Why NESCO can be considered for investment with a good risk reward ratio:
• Nesco’s share (CMP:600, PE:23-26)is trading well below its pre pandemic levels (around 800, PE:24-26).
• Major reason for underperformance:
Before the pandemic, the company's exhibition business generated roughly 150 crores in revenue, but owing to a lack of health infrastructure in the state, the Brihanmumbai Municipal Corporation converted its exhibition halls into jumbo covid care centres to admit Corona patients. As a result, the revenue generated from this segment has dropped to 5 crores. (It used to generate profits of 120 crores)
• But with the Maharashtra government increasing expenditure on health infrastructure, they have decided to use the extra equipment that are lying in jumbo centres at the new hospitals and the units of other medical colleges.1/3 of the capacity has been released and will soon start hosting exhibitions and events. And it might take some more time to free up the remaining place.
• Risk: Exhibition space not being fully used (due to covid waves and slow pace of shifting equipment to new hospitals and centres by Maharashtra government).
• Reward:The share price has already priced in the absence of earnings from Bombay Exhibition Centre . Any release of the space will only be a positive trigger. Other segments are performing well: it receives annual office rentals of about 200 crores. Company has zero debt. It pays dividend as well. Major expansions are in line (all will be financed through internal sources).
PS: This is just an educational post, not a recommendation to BUY
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