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Strong debt-free balance sheet with robust liquidity:

The company has been consistently investing into new projects and expanding its portfolio of leasable space. Nevertheless, the company’s policy has always been to remain debt-free in a sector which is otherwise dominated by borrowings. The company generates strong cash-flows from its lease & rental incomes from its IT Parks and BEC and invests the same to expand its asset-base.

Huge land bank to course the future growth:

Acquiring sizeable real estate or a big land parcel in a prime location in Mumbai could be the nightmare even for the biggest of real estate players, however, the company doesn’t have to worry on that front for many years to come. The area of Nesco Goregaon land parcel is over 60 acres and future development potential is nearly 5 times of existing built-up area.

Strategic decisions to foray into relevant businesses will drive the growth:

During the last few years, the company has forayed into hospitality services through Nesco Foods which has good scalable opportunity with corporate parks and leading exhibition centre in their premises. Further, the company also has undertaken a strategic step to make use of idle business time of BEC when it is not occupied by establishing Nesco Events which organizes exhibitions and events on its own.

Office leasing space to showcase strong demand:

According to a recent report by Savills India, office space leasing across six major cities of the country is expected to touch 41.3 mn sq ft in 2021, up 22% from last year. The report further states that Mumbai is likely to post highest growth in leasing activity from 2.9 mn sq ft in 2020 to 5.5 mn sq ft in 2021.

OUTLOOK & 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 4-5 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.

As on September 30, 2020, the company held investments to the tune of Rs.750 cr. Going forward, we expect the company to deliver an EPS of Rs.35.0 in FY23; assigning a target multiple of 20x we arrive at a target price of Rs.700 showcasing an upside potential of 30.2% from current levels with an investment horizon of 18-24 months.

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