NIRLON LTD (NIRLON) Q3 FY23 Earnings Concall Transcript

NIRLON LTD (NSE:NIRLON) Q3 FY23 Earnings Concall dated Feb. 09, 2023.

Corporate Participants:

Mr. Rahul Sagar — Executive Director and Chief Executive Officer and Promoter

Mr. Manish B. Parikh — Chief Financial Officer

Analysts:

Anuj Sonpal — Valorem Advisors — Analyst

Ashok V. Jain — Ayush Capital — Analyst

Dilip A. Jain — Invisible Investor — Analyst

Lakhshya Jain — Investor — Analyst

Sukhvinder Singh — EON Infotech Limited — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Q3 FY 23 conference call of Nirlon Limited [Operator Instructions]

I now hand the conference over to Mr. Anuj Sonpal from Valorem Advisors. Thank you and over to you, sir.

Anuj Sonpal — Valorem Advisors — Analyst

Thank you. Good evening, everyone and a very warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the investor relations of Nirlon Limited. On behalf of the company, I’d like to thank you all for participating in the company’s earnings calls for the third quarter and nine months ended of financial year 2023.

Before we begin, let me mention a short cautionary statement. Some of the statements made in today’s earnings calls 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 an information currently available to management. Audiences are cautioned not to place any undue reliance on these forward looking statements and 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 now introduce you to the management participating with us in today’s earnings call and hand it over and for opening remarks. First, we have with us, Mr. Rahul Sagar, Chief Executive Officer and Executive Director; Mr. Kunal Sagar, Promoter and Non-Executive Director; Mr. Manish Parikh, Chief Financial Officer and VP of Finance; Mr. Jasmin Bhavsar, Company Secretary and Vice President, Legal and Compliance Officer; and Mr. Ashish Bharadia, Vice President of Business Development and Investor Relations of Nirlon Management Services Private Limited.

Without any further delay, I request Mr. Rahul Sagar to start with his opening remarks. Thank you and over to you, sir.

Mr. Rahul Sagar — Executive Director and Chief Executive Officer and Promoter

Thank you, Anuj. Good evening and welcome to our earnings conference call for the third quarter and nine months ended for the financial year 2023. I hope all of you are safe and well. Let us take you through the financial performance of the company.

For the third quarter of the financial year to 2023, the company reported a total income of INR144 crores and in fees of approximately INR55 crores on a year on year basis. EBITDA stood at INR119 crores with you by 59% on a year on year basis. This represent an EBITDA margin of 82.19%, which improved by 200 basis points on a year on year basis.

Profit after tax stood at INR54 crores for the third quarter. Profit margin was 37.08%.

For the nine months ending 31st December 22, the company reported a total income of INR427 crore rupees, witnessing a growth of approximately 71% on the year on year basis. EBITDA was INR344 crores, representing an EBITDA margin of 80.57%. It improved by 562 basis points on a year on year basis. Profit after tax was INR108 crores, so those are approximately 47% on a year on year basis, but margin stood at 25.33%.

This revenue and profitability growth can be largely attributed to Phase Five becoming operational and has a resulted in increase in revenues and the economies of scale resulting thereof. The revenue of the last two quarters can be considered as representative of stabilized performance going forward. We estimate that the operations that NKP have now largely stabilized, hence, the financial performance in potency may broadly be estimated as representative of the stabilization of operations.

However, there will always be the potential for variations in some quarters, mainly due to fluctuations in occupancies, especially during releasing. We continue to focus on improving operating efficiency.

On the operational front, the average occupancy rate for the company stood at 97.6% for the third quarter. Global payments renewed approximately 9000 square feet due for renewal and financial year 23. LRN renewed approximately 15,000 square feet due for renewal in financial year 2024. Our food and beverage outlets, which are amenities or support services for the past occupants renewed approximately 6600 square feet.

Barclays vacated approximately 23,000 square feet on expiry of their license period. As on 31st, December 2022, approximately ETC by feet area was vacant. Of this vacant space MUFG has licensed approximately 23,000 square feet and procure finances licensed approximately 34,000 square feet in Q4 of financial year ’23.

With this we conclude our presentation and open the floor to your questions. Please go ahead.

Questions and Answers:

Operator

Thank you. [Operator Instructions] We have the first question on the line of Ashok V. Jain from Ayush Capital, please go ahead.

Ashok V. Jain — Ayush Capital — Analyst

Hello, Good evening. Can you hear me?

Operator

Yes, we can.

Ashok V. Jain — Ayush Capital — Analyst

Thank you. First of all thanks a lot for giving me this opportunity. And congratulations for getting this good set of numbers. For my first question is regarding the interest rate we are paying. In that last conference call, we are informed that our interest rate on SSDC loan has increased from 6.1% to 8.7% give or take, 1st November 2022. [Indecipherable] group, Barclays has renegotiated interest rate to 7.5% only. Going forward, do we start with Jan lower our interest rates downwards from 8.7%.

Mr. Rahul Sagar — Executive Director and Chief Executive Officer and Promoter

So as you mentioned that interest rate was 8.75% on our term loan through at the end of the quarter as on 31st December 2023. That rate has gone up marginally to 8.8% on the 2nd of– on the 1st of February. Our interest rate is linked on the term loan is linked to three month T-Bills. And so the rate will depend on how the T-Bill moves over the next– over the coming quarters. So it has a direct bearing on what the overall interest rate regime or environment is going to look like.

Our own estimate is that it will probably get somewhat higher before it starts going lower. So that’s an estimate or an assumption that we’re making based on the information that we have today. Since it’s linked to people should the environment change and should they be lowering interest rate environment then of course it would go down at that time. Does that answer your question?

Ashok V. Jain — Ayush Capital — Analyst

Yes. Thank you so much. I have a second question, is regarding your media reports about the de permitting listing micro rate that is a single property risky assets above 500 Crore there was a article during December, 2nd week in the media. Given that we continue to get old tax regime to maintain dignity. Can you please share your views because if we had last few months to discuss in case you had the opportunity to discuss with GIC data, is it possible for Milan to convert itself are micro arrays because it is that it allows this permission set. Share your views it will be very helpful.

Mr. Rahul Sagar — Executive Director and Chief Executive Officer and Promoter

With this project, just to be clear. I think your question is on the media report that appeared with reference to small REITs or micro, correct?

Ashok V. Jain — Ayush Capital — Analyst

Yes, sir.

Mr. Rahul Sagar — Executive Director and Chief Executive Officer and Promoter

We check that to see what the position actually was. And what we understand is that there is no such proposal that is under any kind of active or genuine discussion with the concerned regulators. It’s not really bearing any shape or form that is likely to fructify or move forward just now that’s what we found. So it does appear to have been largely a media report, not really based on anything that is processed.

Ashok V. Jain — Ayush Capital — Analyst

In case it happens here because the government thinks that they want to promote the rate. In case it happens so are you open to this or it’s not for us?

Mr. Rahul Sagar — Executive Director and Chief Executive Officer and Promoter

Mr. Jain, if there is a regulation of that sort that comes about, we’ll, of course, take a look at it in detail to understand what it is and then do accordingly at that point. But, of course, we have to understand and see what the regulation says or doesn’t say.

Ashok V. Jain — Ayush Capital — Analyst

Okay, so very helpful. That’s all from the Side, Thank you so much for this weekend. Thank you. Thank you.

Mr. Rahul Sagar — Executive Director and Chief Executive Officer and Promoter

Thank you.

Operator

Thank you. We have the next visual line of Dilip A. Jain from Invisible Investor [Phonetic] Please go ahead.

Dilip A. Jain — Invisible Investor — Analyst

Good evening, sir. Congratulations on a great set of numbers. My question was, in the post-COVID world, many IT companies seem to be more inclined to continue with the hybrid model of working, going forward. If this trend were to become a norm in the future, what will be its impact on the office leasing sector? So we would be obliged if you share your views on the same.

Mr. Rahul Sagar — Executive Director and Chief Executive Officer and Promoter

I mean, obviously, we are not entirely dependent on the IT company so to speak, we, of course, have its IDs and so we’re not contingent only on one particular sector. The sector which we are, frankly more exposed to [Indecipherable] and with multinationals and the International Bank, which make up a large part of our licensees. I think the view of a lot of the MNC companies and the international companies is that even though it may be hybrid, to some extent, they are very keen to get 100% of the people back into office.

They may not all come in on the same day. But out of examples out of 1000 employees, they want all 1000 employees back in the office. Now, it may not be all on the same day. So we are seeing an occupancy of physical occupancy on the campus of about 60-65% sometimes going up to 70%. So, of course, this is something that we look at very carefully, because it’s something that can be concerning.

But I think the trend is very positive. And the sector to which we are very exposed, to a large extent has placed a lot of emphasis on going back to work as well. Not just working from home, but going back to work either full-time or in a hybrid model. So yeah, we will continue to watch this very, very carefully. Thank you.

Dilip A. Jain — Invisible Investor — Analyst

Okay, Thank you. So my last question about the total dividend payout is almost greater than 100% of our annual net profit. And also, we continue to pay tax under the old tax regime, and that decision is to continue in the old tax regime to maintain future restructuring flexibility. This decision is reducing our cash flows, and consequently, our ability to pay higher dividends to our stakeholders, including minority shareholders. So minority shareholders alike will benefit only if Nedlands state is listed. I just wanted to know your thoughts. If this scenario is possible, [Indecipherable]

Mr. Rahul Sagar — Executive Director and Chief Executive Officer and Promoter

What is the actual question that you have?

Dilip A. Jain — Invisible Investor — Analyst

Sir, Do you want me to repeat it?

Mr. Rahul Sagar — Executive Director and Chief Executive Officer and Promoter

We understand what your query is. We heard you on your earlier part, and we understood that the question is, what would you like us to answer with reference to that observation?

Dilip A. Jain — Invisible Investor — Analyst

Yeah. So my question is, so we are minority shareholders, and we benefit the most, in the case, the launch stage listed. So just wanted to know your thoughts. If the possibility of Milan staying listed is still active.

Mr. Rahul Sagar — Executive Director and Chief Executive Officer and Promoter

At the moment, whether we are being listed or not listed is in the interests of minority shareholders. I don’t think that’s a question we can answer on an earnings call. I think that’s a that’s great that’s a different call a different forum as it was. So we will surely want to answer that part of it. Yeah., at the moment we are listed. We’ve had, as you know, we’ve had earlier about various shareholders and various discussions about delisting the company and about that be in favor of minority shareholders. So I think it’s best that it is not something that is debated on this call, if you don’t mind.

The company for now is very much listed. And as we said, oftentimes our idea is to continue to pay consistent and stable, recurring, sustainable dividends. And

We believe that the, that’s why we mentioned in our opening that we are achieving the kinds of stability that we have aspired to, and the kind of EPS, the kind of earnings after tax, the kind of EBITDA that we have aspired to. And on that basis, we believe that we will be able to sustain the dividends that we have started paying from the last financial year going forward.

Dilip A. Jain — Invisible Investor — Analyst

Okay, all right. Thank you, sir, for your response. Thank you very much.

Mr. Rahul Sagar — Executive Director and Chief Executive Officer and Promoter

Thank you.

Operator

Thank you. [Operator Instruction]. We have the next question, line of Lakhshya Jain, an Investor. Please go ahead.

Lakhshya Jain — Investor — Analyst

Hello. Am I audible?

Operator

No, there’s echo.– significant echo.

Lakhshya Jain — Investor — Analyst

Hello. Is it better?

Operator

Let’s see if you can off the speakerphone, please.

Lakhshya Jain — Investor — Analyst

Hello. Is it better now?

Mr. Rahul Sagar — Executive Director and Chief Executive Officer and Promoter

Yeah, yes. Much better.

Lakhshya Jain — Investor — Analyst

Yeah. Thank you. Hi. I just have one question. Sir, in the last con call, you have mentioned that the shift from WDV to SLM is just for accounting purpose, and that there will not be any change or any increment in the tax liability. The finance cost has increased by INR5 crore, as interesting tax deductible, there should have been a decrease in tax liability to the extent of pie into 35% — that is INR1.25 crore. Instead, there was an increase of INR6.5 crore, sir. Just wanted to understand this,sir..

Mr. Rahul Sagar — Executive Director and Chief Executive Officer and Promoter

Can you hold on just a second and we’ll just see if you understood your question right?

Lakhshya Jain — Investor — Analyst

Yeah.

Mr. Rahul Sagar — Executive Director and Chief Executive Officer and Promoter

We just put it on mute. I understand your question and come back to you, okay? Give us a minute.

Lakhshya Jain — Investor — Analyst

Yeah. Yeah.

Mr. Rahul Sagar — Executive Director and Chief Executive Officer and Promoter

Mr. Jain, we are back. We will just ask here for Manish Parikh. We’ll just take your question and try and answer it, okay?

Lakhshya Jain — Investor — Analyst

Okay. Yeah, no problem.

Mr. Manish B. Parikh — Chief Financial Officer

See, as far as depreciation is concerned, we’ll now move from our WDV to SLM method. And the depreciation will have no impact on the taxation because the tax working is independent and it has got its own method of calculating the depreciation under the tax. So that has not.

Lakhshya Jain — Investor — Analyst

But there was still an increase of INR6.5 crore.

Mr. Manish B. Parikh — Chief Financial Officer

Sorry?

Lakhshya Jain — Investor — Analyst

There was still an increase in tax liability by INR6.5 crore.

Mr. Manish B. Parikh — Chief Financial Officer

[Indecipherable]

Lakhshya Jain — Investor — Analyst

That is not audible, sir.

Mr. Manish B. Parikh — Chief Financial Officer

So the profit during the current quarter, from INR58 crores to INR78 crores correspondingly in max, income tax liability will also go up from INR18 crores to INR24 crores.

Lakhshya Jain — Investor — Analyst

Yes, but this increase was mainly because of the shift from WDV to SLM, right?

Mr. Manish B. Parikh — Chief Financial Officer

No, that that is not very good tax deferred as mentioned earlier that tax competition has got no implication for gain from WDV to SLM.

So, to clarify your point, the actual tax outgo will be based on that income tax calculations which uses its own independent record. As far as provisioning is the books go, we have to provide for DTA and DTL also, because in some years you will see a match which gets credited later. So, in the books the provisioning happened as per book profit.

Lakhshya Jain — Investor — Analyst

Okay, So, that is not the actual tax which will be paying, that 25 crores.

Mr. Rahul Sagar — Executive Director and Chief Executive Officer and Promoter

Yeah, there’s not cash outflow, the cash outflow will be completely different, which is done based on just that calculation as per the income tax law.

Lakhshya Jain — Investor — Analyst

Okay, okay, sir. That’s it. That was my only question.

Operator

Thank you. [Operator Instructions] We have the next question on the line of Sukhvinder Singh from EON Infotech Limited. Please go ahead.

Sukhvinder Singh — EON Infotech Limited — Analyst

Thank you for the opportunity. My first question is any progress on this week plan since the last update; because it’s been a work in progress for I think quite a few number of quarters. So any updates that you have to be published?

Mr. Rahul Sagar — Executive Director and Chief Executive Officer and Promoter

So, you did- I hear your question, right? You wanted an update on what you mentioned was the read update? Is that what you want?

Sukhvinder Singh — EON Infotech Limited — Analyst

Yes, that’s right. Any update on the lead plans?

Mr. Rahul Sagar — Executive Director and Chief Executive Officer and Promoter

Okay. So just to just to clarify, what we’ve been discussing is not specifically the plans for- we are not having- we’ll be discussing what this kind of structuring or restructuring that might be beneficial to shareholders going forward.

One of the points raised by shareholders was, “Could we do a read”? So, the discussion is in terms of what might be the best structure for the company going forward, continues to progress.

There is nothing again, more specific as to whether it is a B or C. But we do continue to progress on the discussions and the discussions are as we indicated- they are constructed in their progress or we want to go forward, there’s nothing specific. We are discussing, we are happy with the [Indecipherable].

Sukhvinder Singh — EON Infotech Limited — Analyst

Is there any timeframe that you have in mind by which some crystallization of views in terms of the right structure would emerge. Any visibility on that?

Mr. Rahul Sagar — Executive Director and Chief Executive Officer and Promoter

Appreciate your question. We are working hard on that we are working. We are making progress on that. We will show that as soon as there is something specific we have, we do come back to share to shareholders.

Sukhvinder Singh — EON Infotech Limited — Analyst

What’s the physical occupancy that we’ve reached now in our campus?

Mr. Rahul Sagar — Executive Director and Chief Executive Officer and Promoter

Occupancy, as our date is close to approximately 99% as on daily with about 97 odd percent on December 25 that we have made [Indecipherable].

Sukhvinder Singh — EON Infotech Limited — Analyst

Sir, I make these physical occupancy of people back to work.

Mr. Rahul Sagar — Executive Director and Chief Executive Officer and Promoter

Yeah. Okay. So, I just mentioned that on the previous call as well. On the previous questioning, we say approximately 60% right now. I mean, sometimes it gives us plus minus 10% on the 60% but it’s at approximately 11,000- 12,000 people.

The video which is approximately 60% of the pre-JP Morgan occupancy once a JP Morgan fitout is done of course and it will be. We have to reassess that and right now it’s 60%. Based on the first four pages, approximately 60%.

Also, in this last quarter, we’ve had days where the occupancy reached at times pretty much close to three COVID levels on oddly. In general, that trend has been increasing quite encouragingly. Would you agree with that Anuj?

Anuj Sonpal — Valorem Advisors — Analyst

Yes.

Sukhvinder Singh — EON Infotech Limited — Analyst

Sir, any update on the imminent Morgan Stanley classification or plans or any update on that? How do we plan to address should that challenge come up?

Anuj Sonpal — Valorem Advisors — Analyst

The Morgan Stanley vacating record.

Mr. Rahul Sagar — Executive Director and Chief Executive Officer and Promoter

We continue to monitor that very closely and to be in touch with Morgan Stanley at all times. As we said, we have a very good equation with them. We know that they have an interest in moving to a building that is exclusively for them. They will be giving us more than adequate notice when they do that. They will also be moving in phases and not in one stroke. We haven’t received any intimation that is imminent or likely at this point but we do remain in touch to make sure that we have maximum notice when it does, when that move is likely to happen.

Also, we have the maximum time for the move so that both parties can make sure that they are reasonably comfortable with the ones that move begin. So, it’s not something that happens in one stroke. So, no intimation so far, no notice of that extent so far however we know it’s something that is going to happen at some time in the future but we have no specific timeframe on that as of now. So, till sometime to go before that.

Sukhvinder Singh — EON Infotech Limited — Analyst

All right, thank you. One final question. What is your view on outlook on renters in this micro market over the next couple of years? So, what’s the view based on your understanding of the market?

Mr. Rahul Sagar — Executive Director and Chief Executive Officer and Promoter

We don’t really want to speculate but we see that there’s steady trend and that it’s fairly stable with what one might call a marginal increase, so to speak. But we see that rents are stable and steady and any increase will be also fairly stable and steady in this regard. At this point, we don’t see anything drastic happening either up or down. We hopefully feel that the current stable trend that we think we are witnessing is going to continue.

As you’ve seen we’ve had many renewals for 22-23. We’ve completed a significant amount of our renewals for 23-24 as well. We are in advanced discussions for others which are progressing. The trend has been steady. It’s a trend that is steadily on an upward trajectory. As a whole said there’s nothing drastic that is happening in terms of major jumps upward or downward. But it’s consistently and empirically something that we’ve seen as a trend that is in the right direction, as far as we are concerned.

Sukhvinder Singh — EON Infotech Limited — Analyst

All right, so thank you very much. Very helpful, we appreciate the insight.

Mr. Rahul Sagar — Executive Director and Chief Executive Officer and Promoter

Thank you.

Operator

Thank you. We have the next question from the line of Ashok Jain from Ayoush Capital. Please go ahead.

Ashok V. Jain — Ayush Capital — Analyst

Thanks for the opportunity again, Sir. This follow-up question is on depreciation. For the current year we have provided depreciation as WDV method and for the second half we are going for a straight-line method. So, for the whole year do you have to write that for extra provision? Or will it stay the same only as for income tax losses?

Mr. Rahul Sagar — Executive Director and Chief Executive Officer and Promoter

The WDV method is effective from 1st October 22. So, the SLM method will remain and the numbers associated with the SLM method will remain unchanged for the first six months of the year.

Ashok V. Jain — Ayush Capital — Analyst

Okay. Thank you.

Mr. Rahul Sagar — Executive Director and Chief Executive Officer and Promoter

Thank you, sure.

Operator

Thank you. [Operator Instructions]As there are no further questions, I would now like to hand it over to the management for closing comments.

Mr. Rahul Sagar — Executive Director and Chief Executive Officer and Promoter

Thank you very much. As always, we appreciate the interest, the time and the questions that are asked and do be in touch with us if there any further clarifications that we can provide on any aspect of our operations. Thank you again.

Operator

Thank you.

Mr. Rahul Sagar — Executive Director and Chief Executive Officer and Promoter

Thank you.

Anuj Sonpal — Valorem Advisors — Analyst

Thank you.

Operator

[Operator Closing Remarks]