Buy Nesco, target Rs 794: Nirmal Bang Institutional Equities

Nirmal Bang Institutional Equities has a buy call on Nesco Ltd. with a target price of Rs 794. The current market price of Nesco Ltd. is Rs 552.4. Time period given by the brokerage is a year when Nesco Ltd. price can reach defined target. Nesco Ltd., incorporated in 1946, is a mid-cap company with a market cap of Rs 3892.21 crore.

Investment rationale by Nirmal Bang

NESCO reported a net profit of Rs428mn for 4QFY18, up 20% YoY and down 2% QoQ. The decline in earnings on QoQ basis was because of: 1) Client vacating Building 1 as a part of planned restructuring of NESCO IT Park. NESCO IT Park revenues stood at Rs313mn, down 22% QoQ and 16% YoY. 2) Rise in other expenses by 13.8% to Rs177mn in 4QFY18. The decline in earnings was partially mitigated by lower tax expenses on account of deferred tax benefits amounting to Rs 44mn. However, earnings increased on YoY basis because of: 1) Relatively lower other expenses at Rs177mn, down 33% YoY. 2) Lower tax expenses at Rs116mn (deferred tax benefit), down 17% YoY. The effective tax rate stood at 21% in 4QFY18 as compared to 28% in 4QFY17. We have retained Buy rating on NESCO with a target price of Rs794.