Nexus Select Trust Q2 FY26: Steady Growth Amid Premium Valuation Concerns

The trust's performance in Q2 FY26 reflects the continued recovery in India's retail sector, with net sales reaching ₹630.89 crores, up 2.82% quarter-on-quarter and 13.19% year-on-year. Trading at ₹163.28 per unit as of November 4, 2025, the stock has gained 0.13% on the day whilst demonstrating resilience with a 13.78% return over the past year, significantly outperforming the broader realty sector's 0.66% return during the same period.

Financial Performance: Consistent Revenue Growth with Margin Stability

Nexus Select Trust's Q2 FY26 financial performance demonstrates the trust's ability to generate steady rental income from its portfolio of premium retail assets. Net sales of ₹630.89 crores in Q2 FY26 represent the highest quarterly revenue recorded by the trust, reflecting strong occupancy levels and rental escalations across its mall portfolio. The sequential growth of 2.82% from Q1 FY26's ₹613.58 crores, whilst modest, indicates consistent operational momentum.

On a year-on-year basis, the 13.19% revenue growth from Q2 FY25's ₹557.37 crores underscores the trust's ability to capitalise on India's retail consumption recovery. This growth trajectory has been sustained over multiple quarters, with the trust reporting ₹2,282 crores in net sales for FY25, representing a 19.10% increase from FY24's ₹1,916 crores.

Operating profit margins have remained remarkably stable, with the operating profit margin (excluding other income) standing at 67.90% in Q2 FY26, marginally lower than Q1 FY26's 68.66% but broadly consistent with the trust's historical performance. This stability reflects the high-margin nature of rental income from retail real estate, with limited variable costs impacting profitability. Over the past seven quarters, operating margins have consistently ranged between 67.45% and 69.28%, demonstrating the predictability of the trust's cash flow generation.

The profit after tax margin improved to 20.97% in Q2 FY26 from 19.49% in Q1 FY26, driven by controlled interest costs and a more favourable tax rate. Interest expenses rose to ₹115.71 crores in Q2 FY26 from ₹112.50 crores in Q1 FY26, reflecting the trust's debt obligations, whilst the tax rate moderated to 23.15% from the elevated 33.66% in the previous quarter. The normalisation of the tax rate contributed significantly to the sequential profit growth.

Operational Excellence: High-Quality Asset Portfolio with Moderate Returns

Nexus Select Trust's operational metrics reveal a well-managed portfolio of retail assets generating stable cash flows, though capital efficiency metrics remain modest. The trust's return on equity (ROE) stood at 3.71% on average, with the latest reading at 3.41%, reflecting the capital-intensive nature of retail real estate investments. Whilst this ROE appears subdued compared to other sectors, it is characteristic of REITs, which distribute the majority of their income to unitholders rather than retaining earnings for reinvestment.

Return on capital employed (ROCE) averaged 3.27%, with the latest half-yearly figure improving to 5.61%, the highest recorded by the trust. This improvement suggests better utilisation of capital deployed in the business, though the absolute level remains moderate. The trust's debt-to-equity ratio of 0.38 times indicates a conservative leverage profile, with negative net debt to EBITDA suggesting the trust maintains adequate cash reserves relative to its borrowings.

The trust's balance sheet as of March 2025 shows shareholder funds of ₹14,138.66 crores, supported by share capital of ₹15,095.03 crores and reserves of negative ₹956.37 crores. Long-term debt stood at ₹4,981.65 crores, up from ₹4,169.81 crores in March 2024, reflecting strategic borrowings to fund portfolio expansion or refinancing activities. The trust's fixed assets were valued at ₹3,792.95 crores, whilst investments totalled ₹14,738.58 crores, representing holdings in its underlying retail properties.

One area requiring attention is the trust's operating profit to interest coverage, which declined to 3.70 times in Q2 FY26, the lowest recorded in recent quarters. Whilst still comfortable, this metric warrants monitoring, particularly if interest costs continue to rise in line with debt levels. The trust's ability to maintain stable rental income and control costs will be critical to sustaining adequate interest coverage.

Retail Real Estate Dynamics: Positioned for Consumption Recovery

Nexus Select Trust operates in India's retail real estate sector, which has witnessed a gradual recovery following pandemic-related disruptions. The trust's portfolio comprises premium shopping malls in key metropolitan areas, benefiting from the resurgence in consumer spending, particularly in discretionary categories. The trust's 17.60% five-year sales compound annual growth rate (CAGR) reflects its ability to capture this structural trend, though the sector remains sensitive to macroeconomic factors such as consumer confidence and disposable income growth.

The trust's high dividend yield of 4.90%, significantly above the sector average, positions it as an attractive income-generating investment for investors seeking regular cash distributions. The latest dividend of ₹2 per share, with an ex-dividend date of August 4, 2025, reflects the trust's commitment to distributing rental income to unitholders. The dividend payout ratio of 62.53% indicates a balanced approach between distributions and retaining capital for growth or debt servicing.

Institutional participation in the trust stands at 35.22%, with foreign institutional investors (FIIs) holding 24.74% and mutual funds holding 15.89% as of June 2025. This institutional interest provides liquidity and stability to the unit price, though the sequential decline in FII holdings from 25.75% in March 2025 to 24.74% in June 2025 suggests some profit-taking at elevated valuations.

Peer Comparison: Premium Valuation Relative to Retail REIT Peers

When compared to its peers in the retail and office REIT space, Nexus Select Trust trades at a premium valuation on most metrics, reflecting investor confidence in its portfolio quality and management track record. However, this premium also raises questions about the sustainability of current valuations, particularly given the trust's moderate return ratios.

Nexus Select Trust's P/E ratio of 53.45 times trailing twelve-month earnings places it at the higher end of the peer group, though below Phoenix Mills' 59.27 times. The trust's price-to-book ratio of 1.75 times is significantly lower than Phoenix Mills' 6.05 times but comparable to Embassy Office Parks REIT's 1.80 times. This suggests the market values Nexus Select's assets closer to book value, reflecting a more conservative assessment of its property portfolio.

The trust's ROE of 3.71% lags Phoenix Mills' 8.25% and Brigade Enterprises' 6.29%, indicating lower capital efficiency. However, it compares favourably with other REITs such as Embassy Office Parks (3.87%) and Mindspace Business Parks (3.33%), which face similar structural constraints. The trust's debt-to-equity ratio of 0.29 is among the lowest in the peer group, reflecting a conservative capital structure that limits financial risk but also constrains return on equity.

Nexus Select Trust's standout feature is its dividend yield of 4.90%, the highest among comparable peers. This attractive yield compensates investors for the modest capital appreciation potential and provides a steady income stream, making the trust particularly appealing to income-focused investors. The trust's competitive positioning hinges on its ability to sustain high dividend payouts whilst maintaining occupancy levels and rental growth across its mall portfolio.

Valuation Analysis: Trading at Premium Despite Moderate Fundamentals

Nexus Select Trust's current valuation metrics suggest the market is pricing in optimistic expectations for future growth, though the trust's fundamental performance indicators present a more nuanced picture. Trading at a P/E ratio of 53.45 times, significantly above the realty sector average of 44 times, the trust commands a premium that appears difficult to justify based solely on current earnings growth and return ratios.

The trust's price-to-book value of 1.75 times indicates the market values its assets at a 75% premium to their book value, reflecting confidence in the quality and income-generating potential of its retail properties. However, this premium appears stretched when compared to the trust's ROE of 3.41%, which suggests the assets are not generating returns significantly above the cost of equity capital.

The enterprise value-to-EBITDA multiple of 17.94 times and EV-to-EBIT of 28.48 times further underscore the premium valuation. These multiples are elevated for a business with a 5-year EBIT growth rate of 22.47%, resulting in a PEG ratio that is not available but would likely indicate overvaluation if calculated. The trust's valuation grade of "Very Expensive" reflects this disconnect between price and fundamental value drivers.

From a fair value perspective, the trust's current price of ₹163.28 appears to offer limited upside potential. Assuming a normalised P/E ratio of 40 times (closer to the sector average) and maintaining current earnings, the fair value would be approximately ₹122-125 per unit, suggesting a potential downside of 24-25% from current levels. However, this calculation does not account for the trust's high dividend yield, which provides a cushion and may justify a modest premium.

Investors should weigh the trust's attractive dividend yield of 4.90% against the limited capital appreciation potential implied by its premium valuation. For income-seeking investors, the regular distributions may justify holding at current levels, but fresh buyers should be cautious about paying elevated multiples for a business with moderate growth prospects and subdued return ratios.

Shareholding Pattern: Institutional Confidence with Minor Churn

The shareholding pattern of Nexus Select Trust reveals a stable ownership structure with significant institutional participation, though recent quarters have witnessed minor shifts in investor composition. Promoter holding has remained unchanged at 22.30% from December 2024 through June 2025, following a significant reduction from 43.13% in June 2024. This reduction likely reflects the trust's initial public offering or subsequent unit sales by promoters to meet regulatory requirements or diversify holdings.

Foreign institutional investor (FII) holdings have declined from a peak of 29.31% in December 2024 to 24.74% in June 2025, marking a sequential reduction of 1.01 percentage points from March 2025's 25.75%. This gradual reduction suggests some profit-booking by foreign investors at elevated valuations, though the absolute level of FII participation remains healthy and indicates continued confidence in the trust's prospects.

Mutual fund holdings have remained relatively stable, increasing marginally from 15.87% in March 2025 to 15.89% in June 2025. This consistency reflects domestic institutional investors' comfort with the trust's dividend yield and portfolio quality. Insurance company holdings have also increased steadily, rising from 4.35% in September 2024 to 5.80% in June 2025, indicating growing interest from long-term institutional investors seeking stable income streams.

Non-institutional holdings, comprising retail investors and high-net-worth individuals, stood at 42.48% in June 2025, up from 42.03% in March 2025. This broad-based retail participation provides liquidity to the units and reflects the trust's appeal to individual investors seeking exposure to commercial real estate through a liquid, exchange-traded instrument.

Stock Performance: Outperforming Sector with Bullish Technical Momentum

Nexus Select Trust's stock performance over the past year demonstrates resilience and sector outperformance, with the unit price appreciating 13.78% compared to the broader realty sector's 0.66% return during the same period. This outperformance of 13.12 percentage points highlights the trust's ability to attract investor interest despite the challenging environment facing traditional real estate developers.

The trust's performance has been particularly strong over the past six months, with units appreciating 25.85% compared to the Sensex's 3.67% gain, generating alpha of 22.18 percentage points. This outperformance reflects growing investor interest in commercial real estate as an asset class, particularly REITs offering regular income distributions. Year-to-date, the trust has delivered returns of 18.75%, significantly ahead of the Sensex's 6.81% gain.

On a shorter-term basis, the trust has experienced some consolidation, with a 0.24% decline over the past month compared to the Sensex's 2.77% gain, resulting in negative alpha of 3.01 percentage points. This recent underperformance may reflect profit-taking after the strong rally witnessed in previous months or concerns about stretched valuations.

From a technical perspective, the trust's units are currently in a bullish trend, having changed to bullish on November 3, 2025, at ₹163.43. The units are trading above key moving averages, including the 200-day moving average of ₹141.78, indicating sustained upward momentum. However, the units are slightly below the 5-day and 20-day moving averages of ₹163.76 and ₹163.06 respectively, suggesting short-term consolidation within the broader uptrend.

The trust's beta of 1.35 indicates higher volatility compared to the broader market, characteristic of a high-beta stock. Investors should expect larger price swings in both directions, though the trust's volatility of 16.28% over the past year remains moderate. The positive Sharpe ratio suggests risk-adjusted returns have been favourable, justifying the additional volatility for investors seeking higher returns.

Investment Thesis: Income Play with Limited Capital Appreciation Potential

Nexus Select Trust's investment proposition centres on its ability to generate stable rental income from a portfolio of premium retail assets, translating into attractive dividend distributions for unitholders. The trust's Mojo Score of 58 out of 100, resulting in a HOLD rating, reflects this balanced assessment of its strengths and limitations.

The trust's valuation grade of "Very Expensive" reflects its premium pricing relative to fundamental metrics, with a P/E ratio of 53.45 times and price-to-book of 1.75 times. This elevated valuation limits the potential for significant capital appreciation unless the trust can demonstrate accelerated earnings growth or margin expansion. The quality grade of "Average" acknowledges the trust's stable operations and consistent cash flow generation, though moderate return ratios prevent a higher assessment.

The financial trend classification of "Flat" indicates the trust's performance in Q2 FY26 met expectations without significant positive or negative surprises. Key positives include the highest quarterly net sales and profit after tax recorded, along with improved ROCE on a half-yearly basis. However, the decline in operating profit to interest coverage to 3.70 times and an increase in the debt-to-equity ratio to 0.38 times represent areas requiring monitoring.

The bullish technical trend provides near-term support for the unit price, suggesting momentum remains positive despite valuation concerns. For investors, the key question is whether the trust's 4.90% dividend yield adequately compensates for the limited capital appreciation potential implied by its premium valuation. Income-focused investors may find the current yield attractive, particularly in a low-interest-rate environment, whilst growth-oriented investors may prefer to wait for a more attractive entry point.

Key Strengths & Risk Factors

Outlook: What to Watch

The path forward for Nexus Select Trust hinges on its ability to sustain rental income growth whilst managing debt costs and maintaining high occupancy levels across its retail properties. The trust's operational performance in Q2 FY26 demonstrates resilience, with the highest quarterly revenue and profit recorded to date. However, the elevated valuation metrics and moderate return ratios suggest the market may have priced in optimistic expectations that could prove challenging to meet.

For existing unitholders, the trust's attractive dividend yield provides a compelling reason to maintain positions, particularly for investors seeking regular income distributions. The stable shareholding pattern and high institutional participation offer confidence in the trust's governance and portfolio quality. However, the recent decline in FII holdings and the "Flat" financial trend classification warrant close monitoring in coming quarters.

Fresh investors should approach Nexus Select Trust with caution at current valuation levels. Whilst the trust's fundamentals remain sound and its dividend yield attractive, the premium pricing leaves limited margin of safety. A more prudent strategy would involve waiting for a valuation correction or evidence of accelerating earnings growth before initiating positions. The trust's high beta suggests volatility could provide better entry opportunities in the months ahead.