Nirlon Limited (500307) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q4 FY '24 conference call of Nirlon Limited. [Operator Instructions] I now hand the conference over to Ms. Purvangi Jain from Valorem Advisors. Thank you, and over to you, ma'am.

Good morning, everyone. My name is Purvangi Jain from Valorem Advisors. We represent the Investor Relations for Nirlon Limited. On behalf of the company, I would like to thank you all for participating in the company's earnings call for the fourth quarter and the financial year 2024. 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 the 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 primarily to educate and bring awareness about the company's fundamental business and financial quarter under review. Let me introduce you to the management participating with us in today's earnings call and hand it over to them for their opening remarks. We have with us Mr. Rahul V. Sagar, Chief Executive Officer and Executive Director, Nirlon Limited; Mr. Kunal V. Sagar, Director, Nirlon Management Service Private Limited; Mr. Manish B. Parikh, Chief Financial Officer and VP, Finance, Nirlon Limited; Mr. Jasmin K. Bhavsar, Company Secretary, Vice President, Legal and Compliance Officer, Nirlon Limited; and Mr. Ashish Bharadia, VP, Business Development and Investor Relations, Nirlon Management Services Private Limited. Without any delay, I request Mr. Kunal Sagar to start with his opening remarks followed by financial and operational highlights of the company. Thank you, and over to you, sir.

Thank you, Purvangi. Good morning, everyone. Good afternoon, actually. It's a pleasure to welcome you all to our earnings conference call for the fourth quarter and for the financial year 2024. Let us first take you through the financial performance of the company for the fourth quarter and the full financial year '23-'24. For the quarter under review, the company reported a total income of INR 154 crores, which grew by 4% year-on-year and 0.7% quarter-on-quarter. EBITDA was INR 122 crores, which grew by 5% year-on-year and 1.4% quarter-on-quarter. The EBITDA margin for the quarter was 79.47%. Profit after tax for the quarter stood at approximately INR 51 crores, which grew by 3.3% year-on-year. However, it declined 1.7% on a quarter-on-quarter basis. PAT margin for the quarter was approximately 33%. For the year under review, the company's total income stood at INR 607 crores, a growth of 5.5% year-on-year. EBITDA stood at INR 481 crores, which grew by 4.4% year-on-year. EBITDA margin stood at 79.26%. Profit after tax was INR 206 crores, reflecting a growth of 30% year-on-year. PAT margin for the year was approximately 34%. On the operational front, the average occupancy for the company as a whole, that is Nirlon Knowledge Park and Nirlon House combined, was stable at 99.8% for the fourth quarter of the financial year '24. And as on the 31st of March 2024, Nirlon Knowledge Park was 100% occupied. Deutsche has agreed to take up additional fitted out space at NKP accommodating approximately 200 to 250 seats. With reference to questions from shareholders about potential restructuring or other possible value accretive measures, discussions and consultations with concerned parties to address relevant issues are continuing. The company understands the importance of this aspect for investors and shareholders and will communicate any decision taken in this regard expeditiously. As regards whether the company intends to move to the new tax regime, after careful analysis and deliberation in Board meetings, the company has decided to stay with the old tax regime for the present. This is primarily due to the accumulated MAT credit available for setoffs in the old tax regime whereby the company estimates the financial benefits of moving to the new tax regime for the financial year '24, '25 will be nominal, whereas likely benefits to minority shareholders in any potential restructuring by remaining under the old tax regime are estimated to be appreciably greater. Accordingly, there is little to be gained by making an irreversible move to the new tax regime at this time and closing the option to potentially greater gain from benefits under the restructuring -- under any restructuring available only under the old tax regime. This position will be reviewed regularly by the company for any change in circumstances. Lastly, we are happy to announce that the Board has proposed a final dividend of INR 11 or 110% of the face value per share for the financial year '24 subject to approval by shareholders in the forthcoming 65th AGM. This is in addition to the interim dividend of INR 15 per share that was paid in quarter 4 2024. With this, we conclude our opening remarks and open the floor to questions.

[Operator Instructions] We have our first question from the line of Rajiv Malhotra from HCPL Parts Company.

Kunal and Rahul, let me congratulate you on behalf of all investors for an extremely wonderful result. We have a problem of no vacancy, which cannot be better than anything for a real estate company. So hats off for the management. My only query would be, the market understands that Kunal Ji sold off most of their holdings. But we are happy to note that he is still on the call. He's not a Director but a Director on the Management Services Board. Is there any particular reason for that we have to get worried on or something like that?

So this is Kunal. I'll answer your question quite briefly. I've been in discussions or looking to sell my stake for some time before the actual sale. An opportunity arose in March of 2024, which I then moved forward with. And just to be very clear, the reasons for my selling are entirely personal. They're not in any way related to the company or its performance at all in any way. I just want to mention that, and I hope that answers your question.

Thank you for answering it so clearly. If I could just do a brief follow, was GIC not interested in picking the stake?

Rajiv, I wouldn't really want to comment any more on the sale aspect, if you don't mind, because it's not really the subject matter.

[Operator Instructions] We have a next question from the line of Satinder Singh Bedi from Eon Infotech Investments.

Congratulations for great occupancy. So what is the valuation as of 31st of March because that exercise would have been gotten done? So just wanted to understand what is the valuation that has been arrived at?

Just a second, Satinder.

Valuation of the company as on 31st March is approximately INR 4,500 crores. It's a fair value.

Satinder, it's not the market value. This is a fair value as in our annual report, as we are required to present it.

Yes, but I assume there will be a market valuation exercise that would be got done by a registered valuer as an annual exercise. Like all other property companies or whatever listed entities with real estate assets would do. I'll just try to amplify, sir, where I'm coming from. The point is that the company has to undergo some restructuring in the future, which we understand the management is working on. That restructuring might entail a delisting or whatever. Our feeling is that having market value estimation done, it safeguards the interest of minority shareholders going forward in case of any delisting activity. So that because the reality is, we have an asset, which generates about INR 480 crores of NOI and a property as marquee as yours, as well leased out as yours, typically would trade at maybe 8%, 8.5% kind of cost -- of yield. So our sense is that this is a property, which should be valued at about INR 6,000 crores based on comparable deals across multiple REITs, which are listed and which have similar kind of properties. So if we just look at the 15, 20 valuations that today are prevailing in the market. This property for its NOI and for its stable kind of tenant base should not be valued at less than INR 6,000 crores. So our only point is that if the valuation is close to the market value, it does protect the minority interest at a future point in time when some restructuring happens, so it gives that comfort. So that's where I'm coming from.

Satinder, again, just to mention, as we mentioned, this INR 4,500 crores is the fair value that is part of our annual report and part of our statements. We don't actually do any market value per se, which we then put out into the public domain. By definition, that is subjective to an extent, and hence, we don't really go down that road in terms of whether it is X or Y. It's relatively straightforward what market values are and there are ranges based on the number of norms that can be used to determine that. So we prefer not to be that specific on that.

Right, sir. Just to persist with one follow-up on this. So how is the fair market value then calculated? So when we say fair value is INR 4,500 crores, how do we calculate that currently?

I think we would leave the calculation of market value to someone like yourself who is -- there are so many ways to do it depending on what your specific purpose is or what your specific goal is in terms of determining that value, whether it is...

No, sir. Sir, my point was when Nirlon has assessed the fair market value, fair value at INR 4,500 crores, how has that figure been arrived at, the Nirlon estimation of INR 4,500 as the fair value?

You're saying how have we got to INR 4,500 crores value, is that what you're saying?

Yes, the question is how have we got this fair value.

That is the fair valuation done by the approved valuer and this valuation has been done as per the requirement of Ind AS standards.

Satinder, does that answer your question?

Sir, we have the line for Mr. Satinder disconnected.

Okay. If he comes back on the line, do -- I mean, you can reconnect him. We'll try and finish the answer.

Sure, sir. We'll move on to the next question from the line of Pranay Jain from DealWealth.

My question is on Nirlon House. Any plans that you can share for the visibility? It's been a while since we got any progress update on that front. Also, it states that 6,000 square feet is lying vacant, so any efforts on that?

Nirlon House, we are in the process of working on it. And as soon as there is anything significant to say -- as you know, it's a strata sold property. It's a multi-owner property. So when properties are of this profile and of this nature, it takes us a little bit longer, but we are very keenly working on it to find a solution, which is in the best interest of everyone. And once we have anything significant to say, we will put it out there, but you can -- we are working on it very keenly and it is a priority as well. But because of the profile of the ownership structure of the building, these things are marginally complicated, to some extent, as you know.

I understand and I completely believe that best efforts are on, but it's been -- since [indiscernible] in your commentary, so I was asking if there is any progress in the discussion because I'm sure we would have better options emerging and us deliberating on something, maybe something is workable this year, perhaps, so I was looking for some clarity.

Yes. So right now we have nothing significant to say. When we do have something significant to say, we will put it out there. You mentioned some vacant space. I think some part of that is in the basement as well. So that's not really what we are looking to license in, in any way. Apart from that, the majority of the space owned by NL is licensed out. So once we do have anything significant to say, we will come back, but because of -- once again, because of the profile, it's a bit of a -- it's -- we are working on it. We are working on it.

So for an old minority shareholder like me, what can I look forward, say, over the next couple of years in terms of growth because management of the asset has been great, but in terms of growth, what is there to look forward?

You mean growth in NH or growth in the company as a whole?

Overall.

As of now, we don't have anything significant to say, in any concrete plans or any significant plans in terms of growth, in terms of additional CapEx, additional assets within NL. As you know, the existing asset is practically fully occupied since the last few years. Occupancy has been very high. And as Phase 5 was completed in June '21, we received the OC. So it's a phase of consolidation now and once we have anything significant to say, we will let you know. We do want to say though that the growth in the revenue will largely be driven by the profile of the licensees in NKP and also the potential increases in licensees due to escalation. And if and when possible, new licensees coming in as well. So this is definitely an area where there is an opportunity for potential growth in the revenue, and we are focusing very closely on that. And if you look at the results in FY '24 as compared to the earlier year as well, you can see that due to the contracted escalations actually happening and fructifying and hopefully, now increases in license fees for any potential vacancies that are likely to happen now. We hope to see growth in revenue as well.

This is, of course, standard and procedural. And I had said earlier, I commend on the management of the assets that we have right now. We are sweating it out to its optimized potential. What I meant to ask, I'll rephrase. Do we have any priorities for this year or is it just to run the business?

So the priorities for this year would be as I -- as we mentioned, increases in license fees, in contracted license fees when the opportunity arises for new licensees to come in, hopefully, at increased license fees and on better terms, commercial and otherwise. So of course, restructuring of Nirlon House is our priority as well. So really, for an asset of this nature, the increase in the value or the so-called growth from a stable asset can come from an increase in the top line. We're also very focused on the repairs and the maintenance and the CapEx so that the asset is able -- retains its quality, which will enable us to increase license fees as well as attract new potential A grade licensees. So that's always an area of focus, is repair, maintenance, CapEx and upgrading the asset and the facilities in NKP and to some extent, in and around an NKP as well.

Got it. Just to summarize, if I ask for a simplistic view from INR 607 crores top line and INR 205 crores of bottom line, any estimates for the next couple of years based on the conversations we've already had with our partners?

I can't really speak on that estimates, et cetera, et cetera. But you can see from the information that we have put out, you can make a good -- you can do your own analysis. Each one can do their own analysis from the information that we have put out there. But unfortunately, we don't really want to speak of any revenue assumptions going into the FY '25, '26, et cetera.

I was saying in absence of any decision or outcome on the restructuring, if the things continue as is, any range of growth like 10% to 15%, something like that, to look forward? That's what I was asking.

As Rahul said, we don't normally comment on potential growth or what the estimate might be for next year. That's especially relevant in this year. In case we have -- as you know, there are some potential long-standing discussions on one of our old very valued licensees moving out and other new people potentially moving in, in that place. So that's the process that will play itself out over this year and the next, and we are, of course, following it very closely. And as we've mentioned, that's the process that will unfold over the next couple of years. So we don't want to be guessing in terms -- without receiving any specific notices. We don't want to be guessing when exactly those vacancies may occur, when we will fill them and what the effect on revenue might be. The only point we had made is that we see potentially good demand and we're having good discussions for this potential vacancy. But since we don't have any vacancy notices yet, there are no specific transactions that one can actually conclude or contract. And so that's the potential variables over this year that may be there.

We have our next question from the line of Kevin Gandhi from CapGrow Capital.

I hope my voice is audible.

Yes.

Sir, just want to understand -- I just have 1 or 2 questions. Just want to understand what are the potential issues that management is facing in this whole restructuring of the delisting process. So it's been basically 6 quarters, around 1.5 years since I've been listening that we are going to restructure. We are doing something about the process. What all issues are we facing? And when would this finally be resolved? This is my only question.

Kevin, we appreciate your question. The answer is more or less essentially the same as we've been mentioning over our last several calls, which is based on the structure and based on the priorities of our major shareholder, we are looking at what is the most optimum restructuring or set of issues that we can take up for restructuring. And we have -- again, we are in the process of discussing that and we don't really have anything more specific than what we've been saying. And I know that you are keen to have that answer, but there is no more information that we can give you simply because it's a process that has to play out based on what back and forth happens in discussions.

No, so what question I had, so basically, any expected time line. So basically, we might have been discussing this thing since many quarters now. When would this get finalized? When is my only thing concerned here, sir.

We take your point, but we are not able to give you any time frame on that, Kevin. By its very nature, if there is a discussion that is going on, which is essentially a discussion that also includes discovering the various options that might be available to us and to choose the best one, and we are still in the process of getting and analyzing information that comes in. Then there is no time frame one would want to put on that. The point is to get the right set of options and then move forward with them. And that's what we are working on.

Sir, are we actually sure that we want to either delist or restructure in the form of REIT? So in that case, are we sure about one of the options? Or are we still like thinking or being divisive on what to do, whether to delist or to actually restructure by the form of REIT? So are we sure about what we want to actually do or we are still thinking about 1 of the 2 options?

As we've said, we are -- there is no decision at all on which option we are going to take. We've never put forward any information that says that we've agreed on a delisting or on something other than a delisting. So you are correct in your understanding that there is no specific direction or no specific aspect of this that we have concluded on.

We have our next question from the line of Rajiv Malhotra from HCPL.

I'm just taking it as a follow-on to one of our earlier participants regarding the fair value of our properties. I do agree that it has been clearly mentioned about having it fairly valued by an independent registered valuer. But if -- Kunal Ji, if you see, it's usually the valuation is done based on market value itself, right? So the point being that the market value cannot be different by 35%, you may take it as a suggestion that if this can get narrowed at a time in the future if, and if only, there is a restructuring, this may become an important point. It's a balance sheet entry, which most companies do it. It's just the detail or attention paid on this entry in the notes to accounts, and your notes to account since the time I have seen your balance sheet in 2010 are exemplary. So maybe you could have a look at it with the -- with your accounting firms once again.

Rajiv, and this question initially was from Mr. Satinder Bedi. We thank you for that -- for your thoughts and suggestions on that. And do be assured that we will certainly take a look at what you're saying to see if there's any change or addition we need to make to our accounts. And of course, during the next call, we would be in a position to update on that, whether it's something that we would change or not, but we'll certainly take a look at what you said.

We have our next question from the line of [ Laksh Jain ], an individual investor.

My first question. Sir, last year, we did INR 85 crores of CapEx. And this year, it was INR 55 crores only. Why was there no increase in dividend, sir, despite of INR 30 crores saving in CapEx? This is my first question.

Can you just give us a second? You are saying that -- can you just repeat that just so we understand it properly?

Sir, there was a reduction of INR 30 crores in CapEx. Last time, it was INR 85 crores. And this time, it was only INR 55 crores this year. So INR 30 crores of saving was there in CapEx. But we haven't increased any dividends. Sir, this INR 30 crores, if we distribute in dividend, we'll get another INR 4 or INR 3, INR 3.5.

Give us a minute on that, [ Laksh ]. We will just take that and come back to you. Just hold on a minute.

Yes, yes.

[ Laksh ], just to answer that, the previous year's INR 85 crores included significant amounts of CapEx from Phase 5. That number has obviously reduced significantly in the year under review just now. Also in terms of -- we haven't linked that deduction in CapEx to the dividend because...

I missed it. Can you repeat, sir, sorry?

What we are saying is that the reduction in CapEx is not linked to our profitability. And hence, we are not linking it to dividend, right? It's the cash flow that you're looking at. We are not linking that cash flow to dividend. We are linking the dividend to profitability and the ability to sustain dividend and sustainability of profitability.