Annexure 7 to the Directors Report
1. Overview:
A total of approx.47.63 lakh sq. ft. of construction has been completed in NKP
comprising Phases 1-5.
During the Year under review, the Company continued to successfully license and manage
all five phases of Nirlon Knowledge Park (NKP), which corresponds to approx. 30.58
lakh sq. ft. of licensable area.
License Fees from all five phases, including from Phase 5 comprising approx. 11.60 lakh
sq. ft. of licensable area (corresponding to approx. 17.80 lakh sq. ft. of constructed
area) entirely licensed to J.P. Morgan Services India Pvt.
Ltd. (JPM), are recognized in the Profit & Loss Account for the entire year.
Operations Summary: Industrial Park / Information Technology Park – Goregaon
(East), Mumbai:
a. Development of Phase 5:
Phase 5 was completed and handed over to JPM on December 15, 2021, and License Fees are
recognized in the Companys Profit & Loss Account from this date.
b. Occupancy & Licensee Fee Renewals/ Escalations:
During the Year under review, on the strength of increased demand for well located and
managed Grade A Commercial Real Estate in established Indian metros, the Company has been
successful in ensuring that as on March 31, 2023, in excess of 99.00% of licensable area
in Phases 1 - 5 of NKP has remained licensed to predominantly institutional occupants.
Accordingly, license fees for all five phases are being regularly received by the Company.
Escalations of license fees (approx. 15% every three years) took effect substantially as
contracted during the Year under review. Renewals of expiring licenses with existing
Licensees, as well as fresh licenses were also successfully executed during the year.
These renewals / fresh licenses / escalations ensured the
Companys financial performance continued to be strong. Further, the limited amount of
vacant space in NKP has seen reasonable traction, and as on 30th June 2023 in
excess of 99.00% of the Companys licensable area was successfully licensed.
c. Loan Repayments:
The outstanding loan amounts as on March 31, 2023 aggregated to 1,150.00 Crore (as
per IGAAP). The Companys debt up to May 2, 2022 was provided by HDFC Limited ("HDFC").
On May 2, 2022, the Company refinanced its entire HDFC debt by availing a loan of
1,230.00 Crore as a Green Loan with a sub-limit of 80.00 crore by way of an Overdraft
limit from The Hongkong and Shanghai Banking Corporation Limited ("HSBC"),
and paid all its dues of 1,179.86 Crore to HDFC on May 2, 2022. The Company executed and
registered a Mortgage Deed by creating a first and exclusive charge in favour of HSBC by
mortgaging the Companys immovable property, i.e. land, buildings and structures standing
on the Land, situate at Goregaon (East), Mumbai 400 063, as per the facilities documents
executed by and between the Company and HSBC.
This Loan facility has been rated by Crisil Rating as AA+/Stable as on the date of this
report. d. Profitability and Cash Flow:
The Year under review saw an increase in occupancy, as well an increase in Gross Income
and Profitability. The increase in Gross Income and Profitability was driven by the
recognition of JPM License Fees in the Companys Profit & Loss Account for the entire
F.Y. for the first time, as well as from the License Fee escalations, renewals (for the
most part at improved terms) and higher occupancy levels during the F.Y. 2022- 23.
The Companys profit before tax during the Year under review increased from 190.05
Crore to 232.53 Crore when compared to the previous year (as per Ind AS).
The Company continued to generate strong and improved free cash flows during the Year
under review after accounting for all expenses including payment of interest to its
lender.
In the context of the available free cash flows, improved profitability levels, close
to full occupancy levels, the successful Licensing of the Phase 5 development and payment
of majority of Phase 5 costs, after suitable deliberation, the Board of Directors have
recommended for shareholders consideration a final dividend of 11.00 per share (@ 110%)
for the Year under review, in addition to the interim dividend of 15.00 per share (@150%)
already paid during the Year under review.
e. Priorities
Key priorities for the Company during the F.Y. 2023 24 are as follows:
i. To make every effort to renew licenses due for renewal and to license the currently
vacant space at competitive rates at the earliest;
ii. To ensure the continued satisfaction of its licensees by maintaining and operating
NKP to the highest possible standards, such that all 5 phases remain as fully occupied as
possible;
iii. To ensure the ongoing scheduled servicing of its loans;
iv. To continue to work on making its ESG initiatives as meaningful as possible;
v. To obtain a Leed Zero Water Certification and a TRUE Certification for Zero Waste,
as well as to continue to work on reducing its carbon footprint, increasing the share of
its electrical power sourced from renewables and further improving the efficiencies in its
consumption;
vi. To continue to proactively identify and evaluate the emerging trends/paradigms in
the commercial office space market and the IT/ Financial
Services/Banking Industries, in so far as the same could have an impact on the
Companys business, and to implement mitigation strategies for the same. This evaluation
includes the possible impact of the Work From Home (WFH) and flexible work space
trends; and vii. To make every effort to keep its Licensees, employees and everyone who
works at its locations as safe as possible from any pandemic like circumstances, by
continuing to follow processes and awareness measures already implemented, as may be
required.
2. Business Climate Summary: Opportunities, Risks and Concerns: Macro-Economic
Environment
i. Global :
Global economic conditions will continue to increasingly have a bearing on real estate
demand in India, and consequently Mumbai. The quantum of investments into India, and
specifically Indian real estate, are, inter alia, driven by economic conditions and
changing paradigms for commercial real estate in the developed world. This hypothesis has
proved especially relevant in the years post the Covid 19 pandemic, in an increasingly
fraught global economic climate. The possibility of an extended inflationary cycle has
still not entirely receded in many major economies, and remains concerning when combined
with the continuing possibility of a recession in major economic regions. Central Banks
continue to grapple with the prolonged and imperfect balancing act required to address the
conflicting priorities of how much and how often to raise interest rates and tighten
monetary policy, amid inconsistent and fluctuating economic indicators. Their task, as
indeed the task of governments and economic planners worldwide, continues to be made more
complex by the myriad and unprecedented repercussions and fallout from the tragic,
devastating and protracted war in Ukraine to which there presently appears no end in
sight.
ii. In India:
The year under review has seen increasingly strong demand for commercial real estate in
India from institutional investors as well as end users. For institutional investors, this
has been driven by the desire and imperative to be part of a market that has shown
resilience post the Covid 19 pandemic, and offers the possibility for sustained growth
over the medium to long term. Additionally, for end users, Indias enormous domestic
potential for growth, efficiencies of cost as compared to their home markets and the
availability of the required talent pool continue to be significant attractions.
As mentioned during earlier years in this analysis, continued demand for commercial
real estate in Mumbai is dependent on the City continuing to be an investment destination
of choice for Indian as well as multinational corporates. Over the past approx. two
decades, other metros in India have also established themselves as vibrant and attractive
destinations for commercial real estate by offering a business / investment friendly
climate, with lower living costs for employees, and competitive salary costs and real
estate prices for employers.
In this context, successive and continuing State Government initiatives to simplify the
regulatory frame work in Maharashtra and Mumbai are welcome and much needed. The
successful implementation of these initiatives and the improving transport and allied
infrastructure, should help Mumbai in retaining its pre-eminent position as a preferred
business / investment destination in India.
The traditional strengths of Mumbai, including its Financial Services Industry,
business ethos and a large, cosmopolitan and educated work force remain very relevant, and
should also continue to enhance the Citys desirability as a dynamic and competitive
international investment destination.
At the Central Government level too, investors and entrepreneurs look forward to the
continuance of stable, pro investment and business supportive policies, which
incrementally build on existing legislation and / or introduce fresh initiatives targeted
to accelerate investment, job creation and economic growth.
From a real estate perspective, the increasing emergence of, and investor response to
Indian Real Estate Investment Trusts (REITs) are welcome, and should continue to
lead to the broadening and deepening of the real estate capital markets in India.
Fractional ownership of commercial real estate seems to be on the rise, thereby
increasing the attractiveness of the real estate sector as an alternate investment
vehicle. SEBI has put up a white paper for public comments to regulate this space for
retail/ institutional investors. These are positive macro trends for the sector.
iii. Demand for Commercial Real Estate in Suburban Mumbai
Demand for commercial real estate in suburban Mumbai continues to be driven by the
Information Technology (IT), especially the global GIC/GCC sectors, and the
multinational Banking and Financial sectors. With the cost arbitrage available in India as
compared to developed economies, this trend is likely to continue for the foreseeable
future.
Though demand is strong, the business model for these sectors continues to require
relatively inexpensive commercial real estate, available in
Mumbai beyond Borivali in the West and Mulund in the East, and in other cities in India
like Pune, Hyderabad and Bangalore. These markets could keep commercial rates under
pressure in the Companys micro market.
However, the demand for high quality, well planned, ESG conscious and professionally
managed commercial developments like NKP in your Companys micro market is estimated to
remain steady. The micro market, and specifically NKP itself, is advantageously located on
the Western Express
Highway and is in close proximity to the commuter rail network, the Mumbai Metro and
the airport.
3. Material developments in Human Resources / Industrial Relations,
including number of people employed by the Company
As per statutory requirements, during the F.Y.2022-23, there were 3 (three) employees
and all were Key Managerial Personnel i.e. the Executive Director & Chief Executive
Officer, the Company Secretary and Chief Financial Officer. The Chief Financial Officer
(Finance) retired on November 30, 2022 as a whole-time employee of the Company but
continued to serve the Company in the role of Chief Financial Officer/ Head Finance as a
whole time consultant instead of a whole time employee up to March 31, 2023. Thereafter,
w.e.f. April 1, 2023, he was re-appointed as the CFO & V.P. (Finance) of the Company
as a whole time employee.
4. Details of Significant Changes (i.e. change of 25% or more as compared
to the immediately previous financial year) in the following key Financial Ratios:
i. Current Ratio: Decreased by 49.28% on account of decrease in cash & cash
equivalents because of various payments such as dividend, vendor payments etc.
ii. Return on Equity ratio: Increased by 70.48% mainly due to increase in profit
after tax and lower capital base due to distributions to shareholders.
iii. Trade receivable to turnover ratio: Increased by 25.03% on account
of higher revenue from phase 5 at NKP.
iv. Trade payable to turnover ratio: Increased by 33.37% on account of an
increase in phase 5 expenses at NKP.
v. Net Capital Turnover ratio: Increased by 25.75% on account of increase
in revenue partially compensated by decrease in net current assets due to dividend
payments.
vi. Return on capital employed : Increased by 59.75% on account of
increase in profits.
5. Disclosure of Accounting Treatment & Internal Financial Controls:
In the preparation of the annual Financial Statements for the F.Y. ended March 31,
2023, the applicable Accounting Standards have been followed along with proper
explanations relating to material departures, if any.
The Directors have laid down proper internal financial controls to be followed by the
Company, and such financial controls are adequate and have been operating effectively.
Cautionary Statement
Statements in the Annual Report including the Directors Report and its annexures
describing the Companys objectives, projections, estimates, expectations, etc. may
contain forward looking statements based on currently held beliefs and assumptions of the
Management of the Company, which are expressed in good faith, and are, in their opinion,
reasonable. Such statements involve uncertainties and other factors which may cause the
actual results, financial condition, performance or achievements V.P. of the Company or
industry results, to differ materially from the results, financial condition, performance
or achievements expressed or implied by such statements. By their nature, forward-looking
statements inherently involve risks and uncertainties because they relate to events and
depend on circumstances that may or may not occur in the future. Such statements are not
guarantees of future performance and actual results may differ from those specified in
such statements as a result of various such factors and assumptions. No assurance is being
provided that the assumptions underlying such forward looking statements are free from
errors.
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