Nirlon Limited (500307) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '23 Conference Call of Nirlon Limited. [Operator Instructions] I now hand the conference over to Mr. Anuj Sonpal from Valorem Advisors. Thank you, and over to you, sir.

Thank you. Good evening, everyone, and a very warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the Investor Relations of Nirlon Limited. On behalf of the company, I'd like to thank you all for participating in the company's earnings call for the third quarter and 9 months ended of financial year 2023. Before we begin, let me mention a short cautionary statement. Some of the statements made in today's earnings call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. Let me now introduce you to the management participating with us in today's earnings call and hand it over to them for opening remarks. We first we have with us: Mr. Rahul Sagar, Chief Executive Officer and Executive Director; Mr. Kunal Sagar, Promoter and Non-Executive Director; Mr. Manish Parikh, Chief Financial Officer and VP of Finance; Mr. Jasmin Bhavsar, Company Secretary and Vice President of Legal and Compliance Officer; Mr. Ashish Bharadia, Vice President of Business Development and Investor Relations at Nirlon Management Services Private Limited. Without any further delay, I request Mr. Rahul Sagar to start with his opening remarks. Thank you, and over to you, sir.

Thank you, Anuj. Good evening, and welcome to our earnings conference call for the third quarter and 9 months ended for the financial year 2023. We hope all of you are safe and well. Let us take you through the financial performance of the company. For the third quarter of the financial year 2023, the company reported a total income of INR 144 crores, an increase of approximately INR 55 crores on a year-on-year basis. EBITDA stood at INR 119 crores, which grew by 59% on a year-on-year basis. This represents an EBITDA margin of 82.19%, which improved by 200 basis points on a year-on-year basis. Profit after tax stood at INR 54 crores for the third quarter. Profit margin was 37.08%. For the 9 months ending 31 December '22, the company reported a total income of INR 427 crores, witnessing a growth of approximately 71% on a year-on-year basis. EBITDA was INR 344 crores, representing an EBITDA margin of 80.57%, which improved by 562 basis points on a year-on-year basis. Profit after tax was INR 108 crores, a growth of approximately 47% on a year-on-year basis. Tax margin stood at 25.33%. This revenue and profitability growth can be largely attributed to Phase 5 becoming operational, and the resultant increase in revenues and the economies of scale resulting thereof. The revenues for the last 2 quarters can be considered as representative of stabilized performance going forward. We estimate that the operations at NKP have now largely stabilized. Hence, the financial performance in quarter 3 may broadly be estimated as a representative of the stabilization of operations. However, there will always be the potential for variations in some quarters, mainly due to fluctuations in occupancies, especially during re-leasing. We continue to focus on improving operating efficiencies. On the operational front, the average occupancy rate for the company stood at 97.6% for the third quarter. Global Payments renewed approximately 9,000 square feet due for renewal in financial year '23. LRN renewed approximately 15,000 square feet due for renewal in financial year 2024. Our food and beverage outlets, which are amenities or support services for the park occupants, renewed approximately 6,600 square feet. Barclays vacated approximately 23,000 square feet on expiry of their license period. As on 31 December 2022, approximately 83,000 square feet area was vacant. Of this vacant space, MUFG has licensed approximately 23,000 square feet and Protium Finance has licensed approximately 34,000 square feet in Q4 of financial year '23. With this, we conclude our presentation and open the floor to your questions.

[Operator Instructions] We have the first question from the line of [ Ashok Jain from Ayush Capital ].

Sir, my first question is regarding the interest rate we have [ paid ]. In our last conference call, you had informed that our interest rate on HSBC loan has increased from 6.1% to 8.7% effective 1 November 2022. Sir some [ GAC ] Group company has renegotiated interest rate to 7.5% only. Going forward, do we stand a chance to lower our interest rate downwards from this 8.7%, sir?

So, as you mentioned, our interest rate was 8.75% on our term loan through -- at the end of this quarter as on 31 December 2023. Net rate has gone up marginally to 8.8% on the second of -- on the first -- from the first of February. Our interest rate is linked -- on the term loan is linked to 3-month T-bill. And so, the rate will depend on how the T-bill moves over the next -- over the coming quarter. So it has a direct bearing on what the overall interest rate regime or environment is going to look like. Our own estimate is that it will probably get somewhat higher before it starts going lower. So that's an estimate or an assumption that we are making based on the information that we have today. Since it's linked to T-bill, should the environment change and should there be a lowering interest rate environment, then, of course, it would go down at that time. Does that answer your question?

Yes, sir. And sir, my second question is, regarding your media report about the SEBI permitting listing of micro REIT, that is a single property REITs we have assessed above INR 500 crores. There was an article during December second week in the media, given that we continue to give old tax regime to maintain flexibility, can you please share your views, because we had the last few months to discuss in case you had the opportunity to discuss with GIC that -- is it possible for Nirlon to convert itself into your micro REIT? Because in case the SEBI allows this permission, sir -- your view will be very helpful.

So Mr. Jain, just to be clear, the -- I think -- your question is on the media report that appeared with reference to small REITs or micro REITs, correct?

Yes, sir.

So we checked that to see what the position actually was, and what we understand is that there is no such proposal that is under any kind of active or genuine discussion with the concerned regulators. It's not really there in any shape or form that is likely to fructify or move forward just now. That's what we found. So it does appear to have been largely a media report, not really based on anything that is in process.

In case it happens -- because government, it seems that they want to promote the REIT. In case it happens, so are we open to this? Or it's not for us?

Mr. Jain, if there is a regulation of that sort that comes about, we'll, of course, take a look at it in much detail to understand what it is and then do accordingly at that point. But, of course, we have to understand and see what the regulation says or doesn't say.

We have the next question on the line of [ Dilip A. Jain ] from -- who is an investor.

Sir, my question was, in the post-COVID world, many IT companies seem to be more inclined to continue with the hybrid model of working. Going forward, if this trend were to become a norm in the future, what will be its impact on the office-leasing sector? Sir, we would be obliged if you share your views on the same.

Well, I mean, firstly, we are not entirely dependent on the IT company, so to speak. We, of course, have IT and ITES. And so, we're not contingent only on one particular sector. The sector which we are frankly more exposed to is IT, ITES and with multinational and the international banks, which make up a large part of our occupants and licensees. I think the view of a lot of the MNC companies and the international companies is that, even though it may be hybrid to some extent, they are very keen to get 100% of the people back into office. They may not all come in on the same day. But out of -- example, out of 1,000 employees, they want all 1,000 employees back in the office. Now, it may not be all on the same day. So we are seeing an occupancy -- a physical occupancy in the campus of about 60%, 65%. Sometimes it goes up to 70%. So, of course, this is something that we look at very carefully. Of course, it's something that can be concerning. But I think the trend is fairly positive and the sector where we are really exposed to a large extent, has raised a lot of emphasis on going back to work as well, not just work from home, but going back to work either full-time or in a hybrid model. Yes, we continue to watch this very carefully.

Sir, my last question, our total dividend payout is almost or greater than 100% of our annual net profit. And also, we continue to pay tax under the old tax regime. The decision to continue in the old tax regime is to maintain future restructuring flexibility. This is -- this decision is reducing our cash flows, and consequently, our ability to pay higher dividends to our stakeholders, including minority shareholders. Sir, minority shareholders like us will benefit only if Nirlon stays listed. Just wanted to know your thoughts, if this scenario is possible?

What is the actual question that you have?

Do you want me to repeat?

Just the last part.

Just the last bit so we understand what your query is. We heard you on your earlier part, and we understood that. The question is, what would you like us to answer with reference to that observation?

Yes. Sir, my question is, sir, we are minority shareholders, and we benefit the most in the case Nirlon stays listed. So just wanted to know your thoughts if the possibility of Nirlon staying listed is still active?

Well, at the moment, we are -- being listed or not listed is in the interest of minority shareholders. I don't think that's a question that we can answer on an earnings call. I think that's a debate. That's a different -- for a different forum as it was. So we wouldn't really want to answer that part of it. At the moment, we are listed. We've had -- as you know, we've had earlier discussions about various shareholders and various discussions about delisting the company, and about that being in favor of minority shareholders. So I think it's just -- that is not something that is debated on this call, if you don't mind. The company for now is very much listed. And as we've said often times, our idea is to continue to pay consistent and stable recurring sustainable dividend. And we believe that the -- that's why we mentioned in our opening remarks that, we feel that we are achieving the kind of stability that we have aspired to, and the kind of EPS, the kind of earnings after tax, the kind of EBITDA that we have aspired to. And on that basis, we believe that we will be able to sustain the dividends that we have started paying from the last financial year going forward.

[Operator Instructions] We have the next question of the line of [ Lakshya Jain ], an investor.

I just have one question. Sir, in the last con call, you have mentioned that the shift from WDV to SLM is just for accounting purpose, and that there will not be any change or any increment in the tax liability. The finance cost has increased by INR 5 crores. As interest paying tax deductible, there should have been a decrease in tax liability in the extent of 5 into 35%, that is INR 1.75 crores. Instead, there was an increase of INR 6.5 crores, sir. So just wanted to understand this, sir.

Can you hold on just a second? We would just see if we've understood your question right. We'll just put it on mute for a minute to understand your question and come back to you. Okay? Give us a minute. Mr. Jain, we are back. We will just -- our CFO, Manish Parikh, will just take your question and try and answer it, okay?

See, as far as depreciation is concerned, we have now moved from WDV to SLM method. And the depreciation will have no impact on the taxation because the tax working is independent, and it has got its own method of calculating the depreciation under the tax. So that does not change.

But there was still an increase of INR 6.5 crores.

Sorry?

There was still an increase in tax liability by INR 6.5 crores.

Because, if the profit before tax increases...

Sir you are not audible, sir.

Tax will also increase -- profit during the current quarter from INR 58 crores to INR 78 crores, correspondingly MAT or income tax liability will also go up from INR 18 crores to INR 24 crores.