Nirlon Ltd BSE Scrip Code: 500307 Misc. Commercial Services September 14, 2012 Equity Statistics Current Market Price Rs. 44.5 52 Week High / Low Rs. 61.75/30.50 Market Capitalisation Rs. crores 319.7 Free Float Rs. crores 277.1 Dividend Yield % - One Year Regression Beta Times 0.5 BSE Volumes Trend - Average = 49.42 Thousand 2000 1500 1000 500 0 150 125 100 75 50 25 Relative Returns Returns (%) 1M 3M 6M 1Yr Absolute -13% -14% 11% 7% Relative to Sensex -16% -21% 6% -2% Shareholding Pattern 100% 50% 0% in '000s Sensex Nile Sep '11 Dec '11 Mar '12 Jun '12 Promoter DII FII Others Business Summary Nirlon Limited (Nirlon), incorporated in 1958 as a private limited company, was initially engaged in manufacturing of industrial fabrics. However, the company discontinued its manufacturing operations in a phased manner and decided to develop an Information Technology (IT) Park of 23 acres, i.e. Nirlon Knowledge Park (NKP) at Goregaon, Mumbai, at the company's erstwhile factory location in the year 2006. With the completion of phase I and II of NKP in 2009 and 2010 with total built-up area of 1.68 mn sq ft (licensable area of 1.08 mn sq ft, Nirlon has become a real estate player. Furthermore, additional construction in NKP is planned in Phase III and IV. Construction of Phase III (approximately 0.55 mn sq ft of constructed area corresponding to approximately 0.40 mn sq ft of licensable area) commenced in 2010 and is expected to be complete by Q1FY14. Construction of Phase IV (approximately 0.73 mn sq ft of constructed area corresponding to approximately 0.42 mn sq ft licensable area) is estimated to commence from August 2012 and completed by Q3FY15. When complete, the total licensable area (including existing old buildings) in NKP will be approximately 2.24 mn sq ft. NKP is located at a prime location and phase I and II are leased out substantially to leading multinationals and corporates, resulting in a steady revenue flow for the company. Construction of phase III and IV is underway and on completion, the company s income is expected to get a boost. However, the company reported net loss due to high interest expenses on account of high level of debt in FY12. Though the existing debt will be repaid gradually, additional loans for expansion will keep the overall debt level high in the medium term. As has been the case for the past 2-3 years, weak macro environment and oversupply of commercial real estate in Mumbai remain a concern for Nirlon. In this context, the ability of the company to secure conclusive commitment for expansion project at attractive rates will be crucial. Nirlon is currently trading at 3.1 times FY12 adjusted book value. Board of Directors Person Padma Bhushan Mr Moosa Raza Mr Rama Varma Mr Arjan Gurbuxani Mrs Rajani Bhagat Mrs Aruna Makhan Mr Kunal Sagar Mr Rahul Sagar Source: AR and CARE Research Role Chairman Executive Vice Chairman 1 Initiative of the BSE Investors Protection Fund
Background Nirlon Limited (Nirlon), incorporated in 1958 as a private limited company, was initially engaged in manufacturing of industrial fabrics. Later, the company diversified in nylon textiles, tyrecord, polyester and industrial rubber belting products. The company s manufacturing faculties were located in Goregaon, Thane and Raigad in Maharashtra. However, the company discontinued its manufacturing operations in a phased manner and decided to develop an Information Technology (IT) Park of 23 acres, i.e. Nirlon Knowledge Park (NKP) at Goregaon, Mumbai, at the company's erstwhile factory location in the year 2006. Also, Nirlon divested its leasehold land along with the factory building at Thane to Bombay Rayon Clothing Limited. With the completion of phase I and II of NKP in 2009 and 2010 with total built-up area of 1.68 mn sq ft (licensable area of 1.08 mn sq ft), Nirlon has become a real estate player. Gross license fees during FY12 aggregated approximately Rs.8.46 crore per month from Phases I and II of NKP and approximately Rs.1.32 crore per month from the existing old buildings in NKP (approximately 0.34 mn sq.ft). Furthermore, additional construction in NKP is planned in Phase III & IV. When complete, the total licensable area (including existing old buildings) in NKP will be approximately 2.24 mn sq ft. Business overview Nirlon now derives its revenue primarily from real estate operations. During FY12, about 88% of the net sales was contributed from lease income and rest from common area maintenance charges and other operating income. Income by way of lease rentals was derived from approximately 1.06 mn sq ft leasable area, which corresponds to approximately 99% of the total leasable area for Phases I & II of NKP. Strengths and growth drivers NKP is located at a prime location and phase I and II are leased out substantially to leading multinationals and corporates, resulting is a steady revenue flow for the company. Construction of phase III and IV is under way and on completion, the company s income is expected to get a boost. Also, Nirlon has signed binding LOIs with two MNCs who have committed to license partial space in these phases. Risk and concerns The company reported net loss due to high interest expenses on account of high level of debt. As on March 31, 2012, the company has taken securitized loan of Rs.518.89 crore being repaid in EMIs and construction loan for Phase 3 of Rs.57 crore (out of Rs.200 crore sanctioned). Also, construction loan of Rs.225 crore has been sanctioned for Phase 4. Though securitized loan will gradually come down, additional loans for expansion will keep the overall debt level high in the medium term. As has been the case for the past two three years, weak macro environment and oversupply of commercial real estate in Mumbai remain a concern for Nirlon. In this context, the ability of the company to secure conclusive commitment for expansion project at attractive rates will be crucial. Future strategy and expansion plans In NKP, construction of Phase III (approximately 0.55 mn sq ft of constructed area corresponding to approximately 0.40 mn sq ft of licensable area) commenced in 2010 and is expected to be complete by Q1FY14. As per the annual report, construction of Phase IV (approximately 0.73 mn sq ft of constructed area corresponding to approximately 0.42 mn sq ft licensable area) is estimated to commence from August 2012 and complete by Q3FY15. Industry outlook The demand for the Indian real estate industry can be categorized mainly into three segments viz residential, commercial and retail. In the past few decades, rising population, increasing trend of urbanisation, rising income levels of a growing middle class, nuclearisation of families and tax incentives provided momentum to the demand for housing. Demand for commercial real estate was mainly driven by the flourishing services industry, especially the IT and BPO sectors. The prices of residential as well as commercial properties and lease rentals had shot up considerably during the period FY06- FY08, led by increase in demand and buoyant economic growth. However, with the rising interest rates and weak overall macroeconomic scenario, the real estate sector, particularly commercial real estate segment, has witnessed slowdown in demand since FY11. Oversupply of commercial real estate and low occupancy levels in Mumbai remain a concern and the situation is unlikely to change substantially in the near to medium term. 2 Initiative of the BSE Investors Protection Fund
Peer comparison Year ended March 31, 2012 Income statement (Rs. crore) Nirlon Anantraj Peninsula Total income 142.4 333.5 618.8 Net sales 137.6 315.3 478.0 EBITDA 81.8 160.6 180.8 Ordinary PAT (19.6) 109.3 156.9 Adjusted PAT (20.0) 112.3 155.6 Per share data (Rs.) Adjusted BVPS 14.6 126.8 57.6 Diluted EPS - 3.6 5.4 Growth (Y-o-Y) (%) Growth in Total income (6.8) (19.3) 1.3 Growth in Net sales 23.9 (18.9) (0.2) Growth in EBITDA 30.3 (31.2) (6.9) Growth in Adjusted PAT NM (33.0) (36.7) Growth in EPS NM (34.8) (36.2) Profitability ratio (%) EBITDA margin 59.4 50.9 37.8 Adjusted PAT margin NM 33.7 25.1 Valuation ratios (Times) Price/EPS (P/E) NM 13.4 6.8 Price/Book value (P/BV) 3.1 0.4 0.6 Enterprise value (EV)/EBITDA 10.5 14.5 7.5 Note: Anantraj: Anantraj Industries Ltd., Peninsula: Peninsula Land Ltd. NM: Non Meaningful Quarterly financials Quarter ended June 30, 2012 Income statement (Rs. crore) Q1FY13 Q4FY12 Q3FY12 Q2FY12 Q1FY12 Total income 36.3 34.8 38.1 34.9 34.6 Net sales 35.5 34.7 34.3 34.2 34.5 EBITDA 22.2 22.7 17.8 20.1 21.2 Ordinary PAT (4.5) 8.3 (8.9) (10.2) (8.9) Adjusted PAT (4.5) 8.3 (8.9) (10.2) (8.9) Growth (Q-o-Q) (%) Growth in net sales 2.3 1.3 0.2 (0.8) Profitability ratio (%) EBITDA margin 62.4 65.3 52.0 58.9 61.4 Adjusted PAT margin NM 23.9 NM NM NM 3 Initiative of the BSE Investors Protection Fund
Financial analysis Net sales of Nirlon increased by 23.9% y-o-y to Rs.137.6 crore in FY12 due to increase in leased out area and realization. Total income of the company for FY11 includes one-time income, i.e. profit on sale of Tarapur land of Rs.38.75 crore. The company reported EBITDA margins of 59.4% in FY12 compared to 56.5% in FY11. However, due to high depreciation and interest cost, PAT margin continued to be negative. Nirlon s debt level is on higher side with a total debt of 537.1 crore as on March 31, 2012. The company raised Rs.74.52 crore through a preferential issue of equity shares at Rs.55 per share in FY12. Thus, despite net loss, Nirlon s net worth and debt-equity ratio improved significantly in FY12. Due to the loss incurred, the company did not declare any dividend. Annual financial statistics FY08 FY09 FY10 FY11 FY12 Income statement (Rs. crore) Total income 34.6 36.4 55.6 152.9 142.4 Net sales 10.3 8.6 54.2 111.1 137.6 EBITDA (14.9) (18.5) 20.0 62.8 81.8 Depreciation and amortization 1.2 2.1 17.7 46.0 49.4 EBIT (16.1) (20.6) 2.3 16.8 32.4 Interest 6.2 5.4 22.2 58.0 71.1 PBT 1.3 3.5 (17.8) 0.5 (33.9) Ordinary PAT 1.7 2.9 (18.3) 0.4 (19.6) Adjusted PAT 1.7 (0.8) (15.9) (35.7) (20.0) Balance sheet (Rs. crore) Adjusted networth 63.8 61.7 45.9 49.7 104.6 Total debt 172.0 370.7 517.6 559.0 537.1 Cash and bank 14.7 10.6 6.1 5.3 1.3 Investments 6.0 - - - - Net fixed assets (incl. CWIP) 269.6 466.9 670.8 725.3 702.9 Net current assets (excl. cash, cash equivalents) (58.9) (49.4) (117.5) (58.8) (66.5) Per share data (Rs.) Adjusted BVPS 11.0 10.6 7.9 8.5 14.6 Diluted EPS 0.3 0.5-0.1 - DPS - - - - - Growth (Y-o-Y) (%) Growth in total income 5.1 52.9 175.0 (6.8) Growth in net sales (15.9) 527.4 104.9 23.9 Growth in EBITDA 23.8 NM 213.4 30.3 Growth in adjusted PAT NM NM NM NM Growth in EPS 78.6 NM NM NM Key financial ratio EBITDA margin (%) NM NM 36.9 56.5 59.4 Adjusted PAT margin (%) 5.0 NM NM NM NM RoCE (%) NM 0.4 NM 6.7 RoE (%) 4.6 NM 0.8 NM Gross debt - equity (times) 2.7 6.0 11.3 11.2 5.1 Net debt - equity (times) 2.5 5.8 11.1 11.1 5.1 Interest coverage (times) NM NM 0.1 0.3 0.5 Current ratio (times) 0.4 0.5 0.2 0.2 0.1 Inventory days 40.6 13.8 4.9 2.4 Receivable days 53.0 13.8 10.5 6.2 Financial Year (FY) refers to period from April 1 to March 31 NM: Non Meaningful 4 Initiative of the BSE Investors Protection Fund
DISCLOSURES Each member of the team involved in the preparation of this grading report, hereby affirms that there exists no conflict of interest that can bias the grading recommendation of the company. This report has been sponsored by the BSE Investors Protection Fund. DISCLAIMER CARE Research, a division of Credit Analysis & REsearch Limited [CARE] has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain or from sources considered reliable. However, neither the accuracy nor completeness of information contained in this report is guaranteed. Opinions expressed herein are our current opinions as on the date of this report. Nothing in this report can be construed as either investment or any other advice or any solicitation, whatsoever. The subscriber / user assumes the entire risk of any use made of this report or data herein. CARE specifically states that it or any of its divisions or employees do not have any financial liabilities whatsoever to the subscribers / users of this report. This report is for personal information only of the authorised recipient in India only. This report or part of it should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied for any purpose. PUBLISHED BY CARE Research is an independent research division of CARE Ratings, a full-service rating company. CARE Research is involved in preparing detailed industry research reports with 5-year demand and 2-year profitability outlook on the industry besides providing comprehensive trend analysis and the current state of the industry. CARE Research also offers research that is customized to client requirements. Credit Analysis & REsearch Ltd. (CARE) is a full service rating company that offers a wide range of rating and grading services across sectors. CARE has an unparallel depth of expertise. CARE Ratings methodologies are in line with the best international practices. Head Office: 4th Floor Godrej Coliseum, Off Eastern Express Highway, Somaiya Hospital Road, Sion East, Mumbai 400 022. Tel: +91-22-67543456 Fax: +91-22-67543457 www.careratings.com Regional Offices: New Delhi Kolkata Ahmedabad Bangalore Hyderabad Chennai Pune Published on behalf of The Stock Exchange Investors' Protection Fund First Floor, P J Towers, Dalal Street, Mumbai. Tel: 22721233/34 www.bseindia.com www.careratings.com