01-01-1970 12:00 AM | Source: Sushil Finance Ltd
Hold NESCO Ltd For Target Rs.700 - Sushil Finance
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From the Chairman Speech at the AGM which was held on August 11, 2021 IT

Park Division: Tower-4 is 17 lakhs sq.ft. constructed area and is now ~80% contracted. License agreements have been finalized with leading MNCs including KPMG, BlackRock, Here Solutions, Framestore, Priceline, ISS Governance, etc.

Indabrator: has now increased the abrasives production capacity

Bombay Exhibition Center: BEC normally holds 150 exhibitions yearly but could hold only 2 exhibitions in FY21 as BMC/GOM did not allow exhibitions to take place. This adversely affected Bombay Exhibition Center and Nesco Foods divisions.

 

Outlook for FY22

IT Park: The Management expects IT Park revenues to grow by ~25%; expects to shortly complete contracts for the remaining floors in Tower-3 & Tower-4. The company is now pursuing the approvals for the next IT Tower and expects to start soon on the project. IT Tower 2 will have constructed area of 45 lakhs sq.ft.

Indabrator: To increase the capacity of abrasives production, the Management has decided to set up a new Abrasive Plant.

Bombay Exhibition Centre: Once the new IT building 02 is completed, Nesco will go ahead with expansion and modernization of BEC. This would include new exhibition halls, convention halls & hotels. BEC customers had to reschedule or cancel their exhibitions. Revenues are affected as there are no exhibitions in Q1, Q2 & Q3. BEC may have some revenues if exhibitions are permitted in Q4.

 

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 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 March 31, 2021, the company held investments to the tune of Rs.810 cr.

Considering the Management guidance for BEC and IT Park divisions, we have revised our estimates for FY22 downwards; nevertheless, we have kept our earnings estimates unchanged for FY23. 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 16% from current levels with an investment horizon of 18- 24 months.

 

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