Smartworks Coworking
IPO Size: Rs. 583 cr
- Rs. 445 cr fresh issue, for Rs. 226 cr capex for new centres and Rs. 114 cr debt repayment (of Rs. 300 cr net debt)
- Rs. 138 cr offer for sale (OFS) by the promoters (65% to drop to 56%) and Singaporean investor (19% to reduce to 15%)
Price band: Rs. 387-407 per share
M cap: Rs. 4,645 cr, implying 13% dilution
IPO Date: Thu 10th Jul to Mon 14th Jul 2025, Listing Thu 17th Jul 2025
Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.
Co-Working Company
Smartworks is an 8 year old, co-working company, operating 1.84 lakh seats across 54 centres in India, with 83% occupancy rate and 87% retention rate. In FY25, it clocked Rs. 1,370 cr revenue and Rs. 172 cr EBITDA adjusted for rent payment, under IndAS, implying a 12.6% margin. Due to the accounting norms, bottomline is reported as net loss of Rs. 63 cr, although business is not loss making, and net margin is estimated in low single digit.
Comparison with Awfis
- Business Model: For its centres, Smartworks operates on a straight line lease model, which provides higher compounding of over 15 years (although company itself is only 8 years old!), with a higher risk in the interim. Awfis, on the other hand, operates mainly on a managed aggregation portfolio model, wherein property owner shares the capex as well as rental income, providing downside protection.
- Size: Smartworks is bigger than Awfis, with 1.8 lakh operational seats vis-à-vis latter’s 1.3 lakh, with a higher occupancy of 83%, against Awfis’ 73%, leading to FY25 topline of Rs. 1,370 cr. Awfis reported Rs. 1,207 cr revenue in FY25.
- Average realisation per seat: Despite lower number of seats and lower occupancy, presence of construction and fit-out projects business leads to an average realization of Rs. 8,800 per seat for Awfis, is higher than Rs. 6,600 for Smartworks, based on average occupied seats in FY25.
- Margin: As a result, adjusted EBITDA margin for Awfis is superior, at 13.9%, in comparison to Smartworks’ 12.6%.
- Leverage: Awfis is net debt free, while Smartworks will have net debt to equity ratio of 04:1 or net debt to EBITDA of 1.2:1, post IPO, and credit rating of only BBB+ from CARE.
Despite higher seats and occupancy, Smartworks has lower margin than Awfis.
Aggressive Pricing
Smartworks’ market cap of Rs. 4,645 cr and enterprise value (EV) of Rs. 4,860 cr implies an EV to adjusted EBITDA multiple of 28.3x, on historic EBITDA of Rs. 172 cr. On the other hand, sole listed peer Awfis has a 8% lower enterprise value of Rs. 4,450 cr for similar EBITDA of Rs. 168 cr clocked in FY25, implying a multiple of 26.5x. Why give higher valuation to Smartworks for same industry and similar profit?
Also, the sector may witness more listings in the future, with Wework’s Rs. 4,000 cr OFS likely soon, as it has been removed from abeyance by SEBI.
Promoters’ Shades of Grey?
Till date, it has raised Rs. 520 cr in equity capital, which includes Rs. 100 cr primary capital raised in June 2024 at Rs. 269 per share. After 3 months, in Sep 2024, promoters did a secondary sale of 4% equity for almost Rs. 180 cr, at Rs.430 and Rs. 450 per share, a jump of over 60% in barely 3 months. IPO price being lower than Rs. 450 is not good enough, as primary capital coming into the company at a lower price with promoters pocketing in a huge premium over a short duration is effectively unfair to minority shareholders.
To top this, both the promoters (related to each other) are entitled to a cash payment of Rs. 2 cr each, contingent to company’s successful listing. Variable pay, linked to operational performance of the business is acceptable, but IPO as a payout milestone is an unnecessary greed!
Also, RHP lists an unusually large number of allegations against promoter/promoter group (36, to be precise), some of which are sub-judice and involving CBI. In combination, these factors don’t provide promoter comfort.
10th Jul 2025 at 07:59 pm