Nexus Select — Q2 FY25 earnings call

Call held 12 Nov 2024

Management summary

Nexus Select Trust delivered a resilient Q2 FY25 performance characterized by steady NOI growth and high occupancy despite temporary consumption headwinds from heavy rains and seasonal shifts. Management expressed strong optimism for H2 FY25, citing an 18% surge in October tenant sales and a robust acquisition pipeline. The Trust remains on track to meet its full-year guidance for NOI and NDCF while continuing its strategy of transforming malls into high-engagement consumption hubs.

Highlights

  • Retail Net Operating Income (NOI) grew by 5% YoY despite a soft market backdrop in Q2.

  • Announced 5th distribution of INR 3,041 million, translating to INR 2.007 per unit (100% payout).

  • Tenant sales reached INR 30 billion in Q2, up 2% YoY, impacted by heavy rains and seasonal factors.

  • Significant festive rebound in October with tenant sales growth of 18% YoY and record one-day sales on Oct 27.

  • Leasing occupancy stands at 97.4%, a 40 bps improvement YoY, with key malls near 100% occupancy.

  • Acquisition of Vega City Mall is in the final stages of closing; two additional acquisitions are in the pipeline for FY25.

  • Refinanced INR 2.5 billion of debt at 7.6%, reducing overall debt cost by 10 bps to 8.0%.

Key financials

  1. Retail Net Operating Income 5% +5%YoY
  2. Tenant Sales 30 Bn +2%YoY
  3. Distribution Per Unit ₹2.007 -7%QoQ
  4. Leasing Occupancy 97.4% +0.4%YoY
  5. Releasing Spread 20%
  6. Average Cost of Debt 8% -1.3%QoQ

What they filed

Q1 FY27: revenue down 17.3%, net profit down 24.1% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue307 348 332 371 317 +3%382 +10%433 +30%307 −17%
EBITDA302 343 327 366 311 +3%376 +10%427 +31%300 −18%
Net profit254 281 259 290 232 −9%297 +6%349 +35%220 −24%
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

Dividend

  • NDCF per unit Dividend · FY25 · High confidence 8.7 to 8.8
    At this point of time, we are confident that we should meet both the NOI and NDCF guidance that we have given out at the start of the year.

    — Pratik Dantara, Head IR and Strategy

Revenue

  • Steady-state consumption growth Revenue · Long-term · Medium confidence 9-10%
    On a steady-state basis, you should see 9%-10% consumption growth in this business.

    — Pratik Dantara, Head IR and Strategy

Other

  • Acquisition Closure (Vega City) Other · Q3 FY25 · High confidence Next couple of weeks
    We are in the midst of closing this transaction and expect the deal to close in the next couple of weeks.

    — Pratik Dantara, Head IR and Strategy

  • Acquisition Turnaround Time Other · Post-acquisition · Medium confidence 6 to 12 months
    If it's an under-leased or under-managed asset, it will need about 6 to 8 to 12 months to actually turn around.

    — Pratik Dantara, Head IR and Strategy

Risks & concerns

  • Urban Consumption Slowdown

    medium

    Analysts cited reports of slowing urban consumption; management countered with strong October (18%) and November trends.

    Analyst downplayed

  • Climatic and Seasonal Impacts

    low

    Heavy rains in key cities and the 'Shradh' period impacted Q2 tenant sales growth (only 2%).

    Management acknowledged

  • Acquisition Integration Lag

    low

    Under-managed assets require 6-12 months for turnaround before becoming accretive on a stabilized basis.

    Management acknowledged

Areas of evasion (1)

  • Specific details on Vega City's day-one accretiveness were deferred until the transaction closes.

Q&A highlights

2 direct
H1 Performance vs FY25 Guidance Direct
We have had a very good October... At this point of time, we are confident that we should meet both the NOI and NDCF guidance that we have given out at the start of the year.

Analysts were concerned about the H1 NDCF (INR 4.1) being lower than the annualized run rate needed for the INR 8.7-8.8 guidance.

Asked by Mohit Agrawal, IIFL

QoQ Decline in DPU Direct
That's on account of a slight dip in NOI on account of seasonality in Q2 and there is an increase in cash taxes by INR 15 crores. That's led the decline in the DPU.

Explains the 7% QoQ drop in dividend, attributing it to a specific tax outflow and seasonal NOI dip rather than structural issues.

Asked by Praveen Choudhary, Morgan Stanley

Accretiveness of Vega City Acquisition Partial
When you talk about being accretive to unitholders, it will be accretive on a stabilized basis... Specific to Vega, let's just wait for a few more days when we close the transaction.

Highlights that acquisitions of under-managed assets take 6-12 months to become accretive, tempering immediate expectations.

Asked by Pritesh Sheth, Axis Capital

2 min read 5 chapters

Detailed narrative

Resilient Q2 Performance Amid Seasonal Headwinds

Nexus Select Trust reported a 5% YoY growth in Retail Net Operating Income (NOI) for Q2 FY25, a steady performance despite a challenging macro environment. Tenant sales grew by a modest 2% YoY to INR 30 billion, primarily due to heavy rainfall in key markets like Navi Mumbai and Delhi, and the impact of the 'Shradh' period. However, leasing remained strong with 0.22 million square feet leased during the quarter at a healthy 20% releasing spread, pushing overall occupancy to 97.4%.

Strong Festive Rebound and Consumption Outlook

Management highlighted a significant turnaround in October, with tenant sales surging 18% YoY as the festive season commenced. The Trust recorded its highest-ever one-day sales on October 27th. Categories like apparel and accessories, which were soft in Q2, saw a 17% recovery in October. Management remains confident in a 9-10% steady-state consumption growth and expects the momentum to continue through the second half of FY25, supported by a busy wedding season.

Strategic Inorganic Growth and Acquisition Pipeline

The acquisition of Vega City Mall is expected to close within the next two weeks, with funds already raised. This is part of a broader pipeline of four malls across three separate transactions, including assets in Hyderabad and North India. While management noted that under-managed assets typically require 6-12 months to stabilize and become accretive, they remain committed to closing two additional acquisitions within the current financial year to drive long-term value.

Innovation in Space Monetization and Technology

Nexus is aggressively moving beyond traditional rental models by monetizing mall spaces through unique branding deals, such as selling naming rights for food courts and installing India's first double cuboid anamorphic screens for advertising. Ticketed event revenue has jumped 6x in H1 FY25 compared to the previous year. Additionally, the Nexus ONE app has reached 4 lakh downloads, with approximately 30% of transactions coming from repeat customers, signaling successful digital engagement.

Financial Discipline and Debt Optimization

The Trust successfully refinanced INR 2.5 billion of debt at a competitive rate of 7.6%, contributing to a 10 bps reduction in the overall cost of debt to 8.0%. Despite a slight dip in DPU to INR 2.007 due to a seasonal NOI dip and a INR 15 crore increase in cash taxes, management reiterated their confidence in achieving the full-year NDCF guidance of INR 8.7 to 8.8 per unit. The balance sheet remains robust with a 'war chest' of nearly $1 billion available for future acquisitions.

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