Nesco Ltd 3QFY19 Result Update Target: Rs 740

Previous Rating: Buy Current Rating: Buy

At an inflection of higher cash flows
3QFY19 result highlights:
CMP (Rs) 427.4
§ Revenue at Rs.885 mn (11% higher than our estimate) grew 21% on a Y-o-Y basis but dropped by
Target Price(Rs) 740 12% on Q-o-Q basis. Drop in revenue on a Q-o-Q basis is attributed primarily to the drop in BEC
revenue by 20% and Foods revenue by 24%.
Upside (%) 73.2%
§ EBITDA at Rs.505 mn (12% lower than our estimate) decreased by 14% Y-o-Y/ 24% Q-o-Q basis.
Prev. Target (Rs) 745 Higher RM Cost (155% Y-o-Y/ -24% Q-o-Q), Employee Cost (44% Y-o-Y/ 5% Q-o-Q) & Other
Expenses (65% Y-o-Y / 24% Q-o-Q) have together resulted in a drop in EBITDA.
Share Holding (%) 31st December 2018 § Increase in Other Expenses is due to: (1) Rs.35 mn - Property tax for one of the halls which was
Promoter 68.2 commissioned in FY 18. (2) Rs.32 mn - accounting loss from sale of assets of IT Bldg 3 provided on
operating lease in 2015 for fit-outs. (3) Rs.21.5 mn - higher spending on CSR activity in Q3FY19.
Institutions 7.9
§ EBITDA margin dropped to 57% (down from 73% Y-o-Y / 65% Q-o-Q).
Others 23.9 § PAT at Rs.420 mn (5% higher than our estimate) dropped 4% Y-o-Y / 15% Q-o-Q basis. Other
Total 100.0 Income, which was higher (68% Y-o-Y / 155% Q-o-Q), maintained the PAT.
§ PAT margin dropped to 47% (down from 54% Y-o-Y / 49% Q-o-Q).
Avg Vol (6m) (000) 3.8
9mFY19 result highlights:
FV 2
§ On a YoY basis, Revenue at Rs.2.66 bn (11% higher than our estimate) increased by 16%, whereas
Beta 0.54 EBITDA at Rs.1.66 bn (4% lower than our estimate) increased by only 2% and PAT at Rs.1.29 bn
(7% higher than our estimate) dropped by -4%.
Mcap (Rs Mn) 30,115 § EBITDA margin dropped from 71% to 63%, whereas PAT margin dropped from 59% to 49% on
52 week H/L 638/405 account of increase in operating costs as well as a drop in Other Income.

Bloomberg/Reuters NSE IN / NSEN.BO Segmental Revenue highlights:

§ IT Park: Revenue at Rs.352 mn, dropped marginally by 1% Y-o-Y & Q-o-Q basis and dropped by
Group B/ S&P BSE Small Cap
10% Y-o-Y on a 9-mthly basis, primarily on account of withdrawal of IT Bldg-1, earlier occupied by
Sensex/Nifty 35,871/ 10,792 TCS, w.e.f. January 01, 2018.
§ BEC: Revenue at Rs.370 mn dropped by 7% Y-o-Y/ 20% Q-o-Q basis on account of (1) one of the
ABS (%) Sensex Nesco usual Q3 clients, which provided Rs.100 mn revenue in FY18, shifted the exhibition to Noida due
3M (6.4) (15.6) to higher space requirement (2) Q2 FY19 had witnessed a one-off GoI sponsored exhibition which
accrued Rs.90 mn revenue in Q2FY19. However, BEC revenue increased 19% Y-o-Y on a 9-mthly
1 Yr 6.1 (26.7)
basis, a positive performance despite the seasonality/ lumpy nature of exhibition revenue.

Ameet Kalyanpur Email ID: ameetk@eisec.com (+91 22 6192 5341) February 25, 2019
 § Indabrator: Due to the management’s focus on reviving the business, Revenue at Rs.95 mn changed by +78% Y-o-Y/ -8% Q-o-Q basis and increased by
36% Y-o-Y on a 9-mthly basis.
§ Foods: Revenue at Rs.69 mn dropped by 24% Q-o-Q basis due to the decline in exhibitions held during Q3FY19.

Segmental Result highlights:

§ IT Park: EBIT at Rs.269 mn, changed by -26% Y-o-Y/ -11% Q-o-Q basis and by -18% Y-o-Y on a 9-mthly basis.
§ BEC: EBIT at Rs.301 mn changed by +5% Y-o-Y/ -17% Q-o-Q basis and by +18% Y-o-Y on a 9-mthly basis.
§ Indabrator: EBIT at Rs.10 mn was a significant improvement on Y-o-Y and Q-o-Q basis.
§ Foods: EBIT at Rs.5 mn changed by -67% Q-o-Q basis.

IT Bldg-4 Status:
§ Management has advised that construction of IT Bldg-4 admeasuring 1.2 mn sq. ft. is nearing completion at a cost of Rs.5800 mn.

Outlook and Valuation:

§ IT Park: The existing 0.66 mn sq ft IT Bldg 3 is fully occupied and the new 1.2 mn sq ft IT Bldg 4 is expected to commence operations from H2 FY20, at
22.5% occupancy with lease agreements/ LOIs signed for ~40% of space. IT Bldg 4 is expected to earn revenue of ~Rs.2 bn on full occupancy.
§ BEC: Albeit with its challenges pertaining to traffic restrictions and perceived competition from a new convention centre in BKC, Mumbai, Nesco is well
poised to grow the exhibitions business in a major way with a capacity of 0.63 mn sq ft.
§ Indabrator: Indabrator revenue increased by 36% on a Y-o-Y basis in in 9mFY19 and earned segmental profit margin of 1% in this period.
§ Foods: This business segment is expected to clock revenue of ~Rs.305 mn in FY 2019, with the expansion of its employee base and improved ability to
serve greater number of people within BEC and IT Park businesses.

We retain “Buy” rating on the stock valuing it at 19.8x FY21E giving us a target price of Rs.740/- per share. Risk to our call is delay in land development
plans due to regulatory / other unforeseen factors and slowdown in the economy leading to slowdown in exhibitions and conventions.

Revenue EBITDA PAT

Year EPS P/E P/ BV EV/ EBITDA RoCE% RoE%
(Rs Mn) margin (%) margin (%)
FY17 3,114 69% 55% 24.1 17.8 3.6 14.1 24% 20%
FY18 3,212 68% 56% 25.4 17.0 3.0 13.9 20% 18%
FY19E 3,387 63% 50% 23.8 18.0 2.6 14.2 17% 15%
FY20E 4,112 69% 50% 29.1 14.8 2.3 10.6 18% 15%
FY21E 5,569 72% 47% 37.4 11.5 1.9 7.6 23% 17%

EISEC Research 2
 Quarterly Financials

Rs. Mn 3QFY19 3QFY18 Y-o-Y (%) 2QFY19 Q-o-Q (%) 9mFY19 9mFY18 Y-o-Y (%)
Total Revenue 885 806 10% 1,010 -12% 2,655 2,281 16%
Raw Material 68 27 155% 89 -24% 204 88 132%
Employee Cost 56 39 44% 53 5% 162 110 47%
Other Expenses 258 156 65% 209 24% 630 457 38%
Total Cost 381 221 72% 351 9% 995 654 52%
EBITDA 505 585 -14% 660 -24% 1,660 1,627 2%
Depreciation 33 29 13% 30 9% 93 80 16%
EBIT 472 556 -15% 629 -25% 1,567 1,547 1%
Finance Cost 9 16 -39% 14 -34% 33 41 -19%
Other Income 130 77 68% 51 155% 197 301 -34%
PBT 592 618 -4% 666 -11% 1,731 1,807 -4%
Tax 171 179 -4% 174 -1% 443 468 -5%
PAT 420 438 -4% 493 -15% 1,288 1,339 -4%
Adjusted EPS (Rs) 6.0 6.2 7.0 18.3 19.0
Number of shares O/s (mn) 70.46 70.46 70.46 70.46 70.46

% of Sales 3QFY19 3QFY18 2QFY19 9mFY19 9mFY18

Raw Material 8% 3% 9% 8% 4%
Employee Cost 6% 5% 5% 6% 5%
Other Expenses 29% 19% 21% 24% 20%
EBITDA% 57% 73% 65% 63% 71%
EBIT% 53% 69% 62% 59% 68%
PAT% 47% 54% 49% 49% 59%
Effective Tax rate 29% 29% 26% 26% 26%

EISEC Research 3
 Segmental Financials

Rs. Mn 3QFY19 3QFY18 Y-o-Y (%) 2QFY19 Q-o-Q (%) 9mFY19 9mFY18 Y-o-Y (%)
Revenue 885 806 10% 1,010 -12% 2,655 2,289 16%
IT Park 352 356 -1% 355 -1% 1,025 1,141 -10%
BEC 370 397 -7% 463 -20% 1,134 953 19%
Indabrator 95 53 78% 103 -8% 263 194 36%
Foods 69 - #DIV/0! 90 -24% 234 - #DIV/0!
EBIT 585 650 -10% 673 -13% 1,787 1,795 0%
IT Park 269 363 -26% 304 -11% 852 1,040 -18%
BEC 301 287 5% 362 -17% 896 761 18%
Indabrator 10 1 1642% (8) -222% 3 (6) -160%
Foods 5 - #DIV/0! 16 -67% 36 - #DIV/0!

% of Sales 3QFY19 3QFY18 2QFY19 9mFY19 9mFY18

EBIT 66% 81% 67% 67% 78%
IT Park 76% 102% 86% 83% 91%
BEC 81% 72% 78% 79% 80%
Indabrator 11% 1% -8% 1% -3%
Foods 7% 17% 15%

EISEC Research 4
 Revision in Estimates
Post 3QFY19 performance, we are revising our earning estimates for:
• FY19 - based on actual revenue, EBITDA margin and one time expenses in 9m FY19
• FY 20 - accommodating adjustments for lower EBITDA margins, lower Other Income, slower ramp up in IT Bldg-4 occupancy

Accordingly our EPS estimates for FY 19/ FY 20/ FY 21 stand revised to Rs.23.8/ 29.3/ 37.4 Vs our earlier estimates of Rs. 22.7/ 32.8/ 38.5 respectively.

Rs Mn FY19 Old FY19 New % change FY20 Old FY20 New % change FY21 Old FY21 New % change
IT Bldg -4 Occupancy - - 50.0% 23.8% 75.0% 75.0%
IT Park 1,259 1,319 4.76% 2,149 1,662 -22.68% 2,794 2,927 4.76%
BEC 1,394 1,492 6.98% 1,673 1,790 6.98% 1,757 1,879 6.98%
Indabrator 270 270 - 277 277 - 284 284 -
Foods 255 306 20.00% 319 383 20.00% 398 478 20.00%
Revenue 3,179 3,387 6.55% 4,419 4,112 -6.95% 5,234 5,569 6.41%
EBITDA 2,296 2,129 -7.31% 3,334 2,855 -14.37% 3,994 3,986 -0.18%
EBITAM (%) 72.2% 62.8% 75.5% 69.4% 76.3% 71.6%
Other Income 381 304 -20.00% 385 290 -24.71% 347 237 -31.87%
Net profit 1,602 1,680 4.89% 2,309 2,049 -11.24% 2,714 2,634 -2.93%
EPS (Rs.) 22.7 23.8 4.89% 32.8 29.1 -11.24% 38.5 37.4 -2.93%

Target Price (Rs.) 745 740 -0.61% 745 740 -0.61% 745 740 -0.61%
P/E (x) 32.8 31.1 22.7 25.5 19.3 19.8

EISEC Research 5
 Financial Summary

Income Statement (Rs Mn) FY 17 FY 18 FY 19E FY 20E FY 21E Cash Flow Statement (Rs Mn) FY 17 FY 18 FY 19E FY 20E FY 21E
Net Sales 3,114 3,212 3,387 4,112 5,569 Profit before Tax 2,444 2,379 2,267 2,765 3,812
% growth 18.20 3.13 5.46 21.39 35.44 Depreciation & Amortisation 81 110 119 334 352
Operating Expenses 968 1,027 1,258 1,257 1,583 Interest 50 56 47 45 59
EBITDA 2,146 2,185 2,129 2,855 3,986 Other Income (430) (361) (304) (290) (237)
Depreciation & Amortisation 81 110 119 334 352 Working Capital Changes 55 (89) (36) 149 513
EBIT 2,065 2,075 2,009 2,521 3,634 Cash Generated from Operations 2,201 2,096 2,093 3,004 4,499
Finance Cost 50 56 47 45 59 Direct Taxes Paid (634) (633) (587) (716) (1,178)
Operating Profit 2,015 2,019 1,963 2,475 3,576 CFO (a) 1,567 1,463 1,505 2,287 3,322
Other Income 430 361 304 290 237 Capital Expenditure (1,546) (1,356) (1,850) (3,241) (1,870)
Profit before tax 2,444 2,379 2,267 2,765 3,812 Other Income 430 361 304 290 237
Tax 745 592 587 716 1,178 CFI (b) (1,116) (995) (1,546) (2,951) (1,634)
Profit after tax 1,699 1,787 1,680 2,049 2,634 Free cash flow (a+b) 450 469 (40) (663) 1,688
PAT growth (%) 17.90 5.16 (6.00) 21.98 28.55 Interest Paid (50) (56) (47) (45) (59)
EPS 24 25 24 29 37 Dividend Paid (155) (162) (151) (184) (237)
EPS growth (%) 17.90 5.16 -6.00 21.98 28.55 CFF (c ) (205) (218) (198) (230) (296)
Net Change in Cash 392 210 (238) (893) 1,392
Balance Sheet (Rs Mn) FY 17 FY 18 FY 19E FY 20E FY 21E
Equity Share Capital 141 141 141 141 141 Ratios FY 17 FY 18 FY 19E FY 20E FY 21E
Reserves and Surplus 8,304 9,905 11,434 13,299 15,696 EBIDTA margin (%) 68.9% 68.0% 62.8% 69.4% 71.6%
Net Worth 8,446 10,047 11,576 13,441 15,838 PAT margin (%) 54.6% 55.6% 49.6% 49.8% 47.3%
Deferred Tax Liability 273 232 232 232 232 Current Ratio 3.44x 3.84x 3.85x 2.84x 2.74x
Curr. Liabilities & Provisions 1,550 1,438 1,362 1,540 2,136 Receivables Period 14 days 16 days 15 days 15 days 15 days
Total Liabilities 10,268 11,717 13,170 15,213 18,206 Inventory Holding Period 16 days 14 days 9 days 8 days 7 days
Net Block 1,814 2,221 2,352 8,095 8,243 Payables Period 27 days 21 days 25 days 25 days 25 days
Capital Work in Progress 3,122 3,977 5,577 2,741 4,111 Advance from customers 42 days 42 days 40 days 40 days 40 days
Total Current Assets 5,332 5,519 5,241 4,378 5,852 Cash Conversion Cycle -39 days -33 days -41 days -42 days -43 days
Cash and equivalents 4,863 5,073 4,835 3,942 5,334 Return on Capital Employed 23.7% 20.2% 17.0% 18.4% 22.6%
Total Assets 10,268 11,717 13,170 15,213 18,206 Return on Equity 20.1% 17.8% 14.5% 15.2% 16.6%

EISEC Research 6
 Stock rating (1 year target scale) Disclaimer & Disclosure
<0% - Sell East India Securities Ltd (hereinafter referred as 'EISEC') is a financial services firm. EISEC has obtained registration as a Research Analyst under SEBI
(Research Analysts) Regulations, 2014, having registration No.: INH300003231 valid till 12th July 2021. EISEC and its associated companies may hold shares
0-10% - Reduce in the company/ies discussed in this document.
10-30% - Accumulate
>30% - Buy This document is confidential and is supplied to you for information purposes only. It should not (directly or indirectly) be reproduced, further distributed
to any person or published, in whole or in part, for any purpose whatsoever, without the consent of EISEC.

This document is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity, who is a
citizen or resident or located in any locality, state, country or other jurisdiction, where such distribution, publication, reproduction, availability or use
would be contrary to law or regulation or what would subject EISEC to any registration or licensing requirement within such jurisdiction. If this document
is sent or has reached any individual in such country, especially, USA, the same may be ignored.

This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of
individual investors. Our investment recommendations are general in nature and available electronically/in printed form to our clients. Before acting on
any advice or recommendation in this document, investors should consider whether it is suitable for their particular circumstances and, if necessary, seek
professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and
investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of
original capital may occur. Information herein is believed to be reliable but EISEC do not warrant its completeness or accuracy. The views/opinions
expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. This
document should not be construed as an offer to sell or solicitation of an offer to buy any security in any jurisdiction. EISEC and its affiliates, its directors,
analyst and employees will not be responsible for any loss or liability incurred to any person as a consequence of his or any other person on his behalf
taking any investment decisions based on this document.

Corporate Office: 201, Garnet palladium, Pandit Motilal Nehru Marg, Panch Bawadi, Malad East, Mumbai – 400 097. Tel: +91 22 6192 5353
Head Office: DA-14,Salt Lake City, Sector-I, Kolkata – 700064. Tel: +91 33 40205901.
Web: www.eisec.com

EISEC Research 7