NESCO — Interview of Sumant J Patel. They have 6.6 lakh square feet in the recent building.

https://www.moneycontrol.com/news/business/should-rent-out-new-building-completely-by-dec-end-nesco_608796.html

Q: Give us a sense of what sort of opportunity do the MoUs provide for you?

A: We just completed construction of our IT building III and started marketing. We have already leased about 1,50,000 sq feet and before end of December we should complete the MoUs for all the remaining space.

Q: Can you tell us in this fiscal what are the other remaining IT buildings for which you will get into some sort of a rental agreement and what will be the revenue accretion on account of this?

A: We have three IT buildings. IT building I is now occupied and IT building II is occupied as well. In IT building III we have about 6,60,000 sq feet space out of which we expect to complete the marketing by the end of December. The rental income will start from Q4 of this year.

Q: What is the rental income roughly to understand for the IT Building I & II for which you already signed the agreements?

A: The rental income for IT Building I & II is about Rs 20 crore and IT Building III in the financial year FY11-12 should bring in about Rs 60-70 crore.

Q: What would this do to your revenues because in Q2 it was pretty healthy and grew at about 56%?

A: We expect to continue our growth. It will add good weightage to our revenues. Particularly, in FY11-12, once the entire building is occupied, there is a fairly good growth story.

Q: In the last quarter, there was a big jump in the industrial capital good segment. Could you outline your growth plans there?

A: In the year 2010-2011, the capital good industry didn’t do well overall. This year it has picked up pretty well. We will more than double our phase this year in our capital goods division. We are expanding our capacity about 60,000-70,000 sq feet of new space. We are also adding new equipments, some CNC machines and some material handling equipment. We would like to be the largest provider of this equipment in India but we would like to be in the first five in the world.

Q: What are the total capital expenditure plans for the entire company in FY13?

A: We will spend about Rs 200 crore on the IT building IV. On the IT building III, which is completed, we spend about Rs 150 crore which was from our own internal resources and for the IT building IV the capex should be around Rs 200 crore, we also expect to finance that from more internal resources.

Q: How much is your total land bank?

A: We have about 25 lakh sq feet of space, which is about 60 acre.

Q: What would you value your total land bank at this point?

A: The valuation depends on number of factors. It depends more on the FSI and how much you build. For example, in IT Park for one sq feet of our FSI, we get one extra FSI. We have not arrived at a fair valuation of the land yet but we will do that in the near future.

 

 

 

Some of my comments:

 

The company will start work on Building 4 which is again for 200 crores through internal resources.

Building 3 will start giving in 60-70 crores of revenues. ( Thing to note is earlier projection was June 2010 is now completed by October 2011 but now its clear as to the building has been made)

 

Till now total space on lease would be 3 lakh + 6.6 lakhs so roughly around 9 lakh square feet of IT buildings which may command 100 Rs per square feet per month a rough approximation. This implies more then 100 crores revenues only from lease. This is the very reason the company plans to start building 4 which requires 200 crores. This will be again through internal resources.

 

Now if i were to value the IT buildings it would be around at least 10000 square feet 🙂 will easily give me a value of 1000 crores :). Current Market cap – 900 crores.

 

its moved 10 % + since the last view posted

NESCO —— A steal at 800 cr market cap with almost 2500-4000 crores of Land Value and No debt !

 

So it seems a very interesting compounding story which is zero on debt 🙂 and i believe zero downside risk but can turnout to be a multibagger over the next 2-3 years.

 

For the year 2011 --- Net sales 141 crores --- Operating profit – 99 crores – Profit after tax – 68 crores.

 

Considering say next 1-2 yrs even if it adds anopther 60-70 crores revenue implying 200 crores sales and almost 90-100 crores profit will imply an EPS of 65-70 easily. At current market price this would be a forward p-e of 10.

 

So purely on earnings also the stock looks cheap 🙂 i am ready to forget the 60 acre land worth 2500-3500 crores + Building of 1000 cr + other small divisions :).

 

Investors may look towards the stock with a long term perspective of 3-5 years.

 

Happy Investing,

 

Nooresh Merani

 

nooreshtech@analyseindia.com