With all due respect to his analysis skills, Dr. has hardly given a clean chit to businesses. He finds fault with every company from the past, in the hindsight. So, no big dealā¦ should settle down in a few days.
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Second your point.
Businesses operate in a badass world & so have to be badasses themselves to an extent. Petty issues will always be there for any business. Even Mr. Kotak tried to pull wool over RBIās eyes, does that mean we shouldnāt invest in the bank which is doing excellent?
Which real estate player doesnāt have tax issues pending or competition? At least the entrepreneur in this case is forthcoming about not duping people with their savings and then keeping them hanging for years without project completion and also about not taking debt to expand to expand carelessly like the JP group which is now almost bankrupt and in a debt trap.
If you donāt take debt Dr. will call you slow, if you take debt, heāll start talking about growing D/E and lower interest coverage etc. Well itās a kind of a rock and a hard place situation!
Highlighting flawed capital allocation decision making by giving eg. of capital goods business, which is in itself such a small part of the business in Dr.'s own words, is again irrelevant when the company is talking about investing in BEC expansion or new IT building etc. Thatās what the primary capital allocation is for the company.
Most importantly NESCOās forthcoming with the shareholders as well, as one can gauge from the experience of people who attended the AGMā¦shared above.
If youāre looking for a picture perfect business at this mcap range especially, it just doesnāt exist!!
Even though I like reading Dr. Malikās articles, he does get into nitty gritties which shouldnāt matter to the larger picture in hand. Plus the way he has shared the post on Twitter makes one think how bad NESCOās position today is, which isnāt the impression one gets after reading the full post!
Imho, the biggest threat to NESCO business is from exactly the kind of events that unfolded somewhere around last week. External, not internalā¦
Disc.: views biased
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Interesting counter observations above on Dr Malikās analysis.
Probably the larger question could be why is the Company continuously putting money (may be small numbers) in Indabrator knowing well that it is not good capital allocation.
Regards
Disc: Invested
Regulatory flip-flop by BMC regarding holding events at BEC has highlighted a risk faced by the company which IMO hasnāt been discussed here and apparently wasnāt priced in. Sometimes an event like this (cancelling permissions at 11th hour) acts a wake up call to investors who begin to reassess risk-reward that exists at current price. Unfortunately, despite all the good things that are going on, risk-reward is still tilted in favor of risk. Just my humble opinion.
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This was discussed and I also highlighted the potential concern but I agree we need to rethink the medium term risk.
Because, it is not just loss of revenue but also loss of credibility and if Im an event organizer, I just would avoid nesco for foreseeable future just to be safe.
Definitely short term uncertainty. But what do you think of the efforts to reduce dependence on BEC by building IT Parks and growing hospitality segment?
Imo these should be considered as genuine response to diversify sources of revenue while the original castleās moat is being challenged - by rising comptt from Reliance BKC & regulatory risk.
Maybe NESCO should consider geographic diversification more than anything else. Mumbai is a tough real estate market and tier 2/3 towns offer more opportunity. Just a thought.
Meanwhile, I always try to enter/double down on good companies facing bad situations/market. Because thatās the time theyāre available at a reasonable price. Otherwise if all would be well, NESCO would trade higher still, no? Then price wouldnāt be attractive.
Disc. : Long position
Hi all
What do you all think of competition from co-working cos like weworkā¦ They are growing 100% per yearā¦ Means they are taking away market share from traditional leasing cos like Nescoā¦
I think target customer segment in terms of workforce strength is very different. They r 2 different market opportunities with different business model in my opinion. No customer cannibalization.
WeWork (or co-working space) is actually a demand booster for Nesco type players ā¦. Nesco offers large floor plates to large companies (> 10k sq ft) ā¦ā¦ Corporates & players like WeWorks ā¦ā¦ Co-working space is an option/ substitute for small cos, start ups that need couple of hundred sq ft to few thousand sq ft feet.
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Agree @AKGupta. The key, however, is whether the new growth opportunities outweigh the declineā¦ The classic BCG matrix.
As an Example - I made significant investment in Tata Communications hoping that the new data business will outweigh the voice decline. And after waiting for that to unfold for several years, I exited.
More hopeful of Nescoā¦ But watching carefully
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The large fortune 100 cos are aggressively getting into wework office spaces in the USā¦ In India, 90% of wework members are enterprises customers and only 10% are start upsā¦
In terms of wework as demand booster for cos like nesco - it is like the felxi staffing cos being customers of naukriā¦ After a point, flexi staffing cos will become naukris competitorsā¦
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Just to add, Softbank has invested into the Asian business of WeWork as such there would be massive expansion in China / India and South East Asian markets such as Singapore / Hong Kong.
We need to wait and see, whether Nesco sign a deal to offer its office space to Weworks. Additionally, in the coming years, Weworks which represent flexible co-working space would be the regime and there could be possibility of existing tenants of Nesco moving into Weworks scheme of things (i.e. becoming a direct client of Weworks and indirectly occupying Nescoās premises) which are all possibilities and probabilities at this stage.This in substance mean, Nescoās gain of entering into an arrangement with Weworks could potentially lead to losing its own existing AND/OR potential tenants. At the end of the day, there are lots of moving parts at this stage and where one has conviction just buy and hold as the prices seems to be reasonable.
At the same time, if one has less risky bets / holdings where there are less moving parts vis-a-vis NESCO, just hold on to them and donāt invest in Nesco just because the prices have come down and there is a better of MOS now.
Lastly, I would like to know Vivekās @vivek_mashrani perspective on NESCO at this stage and his thought process, if that is not too much of asking 
. Thanksā¦!
Disclosure - Has been holding on to NESCO for a while and there have been transactions in the last 30 days
Nesco has lot of optionalities including the one you have mentioned. Although, there are certainly pros and cons associated with each business decisions. As an investor, I think we should focus on what is in our control i.e. understand the risks and pay price with enough margin of safety which covers some of the unknown risks. Then just hold the company until our investment thesis is breached. Canāt make simpler than this 
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In the analysis, it is stated that "At present price, Nesco Ltd is available at P/E of 21. As per Nesco Ltdās past track record of 15-18% growth, present valuation is a little bit expensive."
why trailing P/E of 21 (though now it is 19.1) is expensive if historic growth is 15-18%. i think if you judge only by past record, it is available cheap and deserves 25+ P/E considering the nature of business,underutilized land bank, longevity and balance sheet.
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Thanks Vivek for coming back so quickly.! 
Threat from WeWork etc:
. . . WeWork or similar companies like Awfis or Regus; these are diff animal. Itās a more of āshared āsocialā co-work placeā (or say Regus which is more formal in appeal) where generally, desks or cubicles are sort of rented for a āperiod of timeā with shared secretarial, f&b, data etc services . . At times start-up, travelling workers, free-lance operators requiring official address, or places of ideate and engage or at times even smaller break-away team of large corporates (e.g. to stimulate new idea a small team moves away from main office for couple of months to do ideation in a more youthful and energetic environment against boring corporate office) take up spaces for only a āshort durationā of time at such venues . . . At such places u donāt do a 3-5-9 yrs rental lease . . And these shared offices are in āsmaller buildings or spacesā (as the whole idea is to not be like large āsamenessā of a standard corporate environment), and area always in the heart of city business district, close to public transportation and city life and cafeās, allowing small teams or individuals to quickly get in and get out as they are more on the move being a younger team. I doubt they would open we work on 10th floor in nesco IT building and having people move through elevators and large corporate common shared areas . . . e.g. actual locations are WeWork in Bangalore itās in MG Road and in Awfis Delhi in South ex and Sohna Rd and I have been to both. . . Also, these companies do not build office towers (as they are asset light concept), instead they rent / lease in buildings and then sort of sublet to individuals (in form of seats / cubicles) . . . so they play on arbitrage!
In contrast, corporate offices are larger offices which need large floorplates, cabins for diff managers, meeting rooms, cafe and so on and in a controlled, in very secured data protected environment (against open for all social work spaces) and most importantly they need their ācorporate identityā to reflect in building reception and interiors . . .
Now look at client list of NESCO or for that any large building in BKC etc. ā¦ . do we think that TCS, Honeywell suddenly dissolve itās corp. office and move to a co working space? Will Flipkart or Amazon who are the most coolest young companies, just like smaller start up teams, abandon their million sq ft offices and shift to co working spaces that do not reflect who they are? No, never. Instead they will create more social environment within their large corporate spaces, but will not compromise on stand alone identity and secured and self contained premesis . .
In-fact if anything then these shared work spaces are like a pipeline of future business to NESCO or BKC; as when these smaller individuals or companies grow bigger they would need more organised corporate spaces like NESCO. . . also with growth of country thereās enough demand (generally speaking) for both concepts. . donāt worry AirBnB will not kill 5Star of hotels; both are for different purposes. . . contrarily, these so called social co-working spaces should be worried as with coming of 5G and high-quality video conferencing at ease, need to be in any office for a small start-up may reduce! No need to go office, work from home and cafeās and connect with other similar individuals. . . E.g. Starbucks now allows (i am tolf in USA, and Bangalore I have seen myself) you to sit as long as you want, with sofa and free wifi, without having to order anything.
Bangaloreās We Work video:
Bangaloreās We Work advertisement:
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Threat from Reliance Exhibition center in BKC
(My general, un-scientific opinion): looking at pictures of the building concepts (google: DAICEC), is that its more of a vertical structure with a high end residential and hotel services and a world class auditorium . . itās like having conference centres / convention hall / banquet halls in 5star hotels, which comes at higher price and overheads; whilst NESCO has more mass market appeal, is more of all ground flattened high celling structures . . .so if I was to do a heavy machinery exhibition, construction expo I would go to NESCO / Pragati maiden Delhi. . . and if I was to do a cardiologist conference or a CII summit, I would go to Reliance . . it seems both will have different niches and not to forget that NESCO team is well seasoned with large track record of relationship and once can easily assume a lower cost of overhead expenses. . . on next given chance I will visit the reliance project site and also try and reach out to team to understand whatās their product proposition.
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my feeling about the Dhirubhai Convention centre is that much of the facilities will be used inhouse by the Reliance group. the maharashtra government had earmarked this huge amount of land for a convention centre at BKC in around 2002 and both the Ambani brothers were competing for it. Mukesh bagged it in the auction and got the state government to increase the FSI which led to a bitter court battle between the brothers.
Now things are settled and a huge facility is coming up at BKC. It will take at least another two years to complete by which time RIL will be an even bigger behemoth with petro, telco, media and retail businesses. The group has so many training programs for employees, vendors and associates so a lot of the facilities will be used in house IMHO.
the group may as well shift their entire office to one place and get its top executives to live in the complex as well. they already have the Dhirubhai Ambani International School nearby and the bullet train terminus is coming up just a stoneās throw away, so a big chunk of BKC will become a RIL township!
I feel the Ambani clan has set its sights far higher and wouldnāt be bothered with small fry like NESCO.
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