Nirlon Limited Stock Analysis

Nirlon Customers

Incorporated in 1958, Nirlon Limited (“Nirlon” or the “Company”) was a pioneer in the manufacture of synthetic yarns and industrial rubber products.

During 1988 to 2006, Nirlon successfully underwent bankruptcy restructuring, resulting in phasing out of manufacturing.

Nirlon commenced development of Nirlon Knowledge Park (“NKP”), a 23 acre Industrial/Information Technology Park located at Goregaon in Mumbai in 2006.

By 2015, Nirlon successfully developed and licensed approx. 1.9 mn. sq.ft. across four phases (phase I – IV) in NKP.

In December 2015, Reco Berry Pvt Ltd, an affiliate of GIC Singapore acquired 63.9% stake in Nirlon for Rs. 1,280 Cr. vide an open offer (28.4% stake at Rs. 222/share) & agreements with promoters (35.5% stake).

Nirlon Knowledge Park (NKP), Goregaon

NKP Details

Constructed Area

(mn. sq.ft.)

Chargeable Area (mn. sq.ft.)

Completed in

Phase I

1.29

0.77

October 2009

Phase II

0.38

0.31

June 2010

Phase III

0.55

0.40

September 2013

Phase IV

0.76

0.40

March 2015

Other Areas

0.01

0.02

 

Total (Operational Area)

2.99

1.90

 

Phase V

Approx. 1.78

Approx. 1.16

Ongoing development

Total Area

4.77

3.06

 

In addition to NKP, the Company also owns 75% share (co-owned with another party) in 0.05 mn. sq.ft. (out of a total of 0.08 mn. sq.ft) at Nirlon House, Worli, the erstwhile corporate office. Of this, approx. 1,600 sq.ft. is self-occupied.

Financial Position

Particulars

FY15

FY16

FY17

FY18

FY19

Revenue (In Rs. Cr.)

238.98

288.86

287.66

290.78

298.67

Growth

20.87%

-0.42%

1.08%

2.71%

EBITDA (In Rs. Cr.)

183.55

223.40

221.77

220.25

226.10

EBITDA Margin

76.81%

77.34%

77.09%

75.74%

75.70%

EBIT (In Rs. Cr.)

114.90

142.91

151.11

148.03

167.22

EBIT Margin

48.08%

49.47%

52.53%

50.91%

55.99%

PBT (In Rs. Cr.)

41.20

71.66

78.05

85.26

98.80

PAT (In Rs. Cr.)

32.58

43.57

51.08

55.69

63.68

PAT Margin

13.63%

15.08%

17.76%

19.15%

21.32%

EPS (In Rs.)

3.64

4.83

5.67

6.18

7.07

EPS Growth Rate

33%

17%

9%

14.4%

Historic P/E (Closing Price of 31st March)

54.01

38.28

35.97

32.28

29.00

CURRENT P/E (based on price of Rs. 228.45 )

27.66

EV/EBITDA

12.31

11.11

12.14

10.22

12.86

D/E

0.46

0.41

1.42

1.45

2.42

Interest Coverage

2.43

3.09

2.84

3.36

3.24

ROCE

5.56%

6.97%

16.76%

14.35%

13.87%

ROE

2.90%

4.92%

20.93%

20.28%

28.03%

Quarterly Performance

Quarterly Results

Q1 FY 2019

Q2 FY 2019

Q3 FY 2019

Q4 FY 2019

Q1 FY 2020

TTM

Q-o-Q %

Y-o-Y %

Revenue (In Rs. Cr.)

73.73

72.72

77.52

76.95

75.37

302.56

-2.05%

2.22%

EBITDA (In Rs. Cr.)

56.44

56.47

60.73

54.71

58.45

230.36

6.84%

3.56%

EBITDA Margin

76.55%

77.65%

78.34%

71.10%

77.55%

76.14%

 

 

PAT (In Rs. Cr.)

14.97

15.74

18.19

14.78

25.64

74.35

73.48%

71.28%

PAT Margin

20.30%

21.64%

23.46%

19.21%

34.02%

24.57%

 

 

EPS (Rs.)

1.66

1.75

2.02

1.64

2.85

8.26

73.78%

71.69%

Peer Comparison

Nirlon Peers

WHAT’S DRIVING THE MARKET?

23 Acre Industrial/Information Technology Park

The Company owns, develops and manages Nirlon Knowledge Park (NKP).  NKP consists of operational Grade-A office assets across four phases (Phase I – IV) with total licensable area of ~1.9 msf. The Company is currently developing Phase-V having ~1.16 msf licensable area at NKP, which is expected to be completed by October, 2020. Once this asset becomes operational, Nirlon will have total ~3.06 msf licensable area.

Strong License Fee Growth

Of the total operational licensable area, ~99% is currently licensed out to several leading and reputed international and Indian corporates viz. Citi, Barclays, Tata Consultancy Services, Morgan Stanley, EY, Subway, Barista Coffee etc. The Company’s licencing fees grew by 7.5% CAGR to Rs. 255.57 Cr. in FY14-19. Average leasing rate for the operational assets (Phase I-IV) stood at Rs. 113 per sq. ft. per month during FY19. Once the phase V of construction gets completed, this could further lead to substantial jump in the lease revenue.

Nirlon has an Escalation Clause which enables it to enjoy 15-20% escalation on licensing fees every three years, which could drive rental growth, going ahead.

In addition, it has total ~0.65 msf area for renewals in FY20E & FY21E, of which, the Company has already signed LOI to license 0.13 msf in Phase I.

Image

Strong List of NKP Licensees

Nirlon Customers

WHAT’S DRAGGING THE STOCK?

High Debt

Nirlon’s net debt stands at Rs. 848.35 Cr. (net D/E: 2.4x) as of FY19. The Company is currently developing Phase-V at NKP at an estimated cost of Rs. 1,198.3 Cr., which would be partly funded through internal accruals (Rs. 578.3 Cr.), deposits (Rs. 35.0 Cr.) and debt (Rs. 585.0 Cr.).  Out of Rs. 1198.3 Cr., it has already incurred Rs. 633 Cr. as on Q1FY20. Since, Phase-V is expected to get completed in FY20E, Nirlon debt is expected to increase further.

Lower than expected absorption and leasing in Mumbai office market.