Daljeet Kohli of IndiaNivesh has enjoyed great success with NESCO. He first identified it in April 2013 when the price was Rs. 769. At today’s CMP. Daljeet is sitting on a 45% gain from the stock in about a year’s time.
Daljeet has even put NESCO in his “conservative” model portfolio (pdf).
The report is full of facts and figures and makes for interesting reading. Let’s look at the bottom-line:
“We are rolling out our FY16E estimates. Given that all approvals are not in place for IT Building IV and Exhibitions business (expansion), we have not modeled any revenue and profitability numbers in to our estimates.
Considering 95% occupancy rates, tenants being out of rent-free period (for full year), lease rate revisions, we expect lease revenues from IT Building III to be at ~Rs 900 mn in FY16E. Increase in revenue contribution from IT Building III would be the key driver for Nesco reporting ~26.1% y/y top-line growth.
With entire property brokerage charges paid in FY14-15E, we expect better operating leverage to be seen in FY16E. As a result, we expect Nesco to report improvement in its EBITDA margins (from 66.9% in FY14 to 75.6% in FY16E). In-line with EBITDA margin movement, we expect PAT margins also to improve from 50.3% in FY14 to 54.6% in FY16E.
At CMP of Rs 1,065, Nesco is trading at FY15E and FY16E, EV/EBITDA multiple of 9.6x and 7.3x, respectively. 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.”
Personally, the logic appeals to me. NESCO appears to be one of the safe and steady stocks that one can bank on to churn out regular returns, year after year. Its’ valuations are also reasonable. It is a proxy play on the real estate boom that the Mumbai city is witnessing and an excellent hedge against inflation. Such stocks must form a core part of your portfolio.