Nesco

Stock Opportunities Not-so-Hidden Gems
750

I was reading this article by Prof. Sanjay Bakshi : https://fundooprofessor.wordpress.com/2012/08/12/flirting-with-floats-part-iii/

When I tried to calculate float of the company today I found out that it has around 178 cr of float for their 1318cr Operating assets.

So, does that mean NESCO is losing its float?

751

what should be the ideal percentage ?

752

I think a great figure should be above 1300cr as it would over all their operating assets.

As HUL does it.

753

Nesco Ltd AR 2020 Notes

Company is doing some interesting things in the Nesco Foods division. IT Park capex to be done in FY22. BEC and Food division will struggle in FY21 due to Covid.

  • NESCO IT Park
    • Construction of Tower 04 is now completed. The building is Platinum rated for Core & Shell under the LEED India rating system by the Indian Green Building Council. Tower 03 is fully occupied.
    • Having completed two IT Towers, the Company is going forward to construct a third Tower. Designs are being made by Singapore Based Architects – Aedas Pte Limited and size will be about 4.6 million sq. ft. which includes office space, hotel, car parking, other amenities and support areas. Civil work is expected to start in FY 2021-22.
    • Company also undertook major refurbishment towards lift lobby areas, other facilities & common areas in existing Tower 03.
  • Bombay Exhibition Centre
    • During the year 128 guest exhibitions and events were held in our Centre, out of which 18 were new organizers. Some of our new shows include exhibitions held by UBM India, Divergent Media India, Powerloom Development & EPC, Taipie WTC Liaison, Messe Dusseldorf India.
    • Since 23 March 2020, in view of the lockdown to control the COVID-19 pandemic, several exhibitions have been either postponed or cancelled. This has not significantly impacted performance of financial year 2019-20.
  • Nesco Exhibitions: During the financial year 2019-20, Company had successfully organized five exhibitions including India Auto Show; Machine Tools, Manufacturing and Technology Expo; Hobby & Lifestyle; Edutech India and Arogya Fest. Nesco’s own exhibitions and events will increase the Halls occupancy.
  • Nesco Events: During the year two events were organized by the Company.
  • Nesco Foods
    • 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 Foods continued its expansion by adding a new cafeteria in Hall 06 and Dining Bay in Hall 03 during the year 2019-20.
    • The division further diversified by adding a premium lounge/bar “Dress Circle” towards the end of the year in Nesco Centre. The total expenditure was about ` 350 lakhs.
    • Plans for 2020-21 include adding new restaurants such as Hard Rock Café, Shiro, California Pizza Kitchen amongst others and new food courts within the premises of Tower 04. The Company is also exploring options for adding a new “Pan-Asian” restaurant in Tower 03.
  • Indabrator: It has completed capacity expansion of its Abrasive plant at Karamsad in November 2019. Capacity of the new Abrasive plant is 2400 MT per annum. Further expansion is under consideration.
  • Income from investments was Rs. 42.54 cr (previous year Rs. 31.72 cr). Your Company had no debt as on 31 March 2020. Company’s liquid resources (fixed maturity plans, mutual funds, cash and bank balances) increased by 27.33% to Rs 685.66 cr from Rs. 538.51 cr.
  • Loan Rental Receivable Rs. 52.44 cr in FY20. Ind AS 116 “Leases” requires the lessor to recognize lease income from operating leases on a straight-line basis over the lease term which includes rent free period. Thus, contracted lease rental income including future escalation is straight lined over the lease term. This has resulted in recognizing unearned lease income amounting to ` 6,071.40 lakhs for the year ended 31 March 2020.
  • Managerial remuneration was Rs. 21.28 cr in FY20 compared to Rs. 7.93 cr in FY19. Sharp increase in managerial remuneration but still within permissible limit.
  • Covid Impact
    • Due to closure of the Exhibition Centre, few exhibitions which were scheduled to be held between 25 March 2020 to 31 March 2020 were postponed to a future date.
    • This has also impacted our Foods division where majority of the clients are the exhibition organisers, exhibitors and visitors. Nesco Foods Division is providing food to organizations catering to the needy people at different places.
    • COVID-19 has also impacted Indabrator division which could not dispatch large value of ready equipments.
    • Five Exhibition Halls have been provided to the Municipal Corporation of Greater Mumbai (MCGM) as we continue to fight the COVID – 19.

Regards
Harshit Goel

Disclosure: Invested

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754

Thanks for the notes Harshit!

I wish they had also talked about their up coming competitor Reliance.

I think Nesco is a gem but I am having difficulty in understanding how will it fight against Reliance Conventional Center.

If someone could put some light on it?

755

Wouldn’t both Co exist. Demand for real estate in Mumbai is insatiable

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756

But don’t you think their pricing power would lower as now customers have another option for exhibition which is much larger in space…
And being Reliance we can expect that it can have best quality of infrastructure.

What do you think?

757

In this particular aspect due to limitation of space… There would be hardly any economies of scale for reliance… Sure to have pressure on pricing power. In my opinion both would co-exist as not much disruption is possible. Nesco being pioneers would have upper hand in handling the event unlike Reliance.

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758

True. But we must remember reliance’s brand value worldwide is much higher and their space is also 7 times more which around 7 million square feet.

Now think about this nesco had 128 exhibitions in its centre. Now if reliance cuts their margins for some years or does not ask for advance it can easily take away all Nesco’s customers! As they are 7 times bigger!

What do you think?

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759

Great discussion going on in NESCO.

I also have one more query.

One of the main advantage of NESCO is close proximity to Airport.

But with new bigger airport planned in Navi Mumbai, will NESCO be able to still have the moat that it has enjoyed till now.

Also can anyone clearly mention the total usable area of both NESCO and the Jio convention centre for comparison?

Thanks
Vikas

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760

Monopoly moves into Oligopoly! Nesco would adjust the terms as per market conditions.

Nesco BEC is also brand - that was the reason they were able to do so many exhibition. Further what we are not considering is the market can also expand as there is new capacity… Nesco would have lost a lot of business in the past as their centres were blocked on certain dates n clients moved to other cities to host exhibition on those dates… (it’s my thoughts, no facts as such to support this) I am guessing market can expand once all things r back to normal

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761

NESCO promoters have taken a salary hike of 10 cr in this year almost like 100% and that really is so disappointing when earning is due to take a big hit.

Need to get an answer as in what they are doing extra for prizing themselves so much.

Disappointing with no logic explaining as in why ?

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762

Yes, the remuneration hike is something unacceptable in this economic scenario. This should be asked during the AGM.

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763

But just imagine.

If I have a center which is 7 times bigger with better infrastructure(assuming better as Reliance can easily do that with there cash) also I am the person who has huge reputation in the world as I am in top 10 richest person.

Its getting difficult for me to digest how NESCO’s Moat will survive…

764

Because your assumption is based on the fact that the core competency of Reliance lies in running the exhibition business. How much of a pie does the exhibition business contribute to Reliance? Not even 0.1% right.

What happened to the players in the business Mukesh Ambani entered? Did their margins get squeezed out? Happened only in telecom.

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765

Remember They have Multiple Towers why would companies who are working there would go away from Campus to Organize events. And Food parks is another advantage for them. AT a single campus all needs are fulfilled. While Exhibition business might impact but still Nesco has advantage of complete package provider.

766

@Aravind Yes, Nesco would be better in handling it. But I this is not a very strong point which can build a strong conviction. We never know who Reliance hires for handling his center. Reliance being a cash giant can do anything.

@ankit_tripathi I agree on your part ‘if’ companies inside the campus want to do exhibition would not go out. But we are talking about the new customer which comes every new year. Plus I think it would be quite east for Reliance to out source catering service for there center.
So, getting a full package is not that hard.

767

or may be promoters funded themselves with shareholder money to increase their personal stake (Buy shares from market with shareholder money)

Whatever this is something which management has to explain and i am in regular followup with the company with no logical answer so far …

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770

True. But earlier if any company wanted to have good infrastructure and big space for exhibition they would have gone to NESCO but now they have a choice. Till now we don’t know how good its going to be. So this will definitely hurt NESCO’s moat.

Could you explain in detail why NESCO has still being able to hold its position against its competitors in commercial space business?

771

NESCO’s moat isn’t just about having exhibition space. It’s about having own 70 acre land in prime location in Mumbai which the mgmt is using prudently to develop commercial properties using own money. The rent earned from those buildings can be used to develop more properties and so on. This virtuous cycle is its moat. Exhibition is a niche business & competition is a reality in most sectors today. Going from 1 to 2 players doesn’t damage 100% business prospects. Otherwise there’d be just one player in every sector right? Margins might go down but they’re already so high that shaving off a few %age points doesn’t take out much from the pie.
Having 700 crores in liquidity, having leased out Tower 4 fully, money from catering business are all contributing to the moat that you mention is eroding. Ups and downs, competition is a reality which everybody needs to accept in business.

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