Nirlon Limited (500307) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 and H1 FY '26 Earnings Conference Call of Nirlon Limited. [Operator Instructions] I now hand the conference over to Ms. Hina Khatri from Valorem Advisors. Thank you, and over to you, ma'am.

Good morning, everyone. My name is Hina Khatri from Valorem Advisors. We represent 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 second quarter and first half of the financial year 2026. 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 information currently available to the management. Audiences are cautioned not to give 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 introduce you to the management participating with us in today's earnings call and hand it over to them for the opening remarks. We have with us Mr. Rahul Sagar, Chief Executive Officer and Executive Director; Mr. Manish Parikh, Chief Financial Officer, VP Finance; Mr. Jasmin Bhavsar, Company's Secratory Vice President, Legal and Compliance Officer; and Mr. Ashish Bharadia, VP Business Development and Investor Relations, Nirlon Management Services Private Limited. Without any further delay, I request Mr. Rahul Sagar to start with his opening remarks, followed by financial and operational highlights of the company. Thank you, and over to you, sir.

Good morning, everyone, and welcome to our earnings conference call to discuss the performance of the second quarter and first half of the financial year 2026. Let me first take you through the financial performance of the company. For the second quarter, the company reported a total income of INR 169 crores, which grew by approximately 4% year-on-year. EBITDA was reported at INR 133 crores, which grew by approximately 2% year-on-year and EBITDA margin stood at 78.69%. Profit after tax for the quarter was INR 148 crores with PAT margins at 87.45%. For the first half of the financial year 2026, the company reported a total income of INR 336 crores, which grew by around 5% year-on-year. The EBITDA was reported at INR 265 crores, representing 5% growth year-on-year. EBITDA margins were about 78.83%. Profit after tax for the first half stood at around INR 206 crores and PAT margin stood at 61.36%. The growth PAT for the quarter and the first half is not comparable to earlier periods as the company has decided to move to new tax regime for FY '26 and Q2 FY '26 -- from Q2 FY '26 onwards. Accordingly, tax expense for Q2 FY '26 and 6 month period -- and the 6-month period ended September 30, 2025, is based on the new concessional tax rate. The company has also remeasured opening deferred tax liability and reversed INR 69.5 crores in the current quarter. On the operational front, the average occupancy rate for the company as a whole, comprising NKP and Nirlon House stood at 98.6% for the quarter. As of 30th September 2025, approximately 20,000 square feet area was vacant at NKP and Nirlon House combined. During the quarter, approximately 260,000 square feet has been licensed and taken up by Deutsche Bank, Barclays, MUFG, Citi and EY. Additionally, the final dividend of INR 11, 110% per share for FY '25 was paid as approved by the shareholders in the AGM. Lastly, before we move on to the Q&A session, we would also -- we would also like to proactively inform you that there has been no further update regarding any restructuring plan. Hence, we would appreciate -- we would appreciate it if the focus of the questions on this conference call are about the operations and the financials of a quarter under review. We assure you that as and when any definitive decision is taken on these matters, we will inform our shareholders. With this, we conclude our opening remarks and open the floor to questions. Thank you.

[Operator Instructions] The first question is from the line of Rehan Sayed from [indiscernible] Asset Managers.

My first question is on the license side. So you have mentioned that you have licensed 26,000 square feet in quarter 2. So could you help us understand how the achieved rentals on this new lease compared with the average rentals of your existing portfolio? And by continuing this question, so for the remaining 20,000 square feet vacant area, so what are the expected time lines for full occupancy? And are we seeing any changes in tenant performance compared to [indiscernible]

Okay. So thank you for the question. So essentially, the 260,000 square feet that was licensed is really some of the space that was vacated by Morgan Stanley and this has been licensed at fairly competitive rates to existing occupiers as well as essentially to existing occupiers. We also want to add that the gap or the actual -- Yes. So yes, we also want to add that the actual gap within the time period between Morgan Stanley vacating and the new licensees coming in has been not very substantial as well. So the rates are also -- we feel fairly competitive and going in the right direction. So all in all, we see that this 260,000 square feet -- approximately 260,000 square feet that has been licensed is a very positive development. The gaps of the actual vacancies were not very significant as well as the rates, which were fairly positive and some of them with annual escalations as well, which is very important for us. So that's really the summary of this space that was licensed. To answer your question on the vacant space, some part of this is in NKP and some part of this is in NKP and some part of this is in Nirlon House. The part of this in NKP really has already been discussed and finalized and it's only a question of documentation, et cetera, et cetera, which -- this has also been discussed and finalized as we said, at fairly competitive rates, what we feel. And you will see the effect of this in Q3. So it's really some part of Nirlon House, which has a few vacancies, not really NKP. We just want to clarify that. Thank you.

Okay. Fair enough. The second question is on -- I just want to understanding of the Goregaon micro market. So based on the current market rentals in Goregaon micro market, what is the management's internal view on the rental upside potential during the larger renewal cycle come maybe in FY '27, FY '28 forward?

Generally, we feel that the demand is very positive now, especially the GCC demand is fairly positive. As you know, our vacancies are very, very low and very marginal. So we do feel that there should be a consistent demand in '25-'26, '26-'27, et cetera. But to the extent we have -- we will only really be able to get into the details of this issue if we have significant vacancies. If we don't have significant vacancies, which is the situation now and we have contracted with these existing licenses for the next 5 years, et cetera, and it's not so significant for us, the micro market demand at this point because of our existing situation with practically plus/minus 1% or 0% vacancies. We do want to say that all contracted acquisitions, some of which is now annual, which is very, very important happening. And essentially, as per the licenses are happening, as per the commercial terms and condition attracted, so nothing very significant to say on that front as well due to the very high levels of occupancy. Thank you.

The next question is from the line of Mohit, an individual investor.

So just a few questions on the vacant space actually. So I just wanted to know how much vacant space available as of today in the company? And what is the expected time lines with ongoing discussion with clients, so this vacant space will be ...

So we can really say, frankly, that in NKP, there's no real vacant space at all because some part of the 20,000 square feet, approximately 10,000 square feet of the 20,000 square feet is already under discussion, has been discussed, et cetera, et cetera. And also in Nirlon House, a large part of the existing 9,000 or 10,000 square feet vacant space that has been mentioned some part of that, a significant part of that is in the basement as well. So really -- there's nothing much to say in terms of the time line as far as NKP or Nirlon House is concerned, as I said, NKP this final 10,000 square feet is part of a larger -- is part of a larger transaction, and it should be concluded the documentation should be concluded very, very shortly. So no real vacancy as such at all.

Okay. Okay. Just one follow-up question. Like historically, what has been the retention rate at NKP? And how quickly the vacant space typically get released?

So the -- when you mean retention, you mean...

Yes, the occupancy.

Yes. So essentially -- from inception, we can say that only 2 large licensees have left. One was purely for commercial reasons. One which was there in Phase 1 for 9 to 10 years is purely for commercial reasons. And the other one was unfortunately because of that of space in NKP for growth. So these are only 2 cases or licensees having left and retention is fairly positive as we know.

Okay. Just one last question.

Yes. Go ahead.

Just one last question on the concentration risk only just as you said in the NKP, we have only had only 2 clients leaving us because of some expansion issue. So I just wanted to know like how does the company plan to reduce this tenant risk and attract more diversified tenant base going forward?

I mean if you look at the profile of the licensees now in NKP, the profile is fairly positive. The balance sheets are fairly strong. So we don't generally want to get into situations, we need to diversify the user profile for the sake of it. But if we feel we have strong balance sheets for the majority or all of the licenses, and we don't really want to change that for the sake of changing purely for diversification. The actual license periods are approximately 5 years/9 years. And unless we see any significant issues or we face any significant problems, we don't want to get into any changes for the sake of it.

The next question is from the line of Satinder Singh, from Eon Infotech Limited.

On Nirlon House, any progress in terms of, moving forward on that?

Well, nothing that we can say very significantly. When we do have something, of course, we will keep you informed at the earliest. Thank you.

Okay. Okay. And what is the annual run rate of prepared CapEx that we have? So for 2H for FY '26, and the full FY '27, what is the kind of repair CapEx that we are looking at for NKP?

Almost INR 30 crores.

Yes, INR 30 crores -- yes. So approximately INR 30 crores per annum.

Okay. Okay. And what is the latest rate that we are typically marketing NKP? I understand the area is hardly there. But what's the typical growing rate at NKP? And do we see any going forward, any threat while we understand that this location is very different and because of its proximity to BKC. But given that there is a lot of supply coming up in the Navi-Mumbai area at half or less than half the rates. Do you expect that to have some sobering effect because where the space is available at $80, we are at about $180. So any long-term threat you see while we understand that the markets are not -- micro markets are not really comparable?

Yes. I mean we are always identifying potential risks with regards to issues concerning supply and demand as well, not just in the micro areas, as you said, but also in the other in other locations in Mumbai as well as outside of Mumbai. So yes, that is an ongoing exercise that we are looking at and we monitor that very carefully. While we understand that NKP as on date, occupancy are high and demand is also fairly positive. To answer your question, we very carefully evaluate the various risks in terms of a reduction in the demand increase in the supply, et cetera, et cetera. And we like to be aware of to the best extent possible, get into the details of this issue. So I mean, apart from actually looking at the existing situation in the other micro areas as well as in the other cities and monitoring that very carefully, there's not there's not much we can do. We also, of course, want to keep increasing the rate per square foot in NKP, which has gone in the right direction and has shown consistent improvement over the past -- consistent increases over the past few years as well. So yes, that's really what we will say. There's not much we can do except look at the situation very carefully and identify any potential risks or reduction in demand and increases in supply, which is quite a natural phenomenon in any business actually. So we have to be ready and prepared for that as and when it occurs.

Okay. And regarding the dividend, I think it has been our kind of almost stated policy to pay out all excess cash as dividend after providing for any contingency. Now that our -- the park is stabilized, there's no new construction. And with this moving to the new tax regime, the tax implications will come down. So should that normally translate into higher dividend, assuming that, that same dividend policy of paying out all excess is maintained? Is that a reasonable expectation?

Essentially, we will, of course, look at the potential effects and the benefits of any of this new tax regime, which we have adopted in -- from Q2 2026. And without a doubt, the company will endeavor to maximize its distribution to shareholders, using a surplus cash flow after providing prudently for contingency. So yes, we will look very carefully the effect of this change in the -- moving to the new tax regime and really -- as always, we would like to use the advantages, if any, in the next few quarters to benefit to shareholders to the best extent possible. So yes, that's something we are very aware of and are looking at very carefully, as you can imagine. Thank you.

Sir, and like in the previous call, it was indicated that we have actually time until September '26 to decide on the on the tax regime because it is for the financial year FY '26 because still '25, anyway, we had matched to kind of mitigate the effects of the higher tax. So -- now is this frozen -- decision on the tax regime frozen? Or is it that there could be some developments in the next 2, 3, 4 quarters till September '26, which still could lead to a change in heart in terms of kind of the tax regime? Or is it kind of now frozen thing?

I mean you -- for the year '25-'26, we have to file the return in September '26, for which we have to start finalizing in approximately May 2026. So of course, theoretically and practically as well company has the option to change or go back up till the time that the returns are actually filed. So I guess this option is always open for all companies as well as our company. So yes, theoretically and practically the option does exist. We said that at this point in time, it was prudent to move to the new tax regime, and we will, of course, be monitoring various developments very carefully. But to answer your question, all companies who have their option until the time that the tax returns for '25-'26 are actually filed.

The next question is from the line of Tushar, an Individual Investor.

My questions are on the line of the CapEx or the upgrade plans, which are going to be in place to enhance buildings, amenities and also the sustainability features. So are there any plan in the entity as well as Nirlon House to do any...

I mean, as of now, what we are doing annually is routine capital expenditure from maintenance, upgradation, et cetera, et cetera, so that we are able to maintain the standard and the level of A-grade asset for international licensees, for international clients, as our existing clients. So we don't have anything special or specific to say. We will continue to do whatever CapEx we need to do to ensure that the park is -- continues to run at a level, which is to our satisfaction as well as to the satisfaction of the clients.

Okay, sir. And the other question that I had is on the concentration risk that JPMorgan has. So 40% of the gross rental comes from the JPMorgan and also the next year, the lock-in year will be ending for the JPMorgan. So please throw some light on that.

Well, I mean, we are aware of potential concentration risk or whatever one can term this, but we do feel that we have multiple licensees with strong balance sheet, and we have no reason to look at diversification without any concrete or tangible reason if the license agreement, the commercials and other -- and the other point -- agreed points in the license agreements are being executed as per the agreements. We don't want to really look at changing our diversification for the sake of it, some of these balance sheet including JPMorgan are very, very strong and very, very positive, and we do believe that -- based on the track record in NKP of the last 16, 17 years, actual exits from NKP have been very few, I mentioned, there were only 2 -- and the specific reason for that. So we do believe that the majority of the licensees, including JPMorgan are here for the long term. And unless we have very specific and clear reasons to believe otherwise, we don't really want to get into changes and diversification for the sake of it, which have other issues -- which can come with other issues as well. So we don't see the need to change anything very significantly now.

The next question is from the line of [indiscernible], an Individual Investor. As there is no response, I take the next question from the line of Satinder Singh from Eon Infotech Limited.

It was mentioned that the repair CapEx is about INR 30 crores per annum. Does all of this go to be P&L? Or is a part of this capitalized, please?

No, there is some part of this or a significant part of this, which is capitalized as well.

So, modeling, so would it be fair to assume that INR 10 crores to INR 15 crores would be the component that goes to the P&L?

[indiscernible]