20141110_nesco-limited_32_quarterupdate.pdf

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NescoLtd. Sensex

IndiaNivesh Research IndiaNivesh Securities Private Limited601 & 602, Sukh Sagar, N. S. Patkar Marg, Girgaum Chowpatty, Mumbai 400 007. Tel: (022) 66188800

Result UpdateNovember 10, 2014 Nesco Ltd.

IndiaNivesh Research is also available on Bloomberg INNS, Thomson First Call, Reuters and Factiva INDNIV.

Daljeet S. Kohli

Head of Research

Mobile: +91 77383 93371, 99205 94087

Tel: +91 22 66188826

[email protected]

Amar Mourya

Research Analyst

Tel: +91 22 66188836

[email protected]

STOCK INFO

BSE 505355

NSE NESCO

Bloomberg NSE IN

Reuters NSEN.BO

Sector Misc.Commercial Services

Face Value (Rs) 10

Equity Capital (Rs mn) 141

Mkt Cap (Rs mn) 17,320

52w H/L (Rs) 1440/ 707

3m Avg Daily Volume (BSE + NSE) 7,376

SHAREHOLDING PATTERN %

(as on Sep. 2014)

Promoters 65.4

FIIs 7.3

DIIs 4.8

Public & Others 22.5

Source: BSE

STOCK PERFORMANCE (%) 1m 3m 12m

NESCO

NESCO v/s SENSEX

Source: Capitaline; IndiaNivesh Research

Source: Capitaline; IndiaNivesh Research

CMP : Rs.1,229

Rating : BUY

Target : Rs 1,680

Rating : BUY

Target : Rs 1,680

Current Previous

Mixed-Set of Performance; Maintain BUY with PT of Rs 1,680

Rs in mn Q2FY15 Q1FY15 Q2FY14 Q/Q % Y/Y % INSPL (E) Variance (%) Comments

Sales 466 374 391 24.8% 19.4% 501 -6.9% Below - Est

EBITDA 354 288 291 22.6% 21.6% 379 -6.7% Below - Est

PAT 266 250 190 6.2% 39.6% 254 4.6% Above-Est

EPS 18.8 17.7 13.5 6.2% 39.6% 18.0 4.7% Above-Est

Source: Company Filings; IndiaNivesh Research

Nesco Ltd (Nesco) Q2FY15 performance was mixed-bag; revenue and EBITDA below

our estimate; PAT above our expectation. The company reported revenue growth

of 19.4% Y/Y to Rs.466 mn (INSPL est Rs.501 mn) led by 25.8% Y/Y increase in

Exhibition & IT Park revenue, partially offset by 34.0% Y/Y decline in Cap Goods

segment. During the quarter, EBITDA grew by 21.6% Y/Y to Rs.354 mn (v/s INSPL

est. Rs.379 mn). EBITDA margin expanded 134 bps Y/Y to 75.8% on back of decline

in employee cost (2.4% v/s 3.6% in Q2FY14). Total operating expenditure (as % of

revenue) went down to 24.2% (v/s 25.5% in Q2FY14). Depreciation/other income

during the quarter stood at Rs.21.1 mn/Rs.45.7 mn (v/s Rs.27.5 mn/Rs.22.2 mn inQ2FY14), respectively. Finance cost during the quarter went up 52.2% Y/Y to Rs.0.7

mn (v/s Rs.0.5 mn). The companys tax rate stood at 29.7% which led to tax outgo

of Rs.112 mn (v/s Rs.95 mn in Q2FY14). Net profit went up 39.6% Y/Y to Rs.266 mn,

which is largely in-line with INSPL est. of Rs.254 mn. Adj. other income, net income

went up 30.9% Y/Y to Rs220 mn (v/s Rs.169 mn in Q2FY14).

Standalone Financials

Rs in mn Q2FY15 Q1FY15 Q2FY14 Q -o -Q Y -o -Y

Inc. from Operations 466.4 373.6 390.6 24.8% 19.4%

Cost of materials 11.1 11.7 14.0 5.0% 20.1%

Employee cost 19.0 16.1 15.9 18.3% 19.5%

Other expenses 82.5 57.4 69.7 43.8% 18.3%

Total Operating Exp. 112.6 85.2 99.6 32.3% 13.1%

EBITDA 353.7 288.4 291.0 22.6% 21.6%

EBITDA Margin (%) 75.8% 77.2% 74.5% 0.018 1.80%

Depreciation 21.1 15.5 27.5 35.5% 23.3%

Other Income 45.7 72.7 22.2 37.2% 105.3%

Profit before Int. & tax 378.4 345.6 285.8 9.5% 32.4%

Finance Costs 0.7 0.1 0.5 872.7% 52.2%

Profit before tax 377.6 345.5 285.3 9.3% 32.4%

Tax Expenses 112.0 95.5 95.0 17.3% 17.9%

Net profit after tax 265.6 250.0 190.3 6.2% 39.6%

Effective tax rate (%) 29.7% 27.6% 33.3%

PAT Margins (%) 56.9% 66.9% 48.7%

EPS- Diluted 18.85 17.74 13.50



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IndiaNivesh Research Nesco Ltd|Result Update

Result Update (contd...)

November 10, 2014 | 2

Key Result HighlightsExhibition & IT Park Segment ROCE improved

The companys consolidated revenue growth of 19.4% Y/Y was largely driven by

Exhibition & IT Park Segment revenue growth (+25.8% Y/Y). Cap Goods segment

continue to deliver revenue de-growth (down 34.0% Y/Y v/s down 23.6% Y/Y in

Q1FY15). During the quarter, Exhibition & IT Park Segment ROCE expanded to 62.5%relative to 44.8% in Q2FY14. The increase in ROCE was due to the full ramp-up of IT

building III and surge in Exhibition business.

Segment Update Q2FY15 Q1FY15 Q2FY14 Q-o-Q Y -o-Y

Exh. & IT Park 438.9 343.5 348.9 27.8% 25.8%

As % of Rev 94.1% 91.9% 89.3%

Cap Goods 27.5 30.1 41.6 8.7% 34.0%

As % of Rev 5.9% 8.1% 10.7%

Total 466.4 373.6 390.6 2 4 .8 % 1 9 .4 %


Segment Profitability Update

Nescos profitability before tax improved significantly to 81.1% (v/s 73.2% in Q2FY14).

The driver for 790 bps Y/Y uptake in profitability was 640 bps Y/Y (to 87.9%)

expansions in Exh. & IT Park segment operating profit (before tax). However, this

was partially offset by operating losses of Rs.7.6 mn in Cap Goods segment (v/s

operating profit of Rs.1.2 mn).

Segment Operating Profit (BT) Q2FY15 Q1FY15 Q2FY14 Q-o -Q Y-o -Y

Exh. & IT Park 385.9 348.9 284.6 10.6% 35.6%

As % of Rev 87.9% 101.6% 81.6%

Cap Goods (7.6) (3.3) 1.2 132.9% 724.1%

As % of Rev 27.8% 10.9% 2.9%

Total 378.3 345.6 285.8 9 .4 % 3 2.4 %


ValuationAt CMP of Rs 1,229, Nesco is trading at EV/EBITDA multiple of 9.6x FY15E & 8.3x

FY16E estimates. We expect FY14-16E to see net profit CAGR of 34.8% during FY14-

16E, on the back of increase in occupancy levels at their recently commenced IT

Building III (to reach peak occupancy level of ~95% in FY15E). Also additional FSI for

Exhibitions business should add to the profitability. Using Sum-of-the-parts based

valuation model, we arrived at price target of Rs 1,680. Given the upside, we maintain

BUY on the stock.

(PBT)


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November 10, 2014 | 3

Financial Statement

Income statement Balance sheet

Y E March (Rs mn) 2013A 2014A 2015E 2016E Y E March (Rs mn) 2013A 2014A 2015E 2016E

Exhibition Centr eRevenues 905.2 995.8 1,095.3 1,204.8 Share Capital 140.9 140.9 140.9 140.9

IT BuildingRevenues 278.6 431.4 1,147.3 1,270.8 Res erves & Surpl us 3,519.3 4,246.8 5,477.2 6,850.8

Capital GoodsRevenues 250.8 183.9 198.6 222.4 Net Worth 3,660.2 4,387.8 5,618.2 6,991.7

Deferred tax l iabilities 22.4 21.1 21.1 21.1

Net Revenues 1,434.6 1,611.1 2,441.1 2,698.0 Long term Li abi li ti es & Prov. 372.3 744.1 751.3 751.3

Growth % 13.7% 12.3% 51.5% 10.5% Noncurrent liabilities 394.7 765.1 772.4 772.4

Raw materials expenses 111.9 87.2 146.5 156.5 Trade payables 77.5 74.5 115.3 112.4

Employee Expenses 65.9 68.1 106.9 122.5 Short term l iabili ties & provisions 338.9 377.8 393.7 421.9

Other Expenses 247.0 378.6 402.8 380.4 Current liabilities 416.3 452.3 509.0 534.3

Total Operating Expenses 424.8 533.9 656.2 659.4 Total Equity & Liabilities 4,471.2 5,605.2 6,899.5 8,298.4

EBITDA 1,009.8 1,077.2 1,785.0 2,038.6

Growth % 14.4% 6.7% 65.7% 14.2% Gross Block 1,965.1 2,136.8 2,647.1 3,612.4

EBITDA Margin % 70.4% 66.9% 73.1% 75.6% Accuma lated Deprecia ti on 380.7 491.2 615.9 770.4

Depreciation & Amortisation 58.3 110.3 124.7 154.4 Net Block (inc. of WIP) 1,624.7 1,645.6 2,031.2 2,869.0

Other Income 192.4 203.1 2 40.0 2 50.0 Non-current investments 0.3 0.3 0.3 0.3

EBIT 1,143.9 1,170.0 1,900.2 2,134.2 Long term loans & advances 13.3 23.2 23.2 23.2

EBIT Margin % 79.7% 72.6% 77.8% 79.1% Noncurrent assets 1,638.3 1,669.2 2,054.7 2,892.6

Interest 7.2 1.1 0.4 0.2 Current investments 2,584.0 3,683.9 4,281.7 4,781.8

Exceptional i tems 0.0 0.0 0.0 0.0 Inventories 48.4 44.0 74.6 82.4

PBT 1,136.7 1,169.0 1,899.8 2,134.0 Trade receivables 96.6 111.8 176.3 187.4

Tax 319.9 3 58.7 588.9 661.5 Cash & Bank Balance 21.4 43.5 2 62.0 304.2

Effective tax rate % 28.1% 30.7% 31.0% 31.0% Loans & advances 80.1 47.9 50.0 50.0

Profit after tax 816.9 810.2 1,310.9 1,472.5 Other Current Assets 2.7 4.8 0.0 0.0

Growth% 21.3% 0.8% 61.8% 12.3% Current assets 2,832.9 3,936.0 4,844.7 5,405.8

PAT margin % 56.9% 50.3% 53.7% 54.6% Total Assets 4,471.2 5,605.2 6,899.5 8,298.4

Source: IndiaNivesh Research Source: IndiaNivesh Research

0.0 (0.0) (0.0) (0.0)

Cash Flow Key ratios

Y E March (Rs mn) 2013A 2014P 2015E 2016E Y E March 2013A 2014A 2015E 2016E

Profit before tax & exceptional items 1,136.7 1,169.0 1,899.8 2,134.0 EPS (Rs) 58.0 57.5 93.0 104.5

Cash EPS (Rs) 62 65 102 115

Depreciation & Amortisation 58.3 110.3 124.7 154.4 DPS (Rs) 4 5 6 6

Other adj. prior to WC changes (172.6) (171.6) (203.6) (212.3) BVPS (Rs) 260 311 399 496

Changes in working capital (149.6) 55.1 (35.6) 6.5

Tax, dividend and exceptional Items (384.1) (403.9) (596.4) (789.6) ROCE (%) 22.3% 18.5% 23.3% 21.1%

Cash flow from Operations 488.7 758.8 1,188.9 1,293.0 ROE (%) 22.3% 18.5% 23.3% 21.1%

Capital expenditure (213.3) (173.3) (510.3) (965.3) Inventory days 19 17 17 15

Free Cash Flow 275.4 585.5 678.6 327.7 Sundry Debtors days 24 25 26 25

Trade Payables days 19 17 17 15

Inc/Dec. in Investments (296.5) (563.4) (460.1) (285.5)

Cash flow from investments (509.8) (736.7) (970.4) (1,250.8) PER (x) 21.2x 21.4x 13.2x 11.8x

P/BV (x) 4.7x 3.9x 3.1x 2.5x

Cash flow from Financing 0.0 0.0 0.0 0.0 EV/EBITDA (x) 17.1x 16.0x 9.6x 8.3x

Dividend Yield % 0.3% 0.4% 0.4% 0.5%

Net change in Cash (21.1) 22.1 218.6 42.2

Cash at the beginning of the year 42.5 21.4 43.5 262.0 M-Cap/Sales (x) 12.1x 10.7x 7.1x 6.4x

Net Debt/Equity (x) 0.0x 0.0x 0.0x 0.0x

Cash at the end of the year 21.4 43.5 262.0 304.2 Net Debt/EBITDA (x) 0.0x 0.0x -0.1x -0.1x

Source: IndiaNivesh Research Source: IndiaNivesh Research


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November 10, 2014 | 4

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IndiaNivesh Securities Private Limited

601 & 602, Sukh Sagar, N. S. Patkar Marg, Girgaum Chowpatty, Mumbai 400 007.

Tel: (022) 66188800 / Fax: (022) 66188899e-mail: [email protected] | Website: www.indianivesh.in

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