Nexus Select — Q3 FY24 earnings call

Call held 6 Feb 2024

Management summary

Nexus Select Trust delivered a robust Q3 FY24, characterized by record occupancy levels and strong Net Operating Income growth. While the fashion and value segments saw some moderation due to a high base and increased competition, premium categories like electronics and jewelry continued to grow at 20%+. The Trust remains on track to meet its FY24 NOI projections and is actively pursuing a 1 million sq ft acquisition in South India to further its inorganic growth strategy.

Highlights

  • Net Operating Income (NOI) grew 14% YoY to ₹4.2 billion; 9-month FY24 NOI growth stands at 17%.

  • Tenant sales reached a record ₹33 billion, representing 8% YoY growth despite a high base from the previous year.

  • Leasing occupancy hit an all-time high of 97.3%, an increase of 110 bps compared to the previous year.

  • Announced second distribution of ₹303 crores (₹2 per unit), bringing cumulative distribution since listing to ₹5 per unit.

  • Achieved a 26% releasing spread on ~210,000 sq ft of space, outperforming the prospectus target of 20%.

  • Refinanced ₹9.5 billion of debt at 8.1%, reducing the overall in-place debt cost by 10 bps to 8.2%.

Key financials

  1. Net Operating Income (NOI) ₹4.2 Bn +14%YoY
  2. Tenant Sales ₹33 Bn +8%YoY
  3. Leasing Occupancy 97.3%
  4. Distribution per Unit ₹2
  5. Loan to Value (LTV) 14%
  6. Cost of Debt 8.2% -1.2%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

Profitability

  • Net Operating Income (NOI) Profitability · FY24 · High confidence On track for FY24 projections
    Overall, we are on track to achieve our NOI projections for FY24.

    — Dalip Sehgal, CEO

Margin

  • Releasing Spread Margin · next 3 years · High confidence 20%
    And we do hope to get 20% releasing spread as we had indicated earlier.

    — Dalip Sehgal, CEO

Other

  • Annual Lease Expiry Other · next 3 years · High confidence 0.8 million square feet
    We have a stable leasing expiry profile with average annual expiry of about 0.8 million square feet over next three years, roughly about 10%, over the next three years.

    — Dalip Sehgal, CEO

  • Nexus One App Expansion Other · by March 2024 · High confidence 10 malls
    And by March of this year, we hope to take it to 10 malls.

    — Dalip Sehgal, CEO

  • Mark-to-Market (MTM) Spread Other · next 12 to 15 months · Medium confidence 20% to 22%
    And we would look at a similar spread over the next 12 months to 15 months of achieving between 20% to 22% in terms of MTM spreads.

    — Nirzar Jain, Chief Leasing Officer

Risks & concerns

  • Moderation in Fashion and Value Categories

    medium

    Growth in fashion was flat this quarter compared to 21% growth in the same quarter last year, attributed to a high base and new competition (e.g., Zudio, Yousta).

    Management acknowledged

  • Hypermarket Category Performance

    low

    Growth remains moderate; management is actively discussing resizing and repurposing these spaces with brands.

    Management acknowledged

  • Parking Challenges in Large Malls

    low

    Parking is noted as a 'pain point' for customers; management is leveraging technology (Fastag, app pre-booking) to mitigate this.

    Analyst acknowledged

Areas of evasion (1)

  • Specific debt-equity mix for the new acquisition was not disclosed due to an active NDA.

Q&A highlights

3 direct
Consumption Normalization and Fashion Slowdown Direct
I think the fact is that after a very, very strong growth in Q3 last year, some moderation was expected... One quarter does not make a year, so we'll just have to wait and see what happens.

Addresses investor concerns about the sustainability of high double-digit consumption growth as the sector hits a high base.

Asked by Adhidev Chattopadhyay, ICICI Securities

Premium vs. Value Segment Performance Direct
If you take electronics... the whole category has grown 20% plus... At the value end of the market... typically that's how most markets behave, which is the value end of the market that does get squeezed to some extent.

Highlights a divergence in consumer spending, where premiumization remains strong while value-conscious segments face competitive pressure.

Asked by Mohit Agrawal, IIFL

Competition in the Ahmedabad Market Direct
In Ahmedabad, clearly there is a new mall, a very large mall that has opened up... in a market where there was actually just one mall, now there are two malls. So to some extent, yes, there is some impact that's happened.

Management acknowledges local competitive headwinds in a key market, providing transparency on asset-level performance.

Asked by Kunal Tayal, Bank of America

2 min read 5 chapters

Detailed narrative

Operational Excellence and Leasing Momentum

Nexus Select achieved an all-time high leasing occupancy of 97.3%, up 110 bps YoY. The Trust successfully leased approximately 250,000 square feet during the quarter, with a significant portion being releasing at a 26% spread, well above the 20% target set in the prospectus. Trading occupancy also remains healthy at 96%, ensuring consistent cash flow generation.

Consumption Trends: Premium Outperformance vs. Value Moderation

A clear divergence in retail categories emerged this quarter. Premium segments like electronics, jewelry, and luxury brands (now 9% of total absorption) grew by over 20%. Conversely, the fashion and value segments saw flat growth due to a high base effect from the post-COVID surge and increased competition from new value-retail entrants like Zudio and Yousta.

Strategic Acquisitions and Portfolio Expansion

The Trust is on track to acquire three malls in Southern India, totaling 1 million square feet, which will add approximately 10% to the existing portfolio area. Management plans to leverage its in-house turnaround expertise—demonstrated by the 50% sales growth and 33% NOI growth in its previously acquired South India portfolio—to enhance the value of these new assets post-acquisition.

Financial Prudence and Debt Management

Nexus Select maintains a robust balance sheet with a low LTV of 14%. Recent refinancing of ₹9.5 billion at an 8.1% interest rate is expected to generate annual savings of ₹115 million. The overall in-place debt cost has been reduced to 8.2%, and the Trust currently faces no near-term debt maturities, providing significant headroom for future inorganic growth.

Technology and ESG Initiatives

The 'Nexus One' app has seen strong traction with over 180,000 downloads, contributing ~5% of tenant sales in participating malls. On the ESG front, the Trust is constructing a 3.3 MW wind power plant in Chennai to meet 60% of a local mall's energy needs. This project is expected to deliver ₹60 million in annual EBITDA savings and a 20% yield on investment.

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