Nesco reported good set of top-line and bottom-line numbers. The reported topline
numbers were at Rs 435.1 mn, ahead of our expectations of Rs 410.4 mn. The
current top-line numbers reflect 26.8% year-over-year and 15.5% sequential
increase. Surge in the year-over-year top-line numbers reflect the impact of Q3FY12
top-line numbers being reclassified from Rs 380.2 mn to Rs 343.2mn. Strong 38.5%
increase in Exhibitions & IT Park segment (90.4% of Q3FY13 revenues) lead to the
top-line growth.
Reported EBITDA of the company were at Rs 329.5 mn ahead of our expectations of
Rs 299.6 mn. EBITDA margins of the company improved from 74.3% a year ago to
75.7% in Q3FY13. Improvement in year-over-year EBITDA margins has been on a/c
of 15.1% fall in cost of materials (to Rs 29.6 mn). EBITDA margin expansion in Q3FY13
was restricted on a/c of 61.5% increase in other expenses (to Rs 59.6 mn). We sense
expenses related to the launch of IT Building Phase-III would have led to such surge
in other expenses.
Nesco reported a PAT of Rs 253.0 mn ahead of our expectations of Rs 215.5 mn. Inline
with EBITDA margin movement, PAT margins of Nesco improved from 57.0% in
Q3FY12 to 58.1% in Q3FY13. PAT margin expansion has been arrested due to (1)
109.0% increase in depreciation expenses (to Rs 12.5 mn), (2) 20.6% increase in tax
expenses (to Rs 102.5 mn). New R&D facility related expenses being amortized, in
our view has resulted in increase in depreciation expenses.
Valuation
At CMP of Rs 787, Nesco is trading at FY13E and FY14E, P/E multiple of 11.6x and
7.6x, respectively. After adjusting for the value of liquid investments of Rs 170/
share, the adj. FY14E P/E stands at 5.9x thereby the stock looks to be highly attractive
at current valuations.
With IT Building Ph-III getting operational in Q4FY13E and growth prospects of
Exhibitions industry to be in mid-teens, the growth prospects of Nesco look
promising. Given the nature of higher EBITDA margins of Nesco, we sense that the
top-line growth in FY14E would translate to bottom-line, too.
As of now we are not changing our FY13E and FY14E estimates, despite Q3 numbers
ahead of our expectations. We continue to maintain BUY rating on the stock, with
FY14E based price target of Rs 1,046, reflecting 32.0% upside from the current levels.
