NESCO Ltd – Darkhorse stocks

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Price at which the stock is suggested – : 510 Rs.

NESCO is a 81 year old completely debt company. NESCO is engaged in the Business of Licencing premises in IT park buildings and providing related services, Licencing premises for exhibitions and providing services to the organisers, Manufacturing of machines and capital equipment, Hospitality and catering services. 

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Started back in 1952 as an engineering company NESCO today has diversified into various different business. Company has four verticals. Nesco IT Park, Bombay Exhibition Centre, Nesco Events, Nesco Exhibitions and Indabrator.

Nesco IT Park

Nesco Realty carved a new benchmark with its premium IT Park. A self-sustained facility, the Park is laid out over several million square feet. It accommodates the world’s leading multinationals such as HSBC, KPMG, PWC, MSCI, BlackRock and several others. The division is now looking to offer maximum value, comfort, luxury and style in the housing market.

During the year, revenue from IT Park was 21,416.82 lakhs (previous year ` 13,696.98 lakhs). 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. Hall 3 provides Incubation Centre facility; and a Child Care Centre for children of employees working in Nesco Center. Opportunities and Threats Goregoan East is a preferred location and demand for IT space is expected to rise in the years to come from MNCs, Banks, etc. At the same time several new buildings and more Business Parks are coming up to meet the growing demand. Capital Expenditure and Expansion Plan Having completed two IT Towers, the Company is going forward to construct 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.

Tower 4

A state-of-the-art IT complex for leading enterprises, IT4 is a versatile, multi-purpose structure. With a total constructed area of over 1.7 million sq. ft and multi-level parking, the facility reinvents standards of intelligent design. It stringently adheres to premium standards of sustainability and energy-use. The ergonomic sensibilities of Nesco Realty helps IT4 stand apart as a workspace big on hospitality and employee comfort.

Bombay Exhibition Centre

Guest Exhibitions and Events: During the year 128 guest exhibitions and events were held in the Centre, out of which 18 were new organisers. Some of new shows include exhibitions held by UBM India, Divergent Media India, Powerloom Development & EPC, Taipie WTC Liaison, Messe Dusseldorf India. Income from the Exhibition Centre for the year was ` 15,860.11 lakhs compared to ` 15,730.24 lakhs in the previous year. Bombay Exhibition Centre continues to bring more visitors to Mumbai than any other venue and is spread over six air-conditioned halls. 

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. However, impact on business would depend on future developments and the Company will closely monitor the situation. Opportunities and Threats Mumbai being the commercial capital of India, is a preferred venue. Number of exhibitions organized by foreign and local organizers are increasing. Bombay Exhibition Centre is confident of growth in years to come. Company is considering Capital Expenditure and Expansion Plan for Bombay Exhibition Centre for building new Halls. 

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Hall 1

The largest BEC hall occupies a sprawling 19,143 sqm, making it Mumbai’s largest in the private domain. The hall has a standard clearance height of 6.75m with 7 gates provide easy access and flow to guests and exhibitors.

Hall 2

Hall 2 is spread across 7378 sqm. Convenience takes priority here since an additional 2,600 sqm functions as a bay area that can be customised into a cafeteria or food court. There are 5 gates to this hall to allow caterers and organisers access for an easy set up.

Hall 3

Hall 3 is BEC’s second largest hall. It stands at an impressive size of 11,799 sqm and adheres to the standard clearance height of 6.75m.  The 3 gates provide a streamlined flow of traffic for guests, organisers and exhibitors.

Hall 4

Mumbai’s tallest hall is 14m at its highest point. At a gross area of 10,800 sqm, Hall 4 is Mumbai’s largest pillarless hall, with uninterrupted wide vistas for hosting any public event.

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Hall 5

Hall 5 is well-recognised as an event venue and performance space. At 4,664 sqm, it can support audiences over 5,000. The clear height is 6.88m and the 2 gates provide clear, organised entry and exit points.

The Grande

This versatile space is well-suited for elegant events such as AGMs, weddings, corporate events and parties. At a gross size of 2,108 Sqm, The Grande can be customised into smaller sizes based on requirement.

Nesco Events

During the year two events were organized by the Company. Rangilo Re: Rangilo Re, started in 2017 has become one of the top 5 Navratri destinations of Mumbai. Rangilo Re showcases varied dances from the various parts of Gujarat and the best of Gujarati cuisine in one stupendous setting. This event is organized in an indoor air-conditioned hall to celebrate Navratri festival on a scale and size unparalleled in the city of Mumbai. 

Paddy Fields: Paddy Fields is an unique initiative, the only folk and fusion revival festival in India. It is an exclusive event that recognizes and celebrates the beauty of folk music and proposes to recreate that magic through talented artists from across rural and urban India. Started in 2016, the festival distinguishes itself by making popular artists come out of their comfort zone and make music with the strands of folk tradition for lovers of this genre. 

Opportunities: There is an opportunity of potential strategic tie-ups with third party as partners, wherein the benefits could range from revenues to brand building and increased footfalls to the venue. 

Threats include Competition from new venues coming up in the city is a possibility

The company’s foray into the event space has been buoyed with excitement. Nesco Events has created unique properties that have quickly become resounding successes. This is taking the business off to an impressive start and is enhancing the Group’s strengths to deliver quality entertainment to a burgeoning audience of eager enthusiasts.

Nesco Exhibitions

 new division – Nesco Exhibitions – organizes its own 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. Opportunities and Threats In Nesco Exhibitions, as the company works on new topics. Getting exhibitors, visitors and the Government on one single platform is the biggest opportunity. Exhibitions is a competitive industry, with foreign and Indian organisers, who are active in India for many years.

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Nesco Foods

Income for the year from the foods division was ` 3,568.82 lakhs as compared to ` 3,413.19 lakhs during the previous year. 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. Opportunities and Threats This Division has multiple channels of revenues through various segments: Corporate, Social and MICE. As number of exhibitions grow, Nesco Foods revenue also grow. Capital Expenditure and Expansion Plan 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

Nesco Foods caters to all levels of social, business and luxury events. It is one of Mumbai’s most preferred hospitality providers, well-recognised for their varied capability and array of cuisines. The division operates the largest non-flight kitchen in the city with a capacity of over 50,000 meals a day.

Indabrator 

Indabrator is an ideal service provider in the engineering segment. The company believes in a single-window solution for all surface-preparation needs. This includes machines, spares and abrasives. Indabrator’s leadership is defined by its total immersion across the value chain with its own foundry and state-of-the-art manufacturing unit.

During the year under review, income from Indabrator was ` 2,327.43 lakhs as compared to ` 3,253.65 lakhs during the previous year. Opportunities and Threats Indabrator is pioneer in India in this product range, with capability of handling large projects, integrated manufacturing set-up under one roof, with large number of installations. Spares and abrasives are recurring business. Capital Expenditure and Expansion Plan Indabrator 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.

Indabrator, our engineering division is a pioneer in the surface-preparation category. Backed by best-in-class technology, Indabrator boasts of the finest manufacturing units. Today, it remains a company with impressive market share and multiple innovations in the pipeline.

Investment Income: Income from investments was ` 4,254.69 lakhs (previous year ` 3,172.36 lakhs). 

Financials 

For the Year Ended fy 2020.

Company achieved a consolidated turnover of  Rs 474.27 Cr.

Consolidated profit before tax was higher at Rs 292.28 Cr.

Consolidated earnings per share amounted to Rs 33.19.

Board of Directors has decided that interim dividend of 150% amounting to  3 per equity share.

Company has Solid Operating profit margin of about 64%.

Company has reserves of more than 1300 Crores.

The total Investments and Cash balance of the company stands at around 800 crores.

Company has Compounded Profit Growth of 11% and 19% over 3 and 5 years period.

Company is completely debt free,

For the 1st Qtr ended Sept 2020.

Net Sales at Rs 69.34 crore in June 2020 down 11.39%.

Quarterly Net Profit at Rs. 51.36 crore in June 2020 up 35.75%.

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EBITDA stands at Rs. 71.75 crore in June 2020 up 43.5%.

NESCO EPS was Rs. 7.29.

COVID EFFECT

NESCO’s reported revenue declined by 47% YoY and 7% QoQ in 2QFY21. The decline in revenue on YoY basis was due to a decline in Bombay Exhibition Center (BEC) and Hospitality segment’s revenue by 99.6% and 49.4% YoY in 2QFY21 as the BEC was converted into a COVID Care Center by the Municipal Corporation of Greater Mumbai (MCGM). 

BEC revenue at Rs2mn declined by 99.6% YoY in 2QFY21. The decline in revenue was because the MCGM converted the BEC into a 1,200-bed and 200 ICU bed COVID Care Center with doctors and hygiene teams online. 

As per the management, depending on the improvement of the COVID situation, it hopes to see some exhibitions/events resume in 4QFY21. 

Furthermore the management is confident about the strengths and future viability of the BEC business and has decided to continue with the plans of adding ~0.15mn sq. ft. area to the BEC by the end of FY21. 

The capex expected to be incurred for the same is ~Rs1,000mn, which will be funded by internal accruals. The proposed new hall will be a multipurpose hall for exhibitions, musical events, sporting events, corporate programs and more.

Going Forward

Nesco plans over Rs 2,000 crore investment on business expansion in 5-7 years

Company’s current cash reserves are about Rs 700 crore, which will be used to fund these projects in addition to yearly net inflows from our various business over the next five-seven years, as said by the chairman.

As part of this strategy, the Company achieved a consolidated turnover of ` 47,427.87 lakhs company plans to build its third IT building of nearly 40 lakh sq ft along with a four-star business hotel having 300-room business hotel.

The company have two operational IT buildings and is in the process of getting the approvals for the third one and plan to start the construction by 2021. The estimated budget for the project is Rs 1,800 crore for total 46 lakh sq ft of development, which will include office space, amenities, F&B area as well a 300 room four-star business hotel

With business verticals as varied as exhibitions, events, hospitality, MICE and realty, the company’s steady expansion augments its growth as it watches several new ideas find form.

With the continued expansion of the Bombay Exhibition Center, there is now a versatile solution for any trade fair. The BEC is already India’s largest exhibition venue in the private sector, hosting all the Messe’s as well as organisers from across the globe.

Conclusion

With extremely high opm of above 64% , Hugh cash reserves of about more than 700cr+ , being completely debt free and managements strong belief of the business turnaround supported with huge expansion plans make Nesco ltd worth exploring for long term for a period of may 2-3 years. There may be additional bounce/benefits in the business as well as price appreciation in case the of announcement of any covid vaccines or any further developments in countering the virus which in turn could benefit the entire hospitality sector and eventually to the company at large.

Please note that above expressed are our own views. Users are requested to take their own decision regarding investments. No member of DARKHORSESTOCKS would be responsible for any loss.



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