Home Market Buy Nesco, target Rs 603: Equirus Securities

Buy Nesco, target Rs 603: Equirus Securities


Equirus Securities has a buy call on Nesco with a target price of Rs 603.

The current market price of Nesco is Rs 434.10.

Time period given by the brokerage is one year when Nesco price can reach the defined target.

Investment rationale by the brokerage:
NESCO's 2QFY19 revenues/EBITDA grew 21 per cent/12 per cent YoY to Rs 1bn/Rs 660mn, beating EE by 14 per cent/7 per cent largely on account of strong BEC business performance (+21 per cent YoY; +19 per cent vs. EE). Operational performance of the IT Park division was broadly in line with our expectation; also, progress on IT Park-4 was on expected lines, while new capacities in NBEC and construction of IT Park-5 would fall under the companys next leg of expansion. Mid-to-long-term growth prospects seem encouraging supported by NESCOs strong expansion pipeline. We hence assign LONG (from ADD previously) to the stock with a SOTP-based Mar20 target price of Rs 603 (Rs 600 earlier).

BEC biz drives 2Q beat: BEC business performance (+21 per cent YoY) surpassed expectations (19 per cent above EE) driven by a one-off exhibition from the Ministry of Commerce which contributed nearly Rs 90mn to revenues; adjusting for this, BEC performance would have been largely in line with EE. EBIDTA margins contracted 536bps YoY to 66 per cent, falling 386bps short of EE amid higher-than-expected revenue contribution from Hospitality and Indabrator business divisions. We raise FY19E revenue estimates largely to factor in the 2QFY19 beat but slightly trim FY19E/FY20E EPS estimates on lower other income assumptions (owing to lower cash due to future capex requirements).

BEC biz back to normal post BMC issue: Post the BMC notice — which barred NESCO from hosting any event at BEC until the completion of the Andheri-Dahisar Metro construction along the highway — things seem to be back to normal for the company. While certain documentation/permission requirements have increased, nothing seems to be alarming. Also, approvals are coming in smoothly for exhibitions.

Initial response to IT Park-4 promising: Construction activity at IT Park-4 is nearing completion and NESCO has already engaged with prospective clients. With 39 units for offering (3 units/floor), NESCO has already entered into a contract for 2 units. Further, it has signed and is likely to sign LOI for a few units in the coming weeks. Some existing clients from IT Park-3 are showing interest for additional space as well. Overall, initial signs seem encouraging for IT Park-4 leasing.

Expansion plans: Post IT Park-4, NESCO has finalized plans for the next phase of expansion. The company plans to add a new 15,000 sq.mt exhibition hall and IT Park-5 with a leasable area of 2mn sq.ft. NESCO is likely to spend Rs 1.2bn-1.3bn on the exhibition hall during FY20E, while construction activity for IT Park-5 is expected to start from 3QFY20E.

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