Shared offices are transforming work cultures. Collaborative spaces are fostering innovation and productivity. Consequently, the coworking industry is booming. Both startups and established companies are embracing flexible workspaces. Meanwhile, remote work trends are accelerating this shift. Furthermore, professionals are seeking community-driven environments.

In this dynamic landscape, Awfis Limited is standing out. The company is operating modern coworking spaces across India. Additionally, Awfis is focusing on tech-enabled, customizable solutions. As a result, it is gaining traction among diverse businesses. Ultimately, Awfis is contributing to the evolution of work environments. In this article, we will be analyzing Awfis’s growth and its future prospects.

Industry Overview

The shared office space industry in India is experiencing rapid growth. The flex market is expanding at 27.2% annually, outpacing the 7% growth of traditional office spaces. This trend is reshaping the commercial real estate landscape.

Flexible workspaces are gaining popularity, with their market share increasing from 3.1% in 2018 to an expected 7.4% in 2024. This growth is being driven by several factors. Start-ups are flourishing, growing at a compound annual rate of 68% since 2019. Additionally, global capability centers are flocking to India, attracted by the skilled workforce and favorable demographics.

The industry is becoming increasingly competitive. The top 10 providers are controlling 60% of the available stock. Companies like Regus and Awfis are leading the market with hundreds of centers across the country. These operators are offering various amenities and flexible lease terms to cater to the diverse needs of businesses. The shared office space sector is evolving rapidly, meeting the changing demands of India’s dynamic work environment.

Company Overview Of AWFIS

AWFIS, incorporated in December 2014, is operating as a full-service flex space provider with diverse offerings. The company is offering three main service categories: Rent & allied services, Design & Build, and Others. Rent & allied services are generating the majority of revenue at 73%, while Design & Build accounts for 24%.

AWFIS is focusing on five key areas: Coworking, Mobility, Managed Office, Transform, and Care. These services are catering to various needs, from flexible workspaces to facility management. The company is listed on NSE and BSE in May 2024, raising INR 599 cr through a fresh issue.

The company is serving a diversified client base across various sectors. IT and Professional Services are making up the largest portions of their client mix. AWFIS boasts an impressive list of clients, including well-known brands like Suntory, Andorar, Media.net, and Subway. 

Financial Highlights Of AWFIS

AWFIS is demonstrating significant financial growth in recent years. Its revenue is increasing rapidly, rising from ₹226 crore in March 2020 to ₹849 crore in March 2024. However, the company is still experiencing net losses, though these are gradually decreasing. The net loss has improved from ₹68 crore in March 2020 to ₹18 crore in March 2024.

Meanwhile, AWFIS’s operating profit is showing consistent improvement. It is growing from ₹3 crore in March 2020 to ₹245 crore in March 2024. Additionally, the operating profit margin is stabilizing around 29% in the last two years. This is indicating improved operational efficiency after a significant jump from 2% in March 2020.

Furthermore, the company’s adjusted earnings per share are also on an upward trajectory. They have improved from -₹22.63 in March 2020 to -₹3 in March 2024. Consequently, these financial indicators are reflecting AWFIS’s strengthening market position. The company is effectively managing its operations amidst changing workplace dynamics. As a result, AWFIS is positioning itself for potential profitability in the competitive flexible workspace sector.

What is driving the demand for flex spaces?

• Sharp growth in start-ups, grown at a CAGR of 68% since 2019
• Influx of GCCs to capitalize on the strong talent pool, favorable demographics; to grow at 9.7% CAGR over 2023-25
• A win-win-win proposal for owner-operator-tenant

Future Estimates and Investment Rationale by Nuvama

1. Revenue Growth

Nuvama has projected a 40.1% CAGR in blended revenue from FY24-27E, reaching INR 2,336cr. This growth will be driven by:

• A 37.8% CAGR in rental revenue, due to capacity expansion and higher occupancy.
• A 50% CAGR in the Design & Build segment, as market share increases.
• Flat growth in other services revenue.

2. Segment Mix

The company’s revenue mix is evolving. By FY27E:

• Rental & allied services will account for 69% of revenue, down from 73% in FY24.
• The Design & Build segment will grow to 30%, up from 24% in FY24.
• Other services will contribute 1% of revenue.

3. Profitability

AWFIS is expected to have significant improvement in profitability:

• EBITDA is projected to grow at a 68.6% CAGR from FY24-27, reaching INR 340cr.
• PAT is forecast to grow at a 92.3% CAGR over the same period.
• EBITDA margin is expected to expand from 8% in FY24 to 15% in FY27.
• PAT margin is projected to improve from 4% to 12% in the same period.

4. Asset-Light Model

The company has shifted towards a capital-efficient, low-risk managed aggregation model:

• Managed seats have increased from 46% of total inventory in FY21 to 66% in FY24.
• This model offers benefits like shared inventory risk and capex with landlords.
• AWFIS expects to maintain 65-67% managed seats, ensuring higher returns on capital employed.

5. Financial Position

AWFIS will maintain a virtually debt-free balance sheet:

• The company plans to continue its asset-light expansion strategy.
• Net debt-to-equity ratio is expected to remain negative, indicating a strong financial position.

Peer Comparison

AWFIS and EFC are showing different financial performances in FY24. AWFIS is generating higher revenue at INR 848.8 crore, while EFC is reporting INR 439.9 crore. However, EFC is demonstrating superior profitability with a PAT of INR 63.3 crore compared to AWFIS’s loss of INR 18 crore.

In terms of margins, EFC is outperforming AWFIS. EFC’s EBITDA margin is standing at 43.5%, whereas AWFIS is at 28.9%. Similarly, EFC’s PAT margin is reaching 15.1%, while AWFIS is experiencing a negative margin of -2.1%. Furthermore, EFC is showing stronger returns with a ROCE of 19.3% and ROE of 14.8%, compared to AWFIS’s 5% and -7.0% respectively.

Regarding operational metrics, AWFIS is having a lower occupancy rate at 71% compared to EFC’s 85%. EFC is  also clocking a higher revenue per seat at INR 5,999, while AWFIS is generating INR 5,427 per seat. Both companies are operating with different strategies, as reflected in their contrasting financial and operational performances.

Also read…

Key Metrics Of AWFIS

Price Target by Nuvama

Nuvama is recommending a BUY rating for AWFIS with a target price of INR 1,013 per share. This target is based on their Sum of the Parts (SoTP) valuation for FY26. The valuation is considering various factors, including the company’s commercial rental models and rental division. Additionally, Nuvama is projecting a 35% upside potential from the current market cap of INR 752 per share.

Besides this the brokerage house has also given the estimated share price at different levels of WACC and Terminal growth. With the highest target being pinned at INR 2,540 which corresponds to 8% WACC and 6% Terminal growth rate. While the conservative price target being INR 705 at 12% WACC and 2% Terminal growth rate.

Conclusion

AWFIS is emerging as a significant player in India’s rapidly growing shared office space industry. The company is expanding its services and client base, demonstrating strong revenue growth. Despite current losses, AWFIS is improving its operating profit and margins. Future projections are suggesting continued revenue growth and potential profitability.

However, AWFIS is facing stiff competition from companies like EFC, which is currently showing better profitability metrics. The company’s asset-light model and strategic focus on managed seats are positioning it for potential success. Nevertheless, AWFIS is still navigating challenges in achieving consistent profitability.

Questions for the readers: How might AWFIS’s strategy of maintaining 65-67% managed seats impact its long-term profitability and risk profile? In what ways could AWFIS differentiate itself from competitors like EFC to improve its profit margins and market position? Comment your thoughts below.

Written By Dipangshu Kundu

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