Nirlon Limited ($500307)

Ladies and gentlemen, good day, and welcome to the Nirlon Limited Q4 FY '26 Earnings Conference Call hosted by Valorem Advisors. [Operator Instructions] Please note that this conference is being recorded. I will now hand the conference over to Ms. Purvangi Jain from Valorem Advisors for opening remarks. Thank you, and over to you.

Thank you. Good afternoon, 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 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 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. Now 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; Mr. Manish B. Parikh, Chief Financial Officer, VP, Finance; Mrs. Jasmin K. Bhavsar, Company Secretary, Vice President, Legal and Compliance Officer, Nirlon Management Services Private Limited. Without any delay, I request Mr. Rahul V. Sagar to start with his opening remarks, followed by financials and operational highlights of the company. Thank you, and over to you, sir.

Thank you. Thank you. Am I audible? Can you hear me? Yes. It is a pleasure, yes. It is a pleasure to welcome you all to our earnings conference call for the fourth quarter and the financial year 2026. Now let me first take you through the financial performance of the company. For the fourth quarter, the company reported a total income of INR 174 crores, which grew by 9% year-on-year. The EBITDA was reported at INR 136 crores, representing an 8% growth year-on-year. EBITDA margins were about 77.85%. Profit after tax for the quarter stood at around INR 71 crores, which also grew by 32% year-on-year, while PAT margin reported at 40.5%. For the financial year 2026, the company reported a total income of approximately INR 683 crores, a growth of 6% year-on-year. EBITDA stood at INR 535 crores, an increase of 5% year-on-year, and EBITDA margin stood at 78.36%. Profit after tax was INR 346 crores, an increase of 59% year-on-year and representing a PAT margin of 50.64%. Please note that the FY '26 profit after tax includes a onetime adjustment of INR 69.5 crores due to remeasurement of deferred tax liability as the company decided to move to the new tax regime under [ Section 115B ] of Income Tax Act 1961 from Q2 FY '26. The profit after tax growth would be 27% year-on-year, excluding this item. On the operational front, the average occupancy rate for the company as a whole, comprising NKP and Nirlon House stood at 99.7% for the fourth quarter of the financial year 2026. As of March 31, 2026, approximately 1,000 square feet were vacant of NKP and Nirlon House combined. We are pleased to announce that the Board proposes a final dividend of INR 15 per share for FY '26, subject to approval by the shareholders in the forthcoming AGM. With this, we conclude our opening remarks and open the floor to questions. Thank you.

[Operator Instructions] We take the first question from the line of Harshit, an individual investor.

Am I audible, sir?

Yes, yes.

Sir, my first question. So on March 31, 2026, the cash and bank balance in our balance sheet stood approximately INR 300 crores. Sir, despite such big balance, we decided to distribute only INR 135 crores. And what is the plan of the remaining INR 165 crores which we will be having after the distribution of dividends? It's very unlikely VIC because, historically, they have been distributing whatever they have generated. But this time, there's INR 165 crores of either cash balance. What are we going to do with this, sir?

So we just will try to answer your question in the best possible manner. Look, I mean, your question is basically why have we increased to only INR 15 per share for the final dividend. We just want to be consistent also with the dividend. It's not that we don't want to pay. But when we are paying out the dividend, you have to also ensure that 1 year we don't go to a very high number and then we are not able to sustain the number as well. So there are a lot of factors that go into this decision. You will appreciate that we have increased from INR 26 to INR 30. And going forward, I'm not saying we don't want to increase anymore. I'm saying going forward also, as you know, our intention is to do the best possible -- to pay out the best possible dividend for the shareholders. As you can see, we moved to the new tax regime, which will hopefully enable us to distribute significantly higher dividends in the near future potentially. And this is a conservative start. This is a consistent start. This is a good start. We feel it's the right start. So thank you. Thank you.

Okay. Okay, sir. And sir, what's the status of the Nirlon House, sir? can you expect the same happened in 2026?

So that's now we have -- as far as the Nirlon House concerned, we have nothing significant to say at this point in time. As I said in the past, when there is something significant, we are going to tell you. But you must also appreciate that there are not just 1 or 2 owners. There are almost 12 or 13 owners in the building. And in that sense, if you look at so many transactions, et cetera, et cetera, and you're trying to do something when there are 12, 13 plus owners in the building, these take a significant amount of time. So as and when there's anything significant or substantial that we want to tell you, we will definitely tell you. Thank you.

Okay. Sir, now getting back to the part of the first question, that INR 155 crores of cash, which we will be having after distributing this INR 15 dividend. Can we expect a special dividend? Or is it going to be the normal routine, the next dividend will come as...

We appreciate your questions. We do appreciate your question. But we cannot speculate at this point in time whether we'll pay a special dividend or what we will do. As and when we do something, as you know, we will usually informed immediately. But we can't speculate or make a forward-looking comment as to what we are going to do there. Thank you.

Okay, sir. But keeping the time apart, is it fair to assume that the money will be utilized only for the purpose of distribution, sir? Is that what we can expect at least?

I mean I don't want to preclude any other options at this point in time. We don't want to specifically say something which is not concrete or has been discussed in detail. So as and when there is something to say, of course, we will tell you.

We take the next question from the line of [ Ashok B. Jain ] from Ayush Capital.

Congratulations on the dividend increase, sir. Very nice.

Thank you.

As the previous shareholder alluded to, I had a question on similar line. But I'll just go ahead. Like INR 278 crores was invested in fixed deposits as per our cash flow statement of March 31. Conversely, HSBC debt outstanding reported is at around INR 1,150 crores. So sir, I think it does not appear logical to pass cash in FTE unless FTE interest rate is higher than what we are paying on the loan. So is it one of the options to use this cash to pay off the loan sometime in the near future?

Okay. Is that the question?

Yes, sir.

Okay. So we will, of course, discuss with the management and the Board of Directors, of course, discuss. As of now, there's nothing concrete or no concrete plans to pay back any debt from the existing cash balances. The debt, the Hong Kong bank, we have an existing agreement with them. So we will -- although the terms of the existing agreement with Hong Kong Bank, apart from that, there are no significant -- nothing had been discussed specifically with regards to debt repayment. I can't make a comment right now because there's nothing to comment on.

Okay. If you don't mind, sir, when is the next balloon payment coming for Hong Kong Bank as per the agreement?

May 2027.

May 2027?

Yes. As for the terms of the agreement, 5% in May 2027.

This 5% of INR 1,150 crores.

Yes.

Okay. And sir, what is the interest we are getting on the FTE? What is the interest rate, at least the savings floor.

Approx 5.5%.

5.5%. Okay, okay. All right. Sir, next question is I had asked this last time, sir, your current union budget, it has reduced the buyback tax on corporate promoters but increased it on individual corporate promoters. So you being an individual corporate promoter, apart from being a minority individual shareholder, like this question is like personally to you. Are you eligible to reclassify yourself from the promoter category to the public category because I think you'd be saving taxes. There's a buyback...

Can you just say that again, please?

Yes. Sure, sir. So in the union budget this time, the buyback tax on corporate promoters was reduced but on individual corporate promoters was increased. So you being an individual corporate promoter, sir, are you eligible to reclassify yourself from the promoter category to the public category? Because you're also an individual shareholder, right?

If you don't mind, I won't comment on that now. Thank you. Really, I can't comment on that now. Thank you, though. Thank you for the question.

Okay. All right, sir. No issues at all. No issues. Sir, my last question. In Feb 2026, the leasing rate per square foot for entity was north of INR 185 at 50% efficiency. So fantastic going for us [indiscernible] well. Revenue leases at really, really, really good rates for NKP. Sir, the little bit of leases that were renewed this time are around the same price or they went up by another 4%, 5%?

No, after that, there's nothing significant because there are not many renewals coming up in 2027 and no significant transaction. So let's wait for the significant transaction for us to tell you something.

Okay. Because next year, sir, I think about 3.26 lakh square footage are due, right, for renewal as well per the presentation. So has the negotiation started with the same guys or with new guys?

No, it's a little bit early. We are well aware of what is happening in '26/'27 as well as '27/'28, but we've had any very specific discussions. You can imagine that things are changing. Every day, so many things are -- so many of the macro factors, as you know, are changing every day. We are watching these macro factors as well as the micro supply and demand in our region as well as in so many other regions. We watch everything very carefully and we're carefully observing. Right now we are just focused on the operations to try and improve or to try and improve or to try to keep up the facilities and the standards in the past in NKP, try and do what we can so that [ agencies ] will be happy or will be inclined, a, to renew with us; and b, be to pay us the best possible license fee. So we're very operationally focused to give the licensee the best experience that they can have in NKP. And we feel that, that is one of the factors which is in our hands, where we can do something as opposed to so many other micro as well as macro factors internationally, domestically and locally also, on which we don't have any real control. So we're trying to improve the experience for the user and the licensee. We're trying to keep up the levels we have, and that's the best really we can do to keep increasing our -- in our endeavor to keep increasing our license fees in the right manner.

Okay, okay. Great, sir. Sir, just one last comment on that. Sir, the ongoing GCC boom, the global capability center boom in India, is it acting as a tailwind in your opinion for our business?

I mean, look, GCC, whether you want to call a boom or whatever you want to call it, I think it's a positive development for the country that various MNCs, banks, various global corporations are opening their GCCs in India. And we welcome that. We are very happy when we read and when we hear about so many GCCs that are opening not just in NKP or in Mumbai but all over India. It's a positive development for the country. Employment is being created. It's very good employment that is being created. And we hope it continues in the right direction. And the fact that India has so much of potential skilled manpower to offer the rest of the world is something very significant. I think it would help all companies and so many companies in India, not just NKP. And we just hope it continues to go in the right direction. Thank you.

Great going, sir. So one last question on Brookfield as a shareholder. Their shareholding has gone above 10%, right? So I think [indiscernible] the promoter now or because they've already exceeded, I guess, 10% threshold. So I don't know what the SEBI rules are on this. I just wanted your thoughts on it.

Well, I mean, I can't comment on that. I really can't comment on other shareholders. It's really for them to decide what they want to do.

We take the next question from the line of Satinder Singh Bedi from Eon Infotech Limited.

Congratulations on your continued operational excellence. Okay. So my first question was regarding the valuation. So we have this annual valuation gets that done March 31. So there are 3 other listed REITs which have declared their results and also their latest valuation, and all of them have properties in Bombay comparable to ours. So all of them have seen a strong tailwind in terms of contraction of vacancy, increasing rental rate and also increase in valuation. In fact, the valuation of each of these REITs, the NAV per unit has gone up between 15% and 22%. So my question is can we expect something similar, okay, ballpark-ish in terms of our revaluation as of March 31, '26 versus March '25?

Can you repeat your question?

The specific question, yes.

Yes. So my question was so REIT annual valuation exercise. So comparable real estate assets, commercial real estate in Bombay has seen a price increase of about 15% to 20% over March '25. So can we look at a similar increase in valuation of our NKP assets when the March 31 valuation comes out?

One minute, one second. We'll just come back to you on that. Can you ask us the next question?

Right, sir. You're fully leased out. So that we are going -- any potential early exits that you have any visibility at all at this moment because that could be our other lever in terms of [indiscernible]. So any potential early exits that you have visibility on?

Sorry, it was a little bit not so clear at all. Can you ask us something, you're saying...

Any potential early exists from our tenant roster? Because we are otherwise fully leased out, okay. So our only potential tailwind, besides the contractual rent acceleration is re-leasing. So any potential exits?

No, not right now. Not anything significant that we have been told.

Right, sir. Any data center plan for this NKP, sir? I understand you're kind of otherwise [ built out ] while we have pre-exercise. But any plans of data center or increase exercise in the near future?

Nothing that I can make a comment on now, no. I can't comment on that. Nothing significant or concrete.

Right, sir. My next question is regarding the move to the new tax regime. I understand that shareholders have been asking this question recently. So the team was in due course. My only point is that this is getting delayed because the thinking was that maybe there might be a possibility of restructuring into a REIT kind of platform. Now that you have decided to offer the new tax regime, does it mean that the REIT plan have been shelved for now? Sir, we wanted to understand the rationale which has gone behind deciding finally for the new tax regime. So there would be some [indiscernible] which has happened over the last -- actually, many quarters, in fact, last couple of years. So what has finally made us decide to go in for the new tax regime? So just wanted to understand the management's thought of the guide, sir.

Yes. So since there was nothing really specific in terms of looking at potential efficiencies in new structures and potentially new structures, looking at efficiencies in potential new structures, nothing very significant to say, nothing very significant. We were not doing anything significant in that regard. We just felt that the best thing to do would be to move to the new tax regime at this point and optimize to the best possible extent whatever efficient fees we had at this point in time.

Okay. So sir, was the idea of [ marketing ] into a REIT structure considered and not found feasible? Or what? I just wanted to know because this is very inefficient for all individual minority shareholders, including you and us, because we are going to pay dividends. So we [indiscernible] for the dividend. And we understand the logic behind taking it up to INR 30 and there because this time, we have a tax write-back. So we appreciate that logic. But it's a double tax. So it's very inefficient method. Less than INR 50 or INR 100 that you use [indiscernible] finally.

Okay. Sorry. Can you just ask a specific question?

Sir, question was the idea of a REIT reconsidered and then not found feasible or blocked? Or did we not even look at that kind of an opportunity? Because the current tax structure in India is very favorable from a shareholder point of view in case this was to be housed in a REIT. What we are doing is very inefficient because of the double taxation.

I mean we, of course, looked at the potential efficiencies in new potential structures, and we just felt that this is an existing potential benefit or a change in structure which can possibly benefit the company at this point in time. It was a more efficient thing to do. So we did it. But of course, when we take these decisions, we look at potential structures with their potential benefit. At this point in time, we've taken this decision and we believe it's in the best interest of the company and the shareholders at this point in time. We don't want to make a speculative comment saying that because we've taken this particular decision, we are not going to get X or Y the benefit. If we do something in the future, if we move to a particular structure in the future or if we do a potential transaction in the future, we don't want to preclude any potential benefit that we might get. As and when we do something, we should really see at that point in time whether we can get those potential benefits or not. So as of now, we felt this was the most efficient way to go ahead in the interest of the company and the shareholders. So we've taken this particular decision.

Right, sir. Sir, did you consider buyback as an option to return money to shareholders? So if you are paying dividend, you still have some cash left to pay. Is buyback an option on the table? And is the management [indiscernible] that?

Hello?

Hello.

Yes. Okay. Sorry. Can you just ask the buyback question once more, please?

So my question is sir, is buyback an option that the management is considering to return money to the shareholders? So while deciding on this dividend, did we consider buyback as an alternative option which might be more tax efficient? And could that be a possibility going forward?

Not at this point in time for various reasons.

Okay, okay. But sir, my valuation question, would it be possible to get an answer on that, the valuation?

Yes, yes. Yes, go ahead.

So my question was regarding to the valuation, sir, as of March 31 '26 vis-a-vis March 31, '25.

Yes, okay. So I think last year, March '25 was 6,400, and this year, 6,650.

Okay, okay. So that is quite a modest increase. So there was no cap rate compression. So what is the cap rate, the value [indiscernible]?

I don't want to answer any questions in isolation. If you have any specific questions, I mean, you can just ask Valorem and we'll be happy to tell you. But I don't want to answer in isolation now what was this assumption and that assumption. I don't want to get into assumptions on this call. But you can ask, and then we can see how best to respond.

I will do that. And congratulations once again.

We take the next question from the line of [ Piyush Goel ] from Batlivala and Karani Capital.

I just wanted to understand on the bottom line, as you mentioned that the bottom line before the new tax expenses, the growth was close to 27-odd percent, right? So I wanted to know what were the triggers which led to that growth? And are there any other triggers which you can see in the coming few years? And also, is there any change in the CapEx and general annual CapEx plans which you have mentioned?

Okay. So just to tell you first, the PBT in March '25 was INR 338 crores. The PBT in March '26 is INR 371 crores. But essentially, the growth in the business is, of course, on the existing contracted license fees and new licensees or licenses, et cetera, which are escalating and sometimes new transactions which are at higher prices. This is the real reason for the growth in the licensees, which basically translates into higher margins. There was a marginal reduction in finance costs in 2026 as compared to March '25 as well.

Okay. And any future changes in finance costs and any changes in the CapEx plans?

Nothing significant to say. The CapEx is, of course, to ensure that the park is in the best possible condition. The maintenance is to the best possible extent. Whatever additional and incremental CapEx and CapEx-related modifications we have to do to maintain an A-grade asset, we're happy to do and we are going to keep doing to increase the sustainability aspect as well. These are all issues that we look into in great detail and operational detail, and we will continue to do that. Nothing significant in terms of CapEx outside the park.

We take the next question from the line of Harshit, an individual investor.

Hello.

A little bit louder, please.

Am I audible now?

Yes, better.

This INR 287 crores which lies in our FTE, when does it mature, sir?

Sorry, come again?

What's the maturity time of this INR 287 crores our FD, sir?

It is ranging between 6 months to 1 year.

No, I don't know when was this deposited. So when is the majority of this amount, sir? Like is it...

It is between 6 to 1 year. All FDs will mature between 6 months to 1 year.

No, sir. But I don't know the time when we deposited, sir. So better specific time, sir, when it gets...

Yes. But for that, we have to go into detail. There are difficult FDs with multiple commencement date and multiple expiry date. If you write to Valorem specifically, we can give you that answer. It should not be a very serious problem to give you that.

Okay. All right. And sir, my last question, sir. Sir, what is the rationale behind depositing INR 27 crores at just 5.5% and paying a 7.75% interest on the hedges [ receivables ], sir, 4.25% of year loss.

Once we see what exactly -- as you can see, we've paid out a higher dividend in '26, for this is year '26 as opposed to '25. And hopefully, we can keep utilizing this money to keep a consistent dividend, et cetera, trying and funding the internal CapEx. In NKP, there is no concrete decisions or significant plan for this particular -- there's no concrete decision of significant plans in this regard. But as and when there is something, of course, we will let you know.

We take the next question from the line of Satinder Singh Bedi from Eon Infotech Limited.

Sir, just more of a housekeeping question, that is from the lease expiry schedule one sees, that in the next 1 year, do we have only 3,000 coming up for renewal? So that is only 0.1% of our area. At the same time, we have a liability profile. 40% of the other financial liabilities are current. So I assume most of the other financial liabilities are actually the security deposit that we have to return. So how come that 40% of the other financial liabilities are current term in nature when we actually don't have any expiries happening in the next 12 months? So I just wanted to understand [indiscernible].

We just need to look into that. It's little bit specific to answer on this call now immediately, but you can, of course, write to Valorem and we can respond.

Okay, okay. I'll do that. Just, sir, the HSBC repayment of the loan. So we have 5% May '27. And how does the remaining 95% get paid back? So what is the schedule for that, please?

Total number of...

So there's 5% every year for 5 years, and then there's a bullet payment.

75%.

Okay, okay. So May every year starting '27, we pay 5% per annum for the first 5 years and 75% will be fixed.

Bullet payment at the end of that, yes.

I get it. One final small question. I don't even really want to -- it's not even -- actually just an observation that our income has gone up by 5.9% total income-wise. Expenses have gone up by 11%. So we see EBITDA is nudging down somewhat. I don't even want to say this as a complaint because you're executing so great. But do we expect this increase in operating expenses to be in line with the increase in outcome?

We'll just take a look at those details. As for the details here, you are sating 5.9% increase in total income and EBITDA margin is 78.36 as compared to 79.33. Your point is well taken. And we'll take a look and there will be a reason for this and we can let you know. But we understand exactly what you're saying and we can respond also. We have each and every detail with us.

As there are no further questions from the participants, I now hand the conference over to the management for their closing comments.

Thank you. Thank you all for participating in this earnings con call. I hope we were able to answer your questions satisfactorily and, at the same time, offer insights into our business. If you have any further questions or would like to know more about the company, please do reach out to our Investor Relations Manager at Valorem Advisors. And thank you once again for your questions. It's greatly appreciated, the interaction and the interest. And have a nice day. Have a nice week. Thank you very much, all the best. Thank you.

Thank you, sir. On behalf of Nirlon Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.

Thank you.