Nesco: Why this MICE player is a worthy small-cap bet

The opening up of the economy in the aftermath of the Covid pandemic has seen a phenomenal revival in many industries. Hospitality and realty segments are two such beneficiaries whose fortunes have headed northward for the past three years.

As a company focused on events, exhibitions, real estate, hospitality and engineering, Nesco has seen its key revenue-generating segments firing on all cylinders as outbound activities bounced back in the post-Covid period.

In the three years from FY21 to FY24, Nesco’s revenues from operations rose at a compounded annual growth rate (CAGR) of 35.6 per cent, while net profits increased at 28.2 per cent over the same period. The FY24 revenues for the company came at ₹678.2 crore and the net profits came in at ₹362.8 crore. The net margin has been impressive at over 50 per cent in recent years.

At ₹888, the share trades at 17 times its FY24 per share earnings, which is much lower than most small to mid-tier player in the realty, construction and hospitality spaces. The BSE Realty index trades at a PE of 62.7 times, while most hotels trade at multiples in excess of 50 times.

Investors can consider buying the share at current levels with a 2-3-year perspective, given the reasonably attractive valuations and robust traction in its key segments of operations.

Nesco’s return on equity is healthy at 17.03 per cent in FY24, up from 15.88 per cent in FY23.

The company is has also remained debt-free for the past several years.

If other income – largely deposit interest and gains from mutual fund units – is added to the revenue, the growth figures become even better, but though possibly sustainable, we have excluded it as that does not come from core operations. For example, other income was Rs 104.9 crore in FY24 and 63.1 crore in FY23. Nesco mostly invests in debt mutual funds, corporate deposits, nonconvertible debentures, bonds and preference shares.

Multiple segments fire

Nesco IT Park is the largest revenue generator for the company (nearly 47 per cent) and income is generated via rentals and other services rendered to commercial clients. The IT Park witnessed 14.2 million sq ft of gross leasing value in FY24. Clients leasing office spaces include the likes of HSBC, KPMG, PWC, MSCI, BlackRock, Here Solution, Framestore, Priceline, Ericsson, Apollo Global, ISS Governance, Sodexo and Ericsson. Despite being a year when headcount addition in the IT and other key spaces was anaemic, revenue from the segment still grew 7.9 per cent in FY24 over FY23.

The next largest revenue segment is the Bombay Exhibition Centre, which has been around since 1991. As the name suggests, the venue hosts exhibitions, trade shows, business displays, events, and entertainment. A sample of events hosted include India Jewellery Show 2023, National Garment Fair 2024, IIJS Signature and IGJME 2024, Acetech 2023, Paperworld, Corporate Gifts Show and Interior Lifestyle India 2024, PaintIndia 2024 and the like. With the ability to construct stalls based on varied customised requirements, the Bombay Exhibition Centre is able to accommodate visitors on a large scale.

Also, as it operates in a prime location – Goregaon – and is thus able to receive significant traction for all events.

Accounting for nearly 31 per cent of the total pie, the revenues from Bombay Exhibition Centre grew at 34.2 per cent YoY in FY24.

Nesco foods is the third largest segment, accounting for 14.6 per cent of revenues in FY24. This segment grew a whopping 104.2 per cent YoY in FY24 over FY23.

This division fulfils the needs of exhibitions, weddings and social celebrations, outdoor catering and food courts. It has a 24,000 sq ft kitchen and prepares 80,000 meals a day to cater to wide range of regular and gourmet requirements.

According to a research report from Coherent Market Insights, the India meetings, conferences and exhibitions market, which is valued at $3.3 billion 2023, would grow at a CAGR of 18 per cent and reach $10.52 billion by 2030. Further, the report notes that Delhi, Mumbai, Bangalore and Chennai are among the most favoured destinations for such meetings and exhibitions.

A reasonably established player such as Nesco is thus well-placed to tap into this growing market over the long term.

The company has a smaller division engineering division focused on the surface preparation technology. Nesco boasts of clients such as Railways, Defence, etc. for the division.