Detailed narrative
Strong Q2 & H1 FY26 Financial Performance
Nirlon reported a total income of ₹169 crores in Q2 FY26, growing approximately 4% year-on-year. EBITDA stood at ₹133 crores, up approximately 2% YoY, with a margin of 78.69%. Profit after tax was ₹148 crores, achieving an impressive PAT margin of 87.45%. For the first half, total income reached ₹336 crores (5% YoY growth), EBITDA was ₹265 crores (5% YoY growth) with a margin of 78.83%, and PAT was ₹206 crores with a margin of 61.36%.
Impact of New Tax Regime and Deferred Tax Reversal
The company adopted a new concessional tax regime from Q2 FY26, which impacted the comparability of current period growth. This strategic shift led to a re-measurement of opening deferred tax liability and a reversal of ₹69.5 crores in the current quarter, significantly boosting the reported PAT. Management indicated this move was prudent and they would continue to monitor various developments carefully.
High Occupancy and New Leasing Activity
Nirlon maintained a high average occupancy rate of 98.6% across its NKP and Nirlon House properties for the quarter. As of September 30, 2025, only 20,000 square feet remained vacant. During Q2, approximately 260,000 square feet, primarily space vacated by Morgan Stanley, was successfully licensed to new and existing tenants, including Deutsche Bank, Barclays, MUFG, Citi, and EY, at competitive rates.
Consistent Capital Expenditure for Asset Maintenance
The company's routine capital expenditure for maintenance and upgrades is approximately ₹30 crores per annum, with ₹26 crores already spent in the first half of FY26. Management clarified that a significant portion, specifically ₹20-25 crores, of this annual CAPEX is capitalized. This ongoing investment ensures the properties maintain their A-grade standard, catering to the satisfaction of international licensees.
Tenant Concentration and Diversification Stance
Addressing analyst concerns about client concentration, particularly with J.P. Morgan contributing 40% of gross rentals, management expressed strong confidence in the financial health and long-term commitment of its existing licensees. They stated that there is no immediate reason to pursue diversification for the sake of it, as current license agreements, typically spanning five to nine years, provide sufficient stability.
Strategic Clarity on Nirlon House and REIT Remains Limited
Management provided limited updates regarding the progress and future plans for Nirlon House, citing complexities associated with its 12 owners, and indicated that significant developments would be communicated when available. Similarly, they refrained from commenting on whether the recent shift to the new tax regime impacts the feasibility of a REIT plan, deeming it premature to discuss at this time, leaving investors awaiting further strategic clarity.
Dividend Policy and Future Cash Flow Expectations
Nirlon paid a final dividend of ₹11 per share for FY25. Management reiterated its commitment to maximizing distribution to shareholders from surplus cash flow, while prudently accounting for contingencies. They anticipate generating approximately ₹150 crores more cash in the second half of the fiscal year due to the benefits of the new lower tax rate but did not provide a specific target for a sustainable dividend going forward⏳.