Hi,
Is the 90cr/acre rate based on some deals happening in this area?
Also, you will need to consider the Indabrator division valuation/assets
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you are intuitively assuming that this virus is not going to let this company earn its rental and shut down all activities in the long term. And i understand the impact of recency bias in the mental model. World will be much wonderful in 2025.
It is easily understandable that earnings matters but a value investor always keep in mind that current earnings is not the way to value business but future earning potential which is reflected in the unutilized land bank at the heart of mumbai.
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Trend has already startedâŚ
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When large IT company like TCS says 75% of its staff will work from home by 2025, it has serious implications for many industries including commercial real estate(negative) , residential real estate (positive), transportation, catering, telecom etc. It clearly looks like the future of IT industry. Many cities in India like Bengaluru, Hyderabad, Pune who have large IT employee population , may look (less pollution, less traffic etc) quite different in next 5 years.
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Any idea if they will be paid by govt for this? 
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. . . this ANI news is talking about exhibition grounds at BKC (Bandra Kurla Complex) and not at BEC (Bombay Exhibition Center)!!
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the above news is talking about BKC and not BEC!. . . . but following from last news of âquarantine zoneâ set in one of the exhibition halls at BEC (donât know if its still there), itâs unlikely they would be paid for that (as National Disaster Management Act is in in force) OR if the management would even demand (they always seemed very upright and sincere; refer chairmanâs comment below)
âThe world is facing this crisis and it is our duty, as a company, to contribute in whatever ways possible. Currently, we are facing a situation in our city, where thousands are rendered homeless with no access to basic necessities. . . It is our social responsibility and moral duty to provide a helping hand. . . . We have provided our halls as temporary shelter and basic requirements while we battle COVID-19. We have coordinated with the local authorities to use our halls for this purpose," says Sumant J Patel, Chairman, Nesco Limited.
. . and more so the way Pandemic has shaped up in last few weeks, looks like it will be a while before events / exhibitions will pick up - as mostly these draw people from all over the globe and one can easily assume that things are not easing out any time soon, be it social distancing or safety in travel.!!
Link to news piece:
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Yes, Also âŚ
All new collage hire need to get accustomed to office/work culture. Companies would like them to come to office. No meaning of them coming to office if senior staff is not available in the office, so they still need to come to office quite often.
Most of the people in big cities live in 2 or 3BR house. If both the adults in a house working from home, you can not manage from with 2 or even 3BR. If you think of bachelors they live in PG or 4-5 people share a 2BR house/apartment.
Most of people in US/EU working from home has nice home office setup, have 10+ years of experience.
.
What will happen
Some companies will go back to working from office again. ( ex, banking and IP sensitive)
Seat allocation ratio will gradually reduce from 100% to 70% in next 3-5 years.
Companies will accept people working from home more than 1 day /week without need to specify reason.
Companies will accept people working from out of town location for long period.
Small cost conscious companies will recruit people with no office seat allocation (mostly wfh)
.
Basically we may see negligible office space absorption for next 1.5-2.5 years, because of general slow down and wfh.
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I find these WFH projections very funny and devoid of ground reality. First of all 40% of IT work is for BFSI sector where data privacy is very important. Then we get high tech, govt another 15-20% which will find very very uncomfortable with their associates working from non-monitored locations. TCS can do whatever with its own corporate employees but client facing roles will face high degree of resistance in moving to WFH once the situation normalizes. Just imagine some âmarqueeâ Indian IT names moving from 9-6 time stamping attendance to working from anywhere. The cultural shock will be tremendous. Also, what were they doing so far ? saving cost of commercial real estate was not their agenda so far? After making these good sound bites, all these IT mgmt will be back to âwhat client requiresâ within few quarters.
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There is no black or white answer here. Few variables that matter are 1) Tenure/experience of the staff 2) Role/function played by the staff 3) Security infrastructure 4) STPI/Government regulations w.r.t Intellectual Property
As much as the IT services companies want to get billed, the clients would also want to keep the working going. Most mature and established clients and IT vendors go through a legal and risk review before the work is transitioned, this should address data privacy and security. If the function involves dealing with personal identifiable information or any sensitive data then the work environment will also be restricted - ideally speaking. However if the work involved does not involve sensitive data + the vendor has proven security infrastructure + the people are experienced + have a good visibility of work without close supervision, then I donât see why they canât do WFH on a longer term. There are many ifâs and butâs but one should not rule out the possibility.
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I had a brief stint with a consulting major and did some ground work for bidding large projects. Let me tell you it will be very difficult to move WFH at least for Indian IT. I also tried recruiting some mid level folks from Indian IT majors. The manufacturing level mindset i.e. 9-6 time stamping is rampant in companies such as Wipro, Infy etc. Before talking about WFH can they allow their workforce to work anytime from the office only? What has stopped them to go for time flexibility? Many project managers in these IT companies will not get good nightâs sleep without seeing their flock together in their own secured office bay. This workplace flexibility is about mindset change and trusting your own employees rather than just about cost.
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I think it is very difficult to predict these things, but if a IT major has publicly committed it, it is a definite signal in that direction. There were lots of talks in the past as to why offshoring is not possible, how dedicated global delivery model is not possible (TCS pioneered it & then other IT majors copied it). Same thing happened, when data moved to cloud, but the recent trends say a different story.
IT expenditure for customers is a cost centre and all companies would like to make it minimize it. If someone can deliver at low cost within certain framework/boundaries, I do not see a reason why it can take off.
Disruption is generally slow and sudden, the first part played when IT companies were opting for flexible working hours and the latter part is being played now due to covid19. You need one player to start, rest would follow.
As far whether this would affect NESCO, remember, land is just a factor of production, if not IT somebody else would use it. Concern can only be in the short term, not for long term.
Great to see such in depth discussions.
I have few points to add ( I donât have any IT background)
I am be trying to be âunbiasedâ here. And I donât hold any shares of NESCO at present.
1 -There is no running away from the fact that wfh will catch up in future. But that doesnât mean NESCO IT buildings will be empty. But their occupancy will surely come down and âmay beâ the rental income also. This CANT be ignored.
2 - Whatever said and done, Bombay Exhibition centre wonât be fully packed like before for at least a year. Also its growth in business post-COVID year is doubtful, Means just like point 1, their income from BHC will also come down in future.
So at least growth of double digits growths in both IT rental income & BHC income is nearly IMPOSSIBLE in future. So growth of NESCO food will also be not much.
3- Yes. company has huge land bank. But it can be monetised by only 2 ways. Either sell it , which I personally think NESCO promoters will never do it.
Or build something and give on rent or sell.
Hope their project of building 5 star hotel now picks up. I personally donât think in longer term, there is any problem with luxury hotels.
So after considering all these points 2 options remain
1 - If you are already a shareholder and sitting on good profit and DONT FIND any better business to invest, stick to NESCO but with accepting the reduction of returns in the future.
2 - If new investor, calculate NESCOâs Intrinsic value & demand a good margin of safety and then buy at that level. ( depends on individual calculation ) Otherwise, there are already plenty of opportunities in the present market elsewhere.
All this is my personal opinion.
PLEASE DO SHARE YOUR VIEWS.
Vikas
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Thatâs precisely the point why it need not be valued like other stocks based on only earnings but also based on land bank value.
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On WFH culture; most big corporate companies are giving a serious consideration to it.
Axis Bank in its employee meet recently has told its corporate employees that WFH will continue in near future. Employees will need to come to office only 1-2 days a week and that too if required and that they will have to book a slot for the same.
Only roles requiring physical presence will work at office.
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In this table - Real Estate/ Construction Sector refers to largely build and sell type Real Estate business (pure play), while NESCO is kind of real estate based, but a niche sector of Commercial Rental Properties, which I believe will not have similar impact (rather lower impact), it will come back to normal very soon after the lockdown is removed.
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Jitu Virwani, Chairman of Embassy Group, a listed REIT and the second largest landlord after DLF says that for the month of April, he saw rent collections at 96 per cent.
Article also mentions that supply of new office space will be hit.
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i quite dont remember where i read it, but it was probaby the head of Purvankara group who said that the loss of commercial real estate due to WFH will be offset by social distancing measures that will be required when offices return back to work.
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