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🔆 12-Nov: NESCO, Nykaa, HDFC Twins & More


🔆 Quick glance

  • What’s up with markets: Crisp overview of markets & macros
  • What we are reading: 5 good reads from across the globe
  • What’s that outlier: NESCO
  • What’s on YouTube: HDFC Twins, Nykaa & More

What’s up with markets? 📉📈

Britannia is topping the leaderboard with a 7.8% weekly gain as the stock kept rising during the week on the back of strong quarterly earnings.

Divis was down -12.6% this week mostly because of disappointing earnings.

🔆 12-Nov: NESCO, Nykaa, HDFC Twins & More

Nifty 50 index inched up 1.3% extending its monthly gains to 7.2%. Yet, on the yearly time frame, it does worse than gold. Crude continues to hover between $90 and $100 while silver & gold closed flat for the week.

🔆 12-Nov: NESCO, Nykaa, HDFC Twins & More

On valuations, the price-to-earnings (PE) ratio for the Sensex was at 23.3, and there’s a graph below for historical comparison.

🔆 12-Nov: NESCO, Nykaa, HDFC Twins & More


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What’s that Outlier?

Capitalmind Outliers is our in-house screening tool that helps you discover stocks with trends and momentum in their favor. Every week, we at Capitalmind discuss what’s behind an outlier standing out. This week, we have a Mumbai-based realty company in focus: NESCO Ltd.

The company has a long past from decades ago, it started out with its capital goods business. The archetypical industrial house, all the way back then, purchased 70 acres of inexpensive land in Goregaon East, Mumbai. It took them three decades to realize that if monetized, the real estate they’ve been sitting on, is perhaps a more lucrative business than what they have been doing.

The office parks came first, the Bombay Exhibition Center half a decade later, and the foods and events businesses roughly three decades after they first opened their office parks. Some context on the businesses:

  • The office parks business (45% of revenue before the pandemic) licenses its premises to corporates, with the likes of KPMG, HSBC, MSCI, and BlackRock among its largest multinational companies clientele. Last financial year, their two office towers had occupancy rates of 80-92%, while another tower is being rebuilt.
  • Their convention hub (33%) is the largest privately-owned events space in the country, and until recently, among the few only choices in Mumbai to host big events, owing to the facility’s size, versatility and customizability. NESCO plans to build the hub into an integrated exhibition center, with convention centers, hotels, and other amenities within the same estate.
  • The food/hospitality business (8%) primarily caters to exhibition visitors and employees from various companies that work in the office parks. NESCO is now venturing into outdoor catering, and executing B2B contracts outside of the NESCO estate, but managed within the existing facility.
  • The events/exhibitions businesses are involved in organizing their own events (music and food festivals, for instance), exhibitions, and conferences. The monetization comes from ticket sales and sponsorships.
  • The capital goods business (5%) still lives under ‘Indabrator’. They are among the leaders in the surface preparation category, and recently tripled their manufacturing capacity from 2,000 mtpa to 6,000 mtpa.

The relatively-conservative promoters have remained in the right side so far, in using the cash flows it generates from their businesses to build up more office parks and convention halls within the same land bank, creating a nice feedback loop, and more importantly, avoiding leverage. In fact, as of the financial year ending March 2022, the company had about 856 crores on its books as liquid assets, about 19% of the current market cap.

However, when the pandemic struck, unsurprisingly things went downhill: hosts canceled their exhibitions (the center went from hosting 128 events in the year before the pandemic to just a single event in the year after), tenants played hard-ball during lease negotiations, and the foods business which largely fed people in the facility faltered. What’s more: the Municipal Corporation of Greater Mumbai (MCGM) took over the exhibition halls to build make-shift covid centers. The future appeared bleak for NESCO with the exhibition revenues going down almost completely, and at its lowest point, the company’s stock price almost halved.

This brings us to probably why the company landed up in Outliers this week. Now that the pandemic has largely subsided, MCGM released some of the exhibition halls back to NESCO (others are expected to be released this financial year), and the company’s recent quarter results seem to have made investors headline-happy. Albeit on a low base: the company’s top line grew 75%, bottom line grew 86%, exhibition revenues went up more than twenty-five fold, and foods revenue went up about six-fold compared to the corresponding quarter last year. Occupancy at the office parks remained high at 95%.

The company, which operates in a cyclical industry, will take this with open arms. Going forward, the company, which largely never had serious competitors in the exhibition space, now has a Reliance company to contend with. As per a recent interview with Jio World Convention Centre’s management, within eight months of its launch, the center located in Bandra-Kurla Complex has hosted sixty big events, attracting 170,000 visitors.

🔆 12-Nov: NESCO, Nykaa, HDFC Twins & More

(Disclaimer: The information conveyed in this post is intended for informational purposes and shouldn’t be considered investment advice. Please do your own research before making investment decisions)

What we are reading? 📝

  • Owning forever: After investing, exclusively focus on the business and, if the business is fine, do absolutely nothing!! Read – Do nothing dammit
  • There are three types of written content: You can give people information, you can give them an opinion, or you can try to change the way they think. Read – Attention
  • It’s important that, as investors and as leaders of a firm, we’re making the same decisions on Tuesdays as on Thursdays, in January and in July, whether we’re up or down and whether the markets are up or down. Read – Getting out of your own way
  • The goal of forecasting is not to predict the future, but to tell you what you need to know to take meaningful action in the present. Read – At the tipping point
  • The most important skill in finance is salesmanship. Read – The most important skill in finance

What’s on Youtube? 🎙

Our latest episode, released yesterday had three fantastic discussions: 1) Why HDFC Twins moved 7% each in a single day? 2) Nykaa bonus issue: Ethical or not? 3) What’s wrong with Pharma stocks? Tune in to watch Deepak Shenoy and Krishna Appala discuss the latest trends in the markets.

(If you have questions you would like to ask us, do join in live every Friday at 4:00 PM on our Capitalmind youtube channel)


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