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Nesco Ltd. recently announced its performance for the quarter ended March 31, 2022. FY22 top-line was moderately below our estimate but EBITDA and Net Profit were broadly in-line with our projections. Following are the key highlights.

Result Highlights

* During Q4 FY22, the turnover increased 21.3% YoY to Rs.91.1 cr; the EBITDA margin improved 537 bps to 68.7%. The net margin stood at 58.8% as against 53.0% in Q4 FY21. EPS during the quarter stood at Rs.7.6 as against Rs.5.6 in Q4 FY21.

* For FY22, the top-line jumped 15.9% YoY to Rs.337.4 cr; the EBITDA margin improved 109 bps to 64.9%. The net margin stood at 56.1% as against 59.3% in FY21 primarily due to lower other income (Rs.45.0 cr in FY22 vs Rs.64.6 cr in FY21). FY22 EPS stood at Rs.26.8 as against Rs.24.5 in FY21.

* The capex during the fiscal stood at Rs.148.7 cr as against Rs.57.6 cr in the previous year.

* The cash & cash equivalents (including financial investments) stood at Rs.855.8 cr on March 31, 2022 as against Rs.819.3 cr on March 31, 2021.

* The board recommended a dividend of Rs.3 per share of face value Rs.2 each for FY22.

Segment-wise Highlights

* IT Park Division: – The Management stated that IT Park demand continues to exhibit a steady ramp-up across leading multinationals with average occupancy rising to 85%. The development of new IT Park Building remains on track. The business continues to witness a gradual ramp up in return of occupiers to their workplaces and the Management expect these trends to further improve in the next few months

* Bombay Exhibition Center & Nesco Foods: The Press Release stated that continued momentum in the economy post pandemic demonstrates rising numbers in the exhibitions & events held at BEC, thereby, accompanying growth of Foods division. The Management plans to place focus on developing food courts and restaurants to scale up the foods division. Footfalls and consumption trends continue to support the healthy growth in these segments.

OUTLOOK AND VALUATION

Nesco holds a 60+ acres land parcel in Goregaon, Mumbai and is engaged in real estate businesses through its IT Parks and Exhibition Centers which it lets out and generates robust cash-flows. The company reinvests these cash-flows to expand its leasable space portfolio. The company is slated to invest Rs.1,800-2,000 cr over the next few years to construct a new IT park alongwith a five-star hotel. Importantly, the company follows a policy of no debt and is going to fund the entire project through existing investments and internal accruals. We have revised our estimates to factor in FY22 performance. We have revised our top-line estimate for FY23 downwards to factor in persistent challenges being faced by the Bombay Exhibition Centre. Nevertheless, we have revised our profit estimates upwards anticipating better than previously estimated profit margins in IT-Park business. We now expect the company to deliver an EPS of Rs.34.5 in FY23; maintaining a target multiple of 20x we arrive at a revised target price of Rs.690 showcasing an upside potential of 27.8% from current levels with an investment horizon of 12-18 months. Thus, we maintain our BUY rating for the stock.

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