I started covering this company recently and have a few queries. I can see a number of investors in the thread who have been covering this name since long and their inputs would be highly valuable for me.
Just wanted to understand the utilisation of their current operational towers: Tower 3 and Tower 4. In their recent ppt, they have mentioned peak revenue potential of Rs 315 cr for both the towers and this figure is way higher than the FY20 revenues of Rs 214 cr for both the towers. Does that mean that a significant part of the towers is still not leased? or am I missing some key detail here?
When can we expect the Tower 2 & Hotel to become operational?
How fast is the rampup for the new tower? What time does it normally take to reach say 70-80% utilisation.?
Thanks
It will be important to analyze RoCE of Hotel business and kind of payback period it might have. From preliminary understanding, hotel businesses are not great in terms of profitability and steadiness of cashflow as we have in IT Parks.
If anyone has done any study on this, please share.
Discl: Invested; Only for educational purpose, please do your own due diligence
Thanks for the inputs Vivek.
Just thinking - If they outsource the Hotel Management and may be charge something same way as rent?
Just a thought.
I have no in depth knowledge in this regard.
Regards,
Vikas
Not a fair comparison but letâs draw a parallel with ITC at a small level. They have consistently pumped in a sizeable portion of their earnings over a period of time into their hotel business which in turn makes 5% of their overall revenue mix. The ROCE hardly being around 2% for the hotel business(as per their AR-20), but ITC being a cash machine, can afford to do that.
It will be interesting to see how Nesco handles this in terms of capex allocation.
A chain of hotels usually has sub-standard business economics. However, Nescoâs hotel will be a stand-alone property with advantage of captive audience from the Exhibition Centre and businesses in IT Buildings.
I would like to think of it like a supermarket where you sell groceries, milk, toys etc. Even if the ROI on a single âproductâ is not be high, the supermarket gets a higher âwalletâ share. So its possible the captive customer from the exhibition and IT parks can keep the occupancy rate high enough to justify the investment.
Anyway the above is just a conjecture. Time will tell if its true
i agree with the supermarket analogy. they are trying to build a ecosystem of interconnected businesses which feeed into each other. NESCO events and food have synergies as well say for a wedding. the right comparison is Westin which is just across NESCO and they have decent numbers. the question is does this area need two premium hotels ⌠ithink yesâŚ
i would look at the overall ROE and ROCE rather than hotel standalone.
Just a suggestion, I think we could compare the hotel business with Wonderlaâs resort ones.
Like how their resort is built for people who would like to stay for a long vacation and enjoy. Similar goes for the exhibition business here.
Exhibition business I believe attracts international crowd and a hotel very near to the exhibition hall could be really efficient for them.
We can also assume that people who travel here means business and getting a location as close as to the exhibition is huge benefit and they would be ready to settle in a four/three star hotel just for one or two nights. Unless there is a hotel just opposite which provides significant discount.
Management has indicated that they would manage the hotel themselves instead of getting any other company to do it. The proposed hotel will cater to exhibitors and business visitors. From what I understood from the discussions (held a few years ago), exhibitors will be offered a package deal consisting of exhibition halls, accommodation for exhibitors, participants and key visitors.
The exhibition business goes hand in hand with conferences, meetings and opportunities to socialize so a convention centre, hotel and exhibition halls present a viable package.
More so, since Nesco itself is getting into the conference and exhibition businesses.
Does anyone find it odd that the next building will have an area of 4m? The annual absorption rate for mmr last year was about 7m. And that was a good year in terms of absorption. So dumping this and waiting for a couple of years to be fully occupied is not optimal from roce prespective. Not just that, this is the 2nd time (unluckily for them) this release of supply has happened at the wrong moment, back in 2012 there was a glut and it took a while to rent out the building. But, still they dont seem to have learnt the lesson.
Then this serial processing where there is like a couple of years of waiting between the completion of a project and starting of the next projectâŚwhile the cash balance increases not yielding much.
The argument (in my head) has always been that the Patels are uber financially conservative. Which is true and which I like a lot. But due to laziness or factors I dont understand they have turned a business where they could add 1 m sq feet every 2 years to adding 2-4 m sq feet every 6-7 years.
i like the valuation. but i am not mad about the management.
its a slow and steady kind of management. Revenues for the 4 million sq ft planned will be fully visible only by 2026 or thereabouts. After the IT Building 3 was rented out revenue and profit growth grew at a sluggish pace till IT Building 4 was constructed. The Patels are not lazy. They prefer to wait for sufficient cash in hand before moving on to the next phase.
In contrast, the Nirlon property next door has been totally built up. Donât see much growth coming there.
no i donât disagree that they are taking a financially conservative approach.
but, surely you will agree with me when i say, 1m every 1.5-2 years is better than 4 m every 6-7 years?
to me, doing 1 m approach is slow and steady. doing 4 m approach is slow and lumpy.
according to me (just back of the env) they are shaving off 3-5 percent return on capital in the short/medium term by doing what they are doing.
but hey, the patels are not going anywhere. and nirlon is on the other end of the spectrum. i prefer nesco to nirlon anyday. but thats mainly because nirlon has 1/3rd the land. and both trade at nearly the same ev.
Cash is 13 crores and the entire asset side is 1610 crores. So itâs not such a big number.
I fear that the money the core biz is earning (reserves/retained earnings) is not being ploughed back in, instead being diverted to inefficient subsidiaries.
Else, why would RoE fall year after year. Consistently.
To ensure that the ratio on the website doesnât need any tinkering, I checked Asian and Pidilites RoE and they are steady, slightly increasing.
Company is piling up cash, short term investment and long term investment on its balance sheet. Management is super conservative. Dont want to ever take. They fund every expansion using company internal accruals. If you ex out cash and calculated RoCE it is pretty decent. But ideally you would have wanted management to pay dividends or buy back the stock which they refuse to doâŚ
why would the rental drop 20% from 65 cr to 55cr q-oq with receivables increasing ? mgmt indicated that they are not reducing rental in last quarter , only allowing delay of payments.
I just saw the details of Related party transaction and it looks like the management has paid themselves a hefty salary increase year over year (>100% in total). Given the current situation and the strong hit in P&L we have seen in the last quarter, can such an increase be justified? I am not sure if this is the first increase in many years for them or may be I am missing the full year picture here. Would be great if someone can throw more light on this topic.
