I just wanted to start a thread about this company called Nirlon as I got to know that few of my friends work in Nirlon’s IT park and I was very curious about this company. This is my first post and I am still learning about investing and understanding financial statements and business models so forgive me if I sound immature or naive and feel free to correct me.
Nirlon Limited was incorporated in 1958 and was a pioneer in the manufacturing of
synthetic yarns and industrial rubber products in India.
• Since 2006, Nirlon has primarily been in the business of development and
management of commercial/ IT-ITES Real Estate.
• The company currently owns two primary assets: Nirlon Knowledge Park (NKP), which
is an approx. 23 acre Information Technology Park located in Goregaon (East),
Mumbai and also 75% of undivided interest in approx. 0.05 Mn sq. ft(1 acre approx) in Nirlon House
(NH), which is a building in the prime location of Worli, Mumbai.
Nirlon,manages the It park and has excellent clients like Deustche Bank,EY,JPMC etc. It has more than 98% occupancy and is very well run, proven by the fact that it has such an elite MNC clientele for so many years. Foreign Investment Banks always choose great locations, and elite services. To be able to have a clientele like that for so long shows their maintenance and management capacity. Its business model is that of an urban corporate landlord who bills their extremely wealthy tenants year on year with the property value also increasing year on year. This is also a play on Mumbai’s real estate. In the concalls, The management was very transparent, easy going and confident. The dividend yield is very high 6.15%.
I know that this is not going to be a multibagger unless valuations become absurd, but it is going to be a stable growth story slow but sure company which is very easy to understand. Now its Market capitalization is 3800 crores at a PE valuation of 18 that might keep on clogging away giving you very good dividend yields and growing in a systematic way.
Also this is my thinking about this company. The company gives you 4-6% dividend yield normally which Fixed deposit also gives at the same time the stock grows as the real estate price of Mumbai market grows 4-6% on average according to 99 acres it grew 15% last year but that is not going to be the case always. So it is like a FD without your money depreciating and at some time if absurd valuations reach like PE of 36 for this particular company we can sell it
Potential weakness if any
Very high change in working culture ( work from home becomes the defacto working style)
A huge fall in Real estate prices in Mumbai- even then it still collects rent.
A fall in valuations- But it will then recover your money in terms of dividend yield which is derived from rental yields
I thank you for reading patiently and please share your thoughts and insights regarding this company and correct me if you think there is any error in the data or thinking process.
There are not many listed REITs in India, Embassy Office Parks REIT
is one of the few ones listed and the only one with a dividend yield of 5.73%, even Brookfield India is in losses and has no dividend yield at the same time occupancy rate is lower than Nirlon, also the tenants occupying these REITs are not as premium as of Nirlon is what I have found out
I have one question
When we see company dividend payout ratio from 2022 to 2024 is above 100%, why instead of paying outstanding loan company paying above 100% dividend.
Their debt is restructured in such a way with multiple banks, one of the banks was that 75% of the debt will be paid in the 10th year of taking the debt
The problem with this company is that they have a huge debt in the books as a result, the interest payment is eating into their profits. However, as the company wants to declare more dividend, basically they are distributing dividend from the reserves and hence the reserves are depleting. Not sure whether it’s a good decision to invest in this company. Unless the management has a plan to boost their revenue, just by looking at the dividend yield or the property base, it is not advisable to put one’s hard earned money into this stock.
“Although the company has an EBITD of around 79%, allowing it to cover interest costs, it is distributing all its profits and reserves. The company should retain some earnings to fund future growth without relying on capex loans. If the company continues to distribute all its profits, it will need to take loans for capital expenditures, thereby increasing debt on the balance sheet and raising interest costs. Furthermore, if the company is distributing more than 100% of its profits, it indicates a lack of plans for the coming years.”
In short this company is not good for investment unless someone wants to speculate the company will sell their property and company will get huge capital gains. This will be more of speculation than investment.
While it makes sense on the points raised above, it would not be appropriate to brush off the company as not worthy of investing in. There are many kind of investors out there and clearly it is an asset certain kinds of shareholders have been holding on to, so to them it may be making some sense. Not everyone is wanting outright stock price appreciation. Many prefer the cash flow
Key reasons for holding the company
Conservative management
Strength of the underlying asset (it is backed by a hard asset in NKP/NH)
ICICI multicap fund has recently taken a position
Reasonable capital appreciation based on organic growth of rentals of a prime property
High dividend returns for those looking at cash flow
Key concerns
Non committal management (Doesn’t provide much clarity on restructuring plans: delisting or becoming a REIT are both being speculated). GIC is the major shareholder and it is also doing deals with Brookfield REIT in Mumbai
No inorganic growth plans or additional property under development.
Dividends have been stagnant for the past few years
Some promoters selling out, however GIC is not buying further stake which is a question mark
Debt reduction glide path and gestation period
Disc: Invested as of now. Could be wrong in the assessment and biased
