nesco ltd Management discussions

A. Business Groups and Developments Nesco IT Park

Nesco Realty has carved a benchmark with its premium Nesco IT Park. A self-sustained facility, the Park is laid out over several million square feet. It accommodates the world?s leading multinationals such as HSBC, KPMG, PWC, MSCI, BlackRock, Here Solution, Framestore, Priceline, WeWork, Apollo Global and several others.

Developments

Our Company had retained JLL?s landlord representative team for sales and marketing activities of Nesco IT Park Tower 04. JLL comes with strong Tenant Representative and landlord representative practice; technology platform and reach to their strong client network globally.

Due to the ongoing COVID-19 Pandemic where movement of people was restricted virtual tour of the IT Park was introduced as a method to let the potential clients have a look at the office space and facilities offered. From this year onwards, physical visits to the location has also started.

The division has prepared and is monitoring a tracker for Grade A properties, Clients and their contractual details to explore potential clients for its IT Park. Marketing activities like Email, Whatsapp, JLL Client Event, Linkedin Post, Roadshows in different cities were used for bringing in new and reputed clients from around the Country. Incentive Schemes for financial year 2021-22 was launched for clients coming through IPCs /Brokers, Email Flyer, Whatsapp Flyer, Linkedin Post or clients approaching directly.

Bombay Exhibition Centre

Bombay Exhibition Centre (BEC) reflects Belief and Opportunity. Bringing over millions of ideas to life, the Center has helped the globe converge in Mumbai with a common purpose.

The exhibition industry sector enables trade/business transaction of over Rs 3,00,000 crore, annually boosting and supporting the growth of various spectrum of industries while also being a colossal employment provider with nearly 1,20,000 people employed in this industry. Normally, during the year 745 events are conducted, average event size is of 9.8 thousand gross sq. meters.

Bombay Exhibition business includes 73% of exhibition area within Western and Northern region - Western (38%), Northern (35%), Southern (24%), Central (2%), Eastern (1%) and it primarily focus on B2B events.

As a space of limitless possibility, Bombay Exhibition Centre is endlessly customizable. With robust infrastructure, the center paces itself to global standards. The wide options of venues, the versatility packed within, are topped with helpful services.

With the continued expansion of Bombay Exhibition Centre, there is now a versatile solution for any trade fair. The BEC is already India?s largest exhibition venue in the private sector, hosting exhibition for most of the large and reputed organisers from India and across the Globe.

Nesco Exhibitions is into the business of organising Exhibitions and Conferences. We have events of different topics varying from B2B, B2C as well as B2G. The focus of each event is to create a huge business platform where the buyer and the seller come face to face and benefit commercially not only for themselves but also in the development of the Nation.

Our foray into the event space has been buoyed with excitement. Nesco Events has created unique properties that have quickly become resounding successes. This is taking the business off to an impressive start and is enhancing the Group?s strengths to deliver quality entertainment to a burgeoning audience of eager enthusiasts.

Bombay Exhibition Centre has attained historical status in Mumbai as the ideal location for exhibitions, MICE, trade shows, business displays, events and entertainment.

Developments

Guest Exhibitions and Events

From November 2021,12 exhibitions were scheduled and held in Halls I, VI and VII. It is expected to receive other Halls back from MCGM during financial year 2022-23. There are 21 exhibitions scheduled till now for the financial year 2022-23.

Nesco Exhibitions

In financial year 2021-22, exhibitions were scheduled but couldn?t be held due to second wave of COVID-19, reduced participants and footfalls. The exhibitions were then postponed to financial year 2022-23. Exhibition scheduled is 3^rd edition of India Auto Show which will be held in the month of May 2022.

Nesco Events

Rangilo Re - Utsav Gujarat no, Navaratri festival spread across 9 days was not organised during the financial year 202021 and 2021-22 due to on-going pandemic. However, Rangilo Re now will be organized in the financial year 2022-23 at a large scale. There is tremendous revenue opportunity in form of ticket sales and event sponsorship.

Paddy Fields - Folk & Fusion music festival, was also not organised during the financial year 2020-21 and 2021-22 due to on-going pandemic. Paddy Fields also helps us in generating inquiries and business from third party B2C events like the Filmfare Marathi, Enchanted Valley Carnival music festival, DID Little Champs, Awards Night, COBEX etc.

Nesco Foods

Nesco Foods caters to all levels of social, business and luxury events. It is one of Mumbai?s most preferred hospitality providers, well-recognized for their varied capability and array of cuisines. The division operates the largest non-flight kitchen in the city.

Developments

A team of experienced personnel from the industry have been taken on board to drive revenues for this division. We are developing market awareness & presence of banquet segment with ballroom in both corporate and social segment. Marketing tools and aids are shaping up for a better reach and stronger brand recall. We participate in various Industry forums for increasing recognition of this new division. Nesco Foods also catered to Dedicated Covid and Health Centre (DCHC) and provided them packed meals during the Pandemic.

Indabrator

Indabrator, our engineering division is a pioneer in the surface-preparation category. Backed by best-in-class technology, Indabrator boasts one of the largest manufacturing units. Today, it remains a Company with impressive market share and multiple innovations in the pipeline and only manufacturer in India for equipments, spares and abrasives all in one location.

Developments

Indabrator seized all the opportunities from firms that showed interest in setting-up or expanding green field and brown field projects. Abrasive sales continues its upward trend. Activities related to expansion of abrasive plant capacity at Karamsad was completed during the year.

B. Opportunities and Threats

Nesco IT Park

Mumbai Suburban area is home to lot of MNCs, Banks and Global Shared Services. There is huge opportunity as the existing tenants in this location will either look to expand or relocate in the nearby IT Parks. Having said the micro-market lacks ‘A? category supply. Landlord with the supply at the right time will be a key differentiation.

Occupier may increase their focus on Environmental, Social and Corporate governance as key consideration while choosing building premises to occupy. Adoption of Green building is likely to act catalyst for preference of occupiers.

Tech enhancement spaces and increase in the flexibility of leasing portfolio will be long term outlook.

The only threat to Nesco IT Park business is from the office space providers in the nearby vicinity and more established Business Parks.

Bombay Exhibition Centre

Guest Exhibitions and Events

Bombay Exhibition Centre couldn?t provide its space for exhibitions during the year due to ongoing Pandemic. Once the pandemic scenario improves, it is expected that the show size would increase due to increased participation by exhibitors seeking added business and markets to make up for the lost period. This would increase BEC revenues.

In the scenario that few states fare well in managing covid whereas Mumbai, Maharashtra faces worsening scenario, few organisers could be compelled to move their exhibitions to other cities or states.

However, the situation is improving. Some of our Halls which were occupied by MGCM were released during the year. Though on a smaller scale but we could give our halls for exhibitions. From November 2021 to March 2022, 12 shows were conducted in the Halls which were available with us such as ACETECH 2021, Tech Textile India 2021, International Health, Sports 2021.

On one side, we are procuring new clients since organisers are venturing outside their established zones which is an opportunity for the Company to attract new clients.

On the other side, we are losing voluminous business due to unavailability of Halls and due to new trend of having multi city exhibitions.

Nesco Exhibitions and Events

In Nesco Exhibitions and Events, the opportunities are endless, as we can work on various topics that are not being organised otherwise. Opportunities to an open international market to meet and greet the Indian market at India?s number one privately owned venue. Getting the exhibitors, visitors and the Government on one single platform is the biggest opportunity. There is also an opportunity of potential strategic tie-ups with third party exhibitions and events as partners, wherein the benefits could range from revenues to brand building and increased footfalls to the venue. Launching new IP?s in B2C space (Music Festivals, Food Festivals, Kids festivals).

However, due to ongoing Pandemic COVID-19 we could not organize any shows during the financial year 2021-22. Once the pandemic scenario improves, it is expected that we will be able to organize more shows with increased participation from around the Country.

However, after span of 2 years, the Exhibition business is getting back to track slowly. Since, the market is opening up after the Pandemic COVID -19, lot of existing exhibitions are finding their footings gain albeit on smaller scale.

Industries have still not recovered from the shock of Covid; hence their spending has reduced substantially and hence shows are becoming small.

The Impact of 3^rd wave as well as the threat of 4^th wave of Covid has impacted the Exhibition business, which makes it more difficult for us to start new shows in this scenario.

Nesco Foods

The Pandemic has created a backlog of events that could not take place due to the environment. This includes the Social & Corporate segment and this is seen as an opportunity to grab for the Banqueting business for Nesco Foods.

The Covid Center tag for Nesco remains a soft deterrent of sorts. But the larger worry would be the non-availability of the 4 Halls still with MCGM. The situation also prohibits confirmation of Event bookings on the campus in the big Halls.

Indabrator

The biggest opportunity for Indabrator is the longevity in the business, strong and wide client base, its capability & capacity of handling large projects. Division has integrated manufacturing set-up under one roof. Export of Equipment, Spares and Abrasives can be a good opportunity for the Company.

However, Compliance to international standards, their requirements and local and international competition from established suppliers is a challenge for the Company.

C. Risks and Concerns

Current and immediate risk to the Company is due to the pandemic where public gathering is restricted.

Common and General risk or concern which may impact the Company?s business are Statutory permissions, market conditions, natural concerns, riots, uprisings, religious holidays, acceptance of the exhibitions and events concept by the targeted audience and potential sponsors.

The Company has a Risk Management Policy, which provides overall framework of Risk Management appropriate to it and to the business environment under which it operates. Risks are being identified at regular intervals by the Company?s Board of Directors and key management personnel and their mitigations plans are discussed at the Risk Management Committee meetings.

Nesco IT Park

Companies have experienced work from home and have been under stress to improve their profitability after Covid period. Hence, for reducing cost, they may consider reducing their spaces or move out to spaces with lower rentals. This will create pressure on renegotiating the rent escalation due in this year.

Many Companies have also started mapping their workforce footprints basis they may spread their office location in western and eastern suburbs in Mumbai.

Bombay Exhibition Centre

The major concern of the Company currently is making BEC Halls available for conducting exhibitions and events. Currently, only three Halls are available with us. We are expecting to get the other Halls back in this financial year. The Impact of 2^nd and 3^rd wave and the threat of 4^th wave of Covid due to increase in number of daily cases in Mumbai as well as throughout the country has made it difficult for launching of any new show.

Since spending in Exhibitions is tertiary and is dependent on how the primary Industry operates in that sector, any slowdown in the sector will affect the Exhibition industry substantially. Due to Covid-19, cash flow and price pressures will be felt in the industry. Hybrid model will play a big role in the revenues of Exhibitions.

Nesco Foods

While the city is creeping into normalcy, the fear of the 4^th wave creates a sense of uncertainty and concern in the industry. The Bureaucracy is also not taking a defined stand on the future. With the experience of the pandemic period, the industry is not taking any risks and only working on recovery and sustenance.

While Nesco Foods does get an impetus from the Exhibitions held on campus, the Exhibition industry itself is in a state of turmoil.

Also, the launch of the new Convention Centre in Mumbai brings in a noteworthy competition, which will have to be faced with aggressive marketing and high service standards.

Indabrator

Availability of raw material and its price, restrictions on local and international travel, imports to India at a cheaper rate, high logistics cost, uncertain demand scenario around the globe are the matter of concerns for the Company.

Investment

Your Company has invested mostly in Mutual Funds, Corporate Deposits, Non-Convertible Debentures, Bonds and Preference Shares. The volatility in the market may adversely affect the Company due to Mark to Market losses. To overcome this risk, the management reviews the investments on regular basis and verify the returns and present the same before the Board for their consideration every quarter.

D. Internal Control Systems

The Company has proper and adequate system of internal controls which ensure that all the assets are safeguarded against loss from unauthorized use or disposition and that all transactions are authorised, recorded and reported correctly.

Our internal financial control framework is commensurate with the size and operations of the business and is in line with requirements of the regulations. We have laid down adequate procedures and policies to guide the operations of our business. Divisional Heads are responsible for ensuring compliance with the policies and procedures laid down by the management.

Our internal control systems are routinely tested by the Management, Statutory Auditors and Internal Auditors. All major findings and suggestions arising out of internal audit are reported to and reviewed by the Audit committee.

The management ensures implementation of these suggestions and reviews them periodically. The Company continuously strives to evolve, improve and implement the best practices for each of its major functional areas with a view to strengthen its internal control systems.

E. Internal Audit

The internal audit is conducted by an independent audit firm comprising of chartered accountants. The internal auditors on carries audit basis quarterly / calendar plan. Internal audit comprises risk based approach and also transaction audit for certain identified areas and processes.

F. Development in Human Resources and Industrial Relations

The Company?s vision is to create a cohesive work environment that encourages the employees to pursue their professional and self-development goals in addition to building operational excellence and a sense of belonging. The Company believes that human resources are a critical factor for its growth. The emphasis is on grooming inhouse talent enabling them to take on larger responsibilities. The relations with the employees and workers remained cordial and harmonious throughout the year. The year 2021-22 saw a drop in overall employee benefit expense as compared to the previous year. There was approx.16% drop in the said expenditure from the previous year; this drop is due to attrition and delayed replacements due to covid-19 as well as voluntary pay cuts to KMPs.

G. Financial Review

During the year under review, certain businesses were impacted due to the lockdown measures to contract ongoing pandemic situation resulting in reduction in revenue and profits. The Standalone and Consolidated financial highlights for financial year 2021-22 are as follows:

(Rs in lakhs)

Particulars	Consolidated	Standalone
	2021-22	2020-21	2021-22	2020-21
Revenue from Operations and Other Income	38,241.21	35,569.72	38,216.37	35,565.77
EBIDTA	26,398.49	25,025.63	26,401.82	25,029.90
Profit Before Tax	22,646.00	21,630.61	22,651.18	21,634.97
Profit After Tax	18,917.12	17,245.56	18,922.24	17,249.92

Particulars	Consolidated	Standalone
	2021-22	2020-21	2021-22	2020-21
Debtors Turnover Ratio	13.99	12.61	13.99	12.61
Inventory Turnover Ratio	7.65	4.88	7.67	4.91
Current Ratio	3.73	1.73	3.70	1.70
Operating Profit Margin	69.85%	77.13%	69.87%	77.15%
Net Profit Margin	49.47%	48.48%	49.51%	48.50%
Return on Net worth	11.17%	11.23%	11.19%	11.25%

H. Capital Expenditure and Expansion Plan

During the financial year 2021-22, expansion plans for IT Park and for BEC were deferred due to continued effects of thi Covid-19 pandemic. The Company?s Exhibition Halls were occupied by the Municipal Corporation of Greater Mumbs (MCGM) to operate a Jumbo Dedicated Covid Health Centre which included a Quarantine Centre, Hospital, ICU, as we as a Vaccination Centre.

• Nesco IT Park has completed the designing & finalization of plans for the new Tower 02 which will be located in place o legacy IT building 02 and the adjoining areas. The designs are made by Singapore Based Architects - Aedas and thi total development size will be abouRs4.6 million sq. ft. that includes office space, hotel, car parking and other amenities.

The estimated cost for Tower 02 is around Rs2,00,000 lakhs, with outflow spread across over more than 5 years and civ work expected to start shortly after approvals from various authorities.

The Company is now commencing part of its various F&B and Retail areas in Tower 04 which includes new Restaurants Food Court, Gym, Convenience Store, Salon and a Coffee Shop. The expected cost is approximately Rs5,000 lakhs.

The Company has completed conceptualisation for landscaping of its Tower 03 which is estimated at a cost of Rs401 lakhs and shall be undertaken in financial year 2022-23 for overall upgradation of the facility.

• Bombay Exhibition Centre has obtained the clearance of State Government to the suggestion of objection filed in respect of DP 2034 which were included in the Excluded Portion (EP). Company has plans to develop a large world class integrated Exhibition Centre comprising of Exhibition Centre, Convention Centre, Hotel and other amenities in the coming years.

• For the financial year 2022-23, Nesco Foods is planning to increase its revenue stream by foraying into outdoor catering and B2B contracts outside the Nesco Center and operating two brands in food court named as ‘Indic? & ‘Daily Dely?, serving authentic Indian cuisines. This additional business will be managed within its existing production capacity.

• At Indabrator, the abrasive plant manufacturing capacity of 2000 MT/annum has been ramped-up to 6000 MT/annum and can generate revenue of approximately Rs 2,500 lakhs on full capacity basis. The division is also undertaking upgradation of its process as well as infrastructure. The infrastructure enhancement includes beautification of the existing structures and is estimated at approximately Rs530 lakhs

• The Company has implemented SAP (SG/HANA) for all its accounting functions and business processes across all divisions. It is now working on digitization of various aspects of other business processes. Furthermore, Company is in the process of implementing "LS Retail" as a front end solution for all its food courts and restaurants.

• Company has completed upgradation of the existing storm water drain within the Nesco Center in the financial year 2021-22 and is awaiting completion certificate from the relevant authorities. This will help eliminate the risk of water logging during monsoon season. The cost of completion for the same was Rs1,000 lakhs.

• A new sub-division under Nesco foods, named as ‘Restaurant & Outlets? has been developed to run the business of restaurants, food court and lounge bar. It is projected that this division will be gearing its operation from second quarter in alliance with some reputed brands of the City.