Nirlon — Q3 FY25 earnings call

Call held 14 Feb 2025

Management summary

Nirlon Limited delivered a strong Q3 FY25, reporting a 7% year-on-year increase in total income to INR 164 crores and a 12% rise in PAT to INR 58 crores, underpinned by robust EBITDA margins of 81.39%. The company maintained high occupancy at 99.5% and successfully re-licensed a significant portion of space vacated by Morgan Stanley, with a strong pipeline for the remainder. An interim dividend of Rs. 15 per share was also declared, reflecting solid performance.

Highlights

  • Q3 FY25 Total Income: INR 164 crores, up 7% YoY.

  • Q3 FY25 EBITDA: INR 133 crores, up 10% YoY, with margins at 81.39%.

  • Q3 FY25 PAT: INR 58 crores, up 12% YoY, with margins at 35.57%.

  • 9M FY25 Total Income: INR 484 crores, up 7% YoY.

  • 9M FY25 EBITDA: INR 386 crores, up 8% YoY, with margins at 79.74%.

  • Average occupancy rate maintained at 99.5% for Q3 FY25 and as of Dec 31, 2024.

  • Approximately 230,000 sq ft of Morgan Stanley's vacated space has been re-licensed.

  • Interim dividend of Rs. 15 per share for 2024-2025 approved.

Key financials

4 periods

Headline

  • Average Occupancy Rate
    99.5%
  • Vacant Space (NKP)
    15,000 square feet
  • Vacant Space (Nirlon House)
    6,200 square feet
  • Morgan Stanley Vacated Space
    4,49,000 square feet
  • Morgan Stanley Re-licensed Space
    2,30,000 square feet
  • BNP Paribas Renewed Space
    1,56,000 square feet

Q3 FY25

  • Total Income
    ₹164 Cr
    YoY +7%
  • EBITDA
    ₹133 Cr
    YoY +10%
  • EBITDA Margin
    81.4%
  • PAT
    ₹58 Cr
    YoY +12%
  • PAT Margin
    35.6%

9M FY25

  • Total Income
    ₹484 Cr
    YoY +7%
  • EBITDA
    ₹386 Cr
    YoY +8%
  • EBITDA Margin
    79.7%
  • PAT
    ₹165 Cr
    YoY +7%
  • PAT Margin
    34%

FY25

  • Space for Renewal
    60,000 square feet

What they filed

Q1 FY27: revenue up 3.1%, net profit up 19.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue160 161 158 163 165 +3%170 +6%171 +8%168 +3%
EBITDA129 131 123 128 129 +0%132 +1%132 +7%129 +1%
Net profit56 58 54 58 148 +164%69 +19%71 +31%69 +19%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Guidance & targets

Taxation

  • MAT Credit Utilization Taxation · by March 2025 · High confidence fully utilized
    The MAT credit that was available to the Company will get fully utilized by March 2025.

    — Manish Parikh

  • MAT Credit Utilized (FY25) Taxation · FY25 · High confidence 22-23
    Approximately 22-23 crores.

    — Manish Parikh

  • Decision on Tax Regime Taxation · next couple of months · High confidence decision in next couple of months
    No, we said the decision on the tax regime will be taken in the next couple of months.

    — Rahul Sagar

Rental Rates

  • Average Rental Rate (Re-licensed space) Rental Rates · current · Medium confidence 160-180
    approximately between 160 to 180 at 80%.

    — Rahul Sagar

Occupancy

  • Re-licensing of remaining Morgan Stanley space Occupancy · next few months · Medium confidence 220,000
    for the balance, approximately 220,000, the pipeline is very strong and positive and we will hopefully be concluding in the next few months as well.

    — Rahul Sagar

Risks & concerns

  • Future Tax Rate Normalization

    medium

    The full utilization of MAT credit by March 2025 will remove a tax advantage, likely leading to a higher effective tax rate in subsequent fiscal years.

    Management acknowledged

  • Sub-optimal Rental Rate Strategy

    low

    An analyst questioned if the company was missing out on higher rental rates by not waiting, but management justified their strategy of immediate re-licensing for consistent returns.

    Analyst downplayed

Areas of evasion (1)

  • GIC participation on concall

Q&A highlights

2 direct
MAT Credit Utilization and Future Tax Advantage Direct
The MAT credit that was available to the Company will get fully utilized by March 2025. Because we are in the old tax regime, we are able to carry forward the MAT and that MAT is getting utilized. It is utilized on an annual basis, so we can't give you the number for utilization up to December. Approximately 22-23 crores. Correct. Yes.

This clarifies the company's tax position, indicating that the MAT credit will be exhausted by FY25, leading to a normalized tax rate in future periods and impacting PAT.

Asked by Dilip A. Jain

Re-licensing Strategy and Rental Rates for Vacated Space Direct
The first part of the question, with regard to the rates that we are getting for licensees for the spaces vacated by Morgan Stanley, we can say that they are fairly positive and showing a higher trend, going in the right direction approximately between 160 to 180 at 80%. Essentially, we can say that the trend is in the right direction at this point in time. It is an increasing trend and to answer your second question as to whether we should wait, we do not usually want to speculate and take these types of decisions as to waiting for license fees to get higher. We want to basically license as soon as possible to the best possible licensee, which will also give us the best credit at the best possible rent.

Management provided specific rental rate guidance for re-licensed space and articulated their strategy of prioritizing quick re-licensing over speculating on potentially higher future rates, indicating a focus on consistent asset utilization.

Asked by Dilip A. Jain

Progress on Restructuring (REIT) and GIC Participation Partial
We understand. I think what we would like to say is that if I may say so, you are assuming that we have been speaking about the REIT. What we want to mention is that we have been looking at an appropriate restructuring. Whether it is in the form of a REIT or something else is something that we have always mentioned that we are in the process of analyzing and looking at every possible structure that might be the most beneficial to the Company. So that is just something I would like to clarify since you definitively mentioned REIT. In that context, the discussions and the various analysis that have been ongoing are continuing. There is nothing specific, different from the last time that we want to stay on that. We have noted your point, Mr. Jain.

Management clarified that their focus is on 'appropriate restructuring' rather than exclusively a REIT, indicating no specific progress or timeline on this long-standing investor query, and acknowledged the request for GIC participation without committing.

Asked by Daksh Jain

2 min read 5 chapters

Detailed narrative

Robust Financial Performance in Q3 and 9M FY25

Nirlon Limited reported strong financial results for Q3 FY25, with total income growing 7% year-on-year to INR 164 crores. EBITDA increased by 10% to INR 133 crores, achieving an impressive EBITDA margin of 81.39%. Profit after tax (PAT) also saw a significant rise of 12% to INR 58 crores, with PAT margins at 35.57%. For the nine months ending December 31, 2024, the company's total income reached INR 484 crores (up 7% YoY), EBITDA was INR 386 crores (up 8% YoY), and PAT stood at INR 165 crores (up 7% YoY).

High Occupancy and Successful Re-licensing Initiatives

The company maintained a high average occupancy rate of 99.5% for Q3 FY25 and as of December 31, 2024. Following Morgan Stanley's notice to vacate approximately 449,000 square feet, Nirlon has successfully re-licensed around 230,000 square feet to new tenants, including BNP Paribas, EY, ICICI Prudential, and Globeop SS&C. Additionally, BNP Paribas renewed approximately 156,000 square feet at NKP, and terms have been finalized for re-licensing another 60,000 square feet due for renewal in FY2025, demonstrating effective asset management.

Positive Rental Rate Trends and Re-licensing Strategy

Management indicated that rental rates for the re-licensed spaces are trending positively, approximately between INR 160 to INR 180 per square foot at 80% efficiency. The company's strategy is to license space as soon as possible to secure the best possible licensee and rent, rather than speculating on future higher rates. For the remaining 220,000 square feet of vacated space, management expressed confidence in a strong pipeline, with conclusions expected in the next few months.

MAT Credit Utilization and Future Tax Implications

Nirlon Limited confirmed that its accumulated Minimum Alternate Tax (MAT) credit, amounting to approximately INR 22-23 crores for FY25, will be fully utilized by March 2025. This signifies that the company will no longer benefit from this tax advantage in subsequent fiscal years, which is expected to lead to a normalization of its effective tax rate and impact future profit after tax margins. The decision regarding the tax regime for FY26 will be made within the next couple of months.

Interim Dividend and Ongoing Restructuring Analysis

The Board of Directors approved an interim dividend of Rs. 15 per share for the financial year 2024-2025, reflecting the company's strong performance and commitment to shareholder returns. Regarding long-term strategic restructuring, management reiterated that discussions and analysis are ongoing to identify the most beneficial structure for the company, clarifying that this is not exclusively focused on a REIT. No specific updates or timelines were provided beyond confirming that the analysis is continuing.

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