Fundamental Analysis - Nesco India - FY 12-13

Just finished some fundamental analysis of Nesco India (the Bombay Exhibition Center) company based on Annual Report for FY 12-13.

I have not repeated the numbers that you can find in the annual report.

BEC revenue had a healthy growth from Rs. 763 M last year to Rs. 905 M.
Since the exhibition space continued to be 450K sq ft, that means Revenue/sq ft increased from Rs. 141 to Rs. 168. This is a good sign of their pricing power.

Despite this being a lukewarm year for the realty market, realty revenue increased from Rs. 267 M to Rs. 278 M.

BEC+Realty margin stayed flat at 93%, which is anyway a great figure.

My estimate of their EBITDA is Rs. 1205 M relative to Rs. 1002 M last year.

Dividend, though it had a modest absolute growth, is still at 4% of PBT. I wish they offered more dividend, as they are a cash-rich company.

As those who have analyzed Nesco know, the company benefits from a 'float' due to it collecting money in advance from the exhibition clients.

During this FY, the float (Total liabilities minus Equity Shareholder funds), was at 812 M per my estimate, a decrease from last years Rs. 910 M.

Book value per share is now at Rs. 260.

In the last 12 months, the share price has grown by approx. 3% while Book value per share has grown by 26% (last year too it had grown by 27%). This indicates the business is still quite healthy and market valuation is slower to catch up with underlying growth. This is fine for long term investors.

Disclaimer: The author holds shares of this company. Please do your own research and analysis before buying any securities. The above is not meant as a recommendation for investment.

More on the Dell buyout

A very insightful article by Prof. Damodaran (the valuation guru) about the Dell buyout deal.

http://www.vccircle.com/byinvitation/2013/02/13/michael-dells-conflicted-buyout

Indian equity markets: Even the biggies are underperformers relative to US blue chips

Evalueserve, the leading knowledge services firm, has published an excellent report titled "A Macro Examination of Financial Reporting in India - March 2012".

You can download the report here.

As I understood it, the report analyzes various shareholder returns ratios of Indian blue chips (namely, components of the Sensex) with those from the US (components of the Dow Jones Industrial Average).

Some of the ratios include

• Dividends payout %
• Accrual ratio
• Net income to total cash flow ratio
• Net income to operating cash flow ratio
• EBITDA to operating cash flow ratio

On almost all the parameters, Indian blue chips are score worse than US blue chips. In layman terms, they don't return as much as cash to shareholders in the form of dividends, and their cash flows (a true indicator of business health) are not as solid as indicated by their NI or EBITDA.

Besides, the liquidity in Indian stock market is clearly seen to be co-related to investments by foreign institutions.

My take:

India continues to have a risky, shallow market even among the blue chips. On top of it, these companies who flood the pink pages with feel-good news and interviews of their CEOs, are not really that shareholder-friendly.