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BEC to recover from FY22 onwards…

Nesco’s 9MFY21 (and Q3FY21) performance was impacted by virtual closure of Bombay Exhibition Centre (BEC), which was used for Covid Care by BMC and subsequent minimal take-off in hospitality (foods & own events business). For Q3FY21, revenues declined 28.3% YoY at | 82.5 crore, largely impacted by 91.3% decline in BEC revenues and ~53.2% decline in hospitality segment. EBITDA at | 52.9 crore was down 31.6% YoY. PAT at | 48.9 crore for Q3FY21 was down 29.2% YoY.

BEC to witness traction from Q1FY22 in gradual manner

While BEC was occupied by BMC for Covid care, the company booked revenues of | 3.3 crore, which was largely on account of notional rental that it received from BMC for May-September, 2020. In February, the company had two exhibitions (own IP- Auto Show and by Acetech), albeit on a smaller scale, for three days in the other sheds. This will generate nominal revenues but most importantly, signified that exhibition business has started. Consequently, the company is getting new booking from April onwards, albeit for smaller exhibition. On the expansion front, it intends to demolish one of the factory shed (~1 lakh sq. feet) and expand it for BEC for a capex of ~| 85-100 crore, which will be completed by FY22 end. We expect full throttle recovery only by H2FY22 and FY23 revenues to be boosted further by expanded facility.

IT Park stable; remaining leasing to be done by FY22

The company reported IT park revenues of | 64 crore, up 1.2% YoY with muted growth owing to some exits in H1FY21. IT Tower 3 (~6.5 lakh square feet- leasable area) is at 85-88% occupancy levels vs. ~100% in FY20 as there was one minor exit and another set of anchor tenant who moved to Tower 4. As per the company, there is enough pipeline & enquiry for Tower 3 and the company expects it to be fully occupied again in the next six months. Rental rate is at~| 135-140/month. Tower 4 (operational from Q2FY20), which has leasable area of 11 lakh sq ft, is ~75% occupied. For this tower, the company expects full tenancy by FY22 end, with full rental likely to kick in from Q2FY23 onwards

Valuation & Outlook

We like Nesco, given the prudent management pedigree, steady & planned expansion across verticals funded largely through internal accruals and niche profitable business model including foods/own events etc. Post a washout FY21 for exhibition, we expect gradual recovery from H1FY22 as pandemic effect fades completely. The IT park business is also likely to get a boost as occupancies improve in FY22. We maintain BUY rating on the stock with an SoTP target price of | 745/share (| 650, earlier).

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