Awfis Space IPO review (May apply)

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Review By Dilip Davda on May 17, 2024

•    The company is the largest flexible workspace solutions provider in India.
•    It has 2295 clients and presence in 52 micro markets in India as of December 31, 2023.
•    The company marked growth in its top line with reduced losses for the reported periods. 
•    The IPO is at a negative P/E as the company has been posting losses till December 31, 2023.
•    It's a pure long term story and well-informed/cash surplus investors may park moderate funds.

ABOUT COMPANY:
Awfis Space Solutions Ltd. (ASSL) is the largest flexible workspace solutions company in India as on December 31, 2023, based on total number of centers. (Source: CBRE Report) As on December 31, 2023, it is ranked 1st among the top 5 benchmarked players in the flexible workspace segment with presence in 16 cities in India. (Source: CBRE Report). Further, as on December 31, 2023, the company is present in the maximum number of micro-markets in India. (Source: CBRE Report). As on the said date, it has 169 total centers across 16 total cities in India, with 105,258 total seats and total "LOI") with space owners for 13 additional centers, with 10,859 seats aggregating to 0.55 million sq. ft. As on December 31, 2023, ASSL has over 2,295 clients and presence in 52 micro markets in India.

The company provides a wide spectrum of flexible workspace solutions ranging from individual flexible desk needs to customized office spaces for start-ups, small and medium enterprises ("SMEs") as well as for large corporates and multi-national corporations. Its flexible workspace solutions cater to varied seat cohorts ranging from a single seat to multiple seats, which can be contracted by clients for a period ranging from one hour to several years. Over time, it has evolved from a co-working space to an integrated workspace solutions platform. While its core solution is co-working solutions which includes flex workspaces, customized office spaces and mobility solutions, the company has built capabilities to design, build, maintain and manage a wide range of flexible workspace requirements such as Awfis Transform (its construction and fit-out services business segment) and Awfis Care (its facility management services business segment). ASSL also provides allied services ranging from food and beverages, information technology support services and infrastructure services such as storage and customization to event hosting and meeting arrangements.

ASSL's understanding of the modern workforce has helped it identify and anticipate evolving preferences and requirements, thereby enabling it to provide bespoke solutions to meet the varied and diverse needs of clients across a diverse spectrum of demographics that it caters to. As a result, the company has established itself as a one-stop integrated solution platform for any flexible workplace requirement. In addition, it has two distinctive formats for its workspaces with their own unique propositions, branding, audience, and purpose. ASSL adopted two differentiated models for sourcing and procuring workspaces, namely the straight lease ("SL") model and the managed aggregation ("MA") model. One of its key strategies for space procurement over time was to transition to an asset-light, low risk MA model from a SL model. Under the SL model, developers or space owners lease space to flexible workspace operators on traditional leases wherein typical market terms and conditions are applicable, including a fixed monthly rental, common area maintenance Source: CBRE Report) The capital expenditure for fitting out the property is entirely borne by it.

The company is also focused on building mid-size centers in order to strike an optimal balance between operational efficiency, optimal center margins, occupancy build-up and community engagement. It also expanded business offerings and started providing in-house fit-out and facility management services at its centers. Gradually, it transformed into a workplace solutions platform providing a variety of business offerings to address customer demand. In addition, it also transformed and upgraded several properties across its portfolio and expanded portfolio to setting up flexible workspaces in alternate assets, such as malls.

As of December 31, 2023, the company was operational in 16 cities with operational chargeable area of 4.10 million Sq. FT., 138 operational centers, having 79946 operational and 60038 occupied seats with an occupancy percentage of 75.10. Thus, for all this fronts, it has marked steady growth. As of the said date, it had 3053 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden combo book building route IPO of fresh equity shares issue worth Rs. 128 cr. (3342027 shares at the upper price band), and an Offer for Sale (OFS) of 12295699 shares (worth Rs. 470.93 cr. at the upper cap). Thus the overall IPO size shall be of 15637726 equity shares worth Rs. 598.93 cr. The company has announced a price band of Rs. 364 - Rs. 383 per share of Rs. 10 each. The issue opens for subscription on May 22, 2024, and will close on May 27, 2024. The minimum application to be made is for 39 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 22.53% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh equity issue, the company will utilize Rs. 42.03 cr. for capex on establishment of new centers, Rs. 54.37 cr. for working capital, and the rest for general corporate purposes.

The company has reserved equity shares worth Rs. 2 cr. (Approx. 57642 shares) for its eligible employees and offering them a discount of Rs. 36 per share. From the rest, it has allocated not less than 75% for QIBs, not more than 15% for HNIs and not more than 10% for Retail investors. 

The joint Book Running Lead Managers (BRLMs) to this issue are ICICI Securities Ltd., Axis Capital Ltd., IIFL Securities Ltd., and Emkay Global Financial Services Ltd., while Bigshare Services Pvt. Ltd. is the registrar to the issue. 

Having issued initial equity shares at par, the company issued further equity shares in the price range of Rs. 27.78 - Rs. 273.10 per share between June 2015, and April 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 29.18, Rs. 134.80, and Rs. 156.28 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 66.08 cr.  will stand enhanced to Rs. 69.42 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 2658.70 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit/- (loss) of Rs. 216.2 cr. / Rs. - (42.64) cr. (FY21), Rs. 278.72 cr. / Rs. - (57.16) cr. (FY22), and Rs. 565.79 cr. / Rs. - (46.67) cr. (FY23). For 9M of FY24 ended on December 31, 2023, it posted a net loss of Rs. - (18.94) cr. on a total income of Rs. 633.69 cr. Thus, though company posted growth in its income, it kept incurring losses. 

For the last three fiscals, the company has reported an average negative EPS of Rs. - (9.01) and an average negative RoNW of - (38.60) %. The issue is priced at a P/BV of 9.63 based on its NAV of Rs. 39.79 as of December 31, 2023, and at a P/BV of 7.08 based on its post-IPO NAV of Rs. 54.07 per share (at the upper price band). 

Due to losses, its IPO is priced with a negative P/E. According to the management, it will turn net cash positive by next fiscal and is poised for bright prospects considering the demand and supply gap in the segment it is operating. The company lead with huge difference in all capacities with the nearest competitor. It is operating on an asset light model and has received great response from the markets. 

For the reported periods, the company has posted PAT margins of - (19.74) % (FY21), - (20.51) % (FY22), - (8.24) % (FY23), - (2.99) % (9M-FY24), and RoCE margins of 10.88%, 1.75% 25.26%,49.91% respectively, for the referred periods.

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It has adopted a dividend policy in December 2023, based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has no listed peers in India and abroad, however, there are few unlisted peers i.e. WEWORK, COWRKS, SMARTWORK, and TABLESPACE. Recently a SME IPO of Kontor Space Ltd. came in the month of September 2023. This company is in the same segment with local play in the state of Maharashtra.

MERCHANT BANKER'S TRACK RECORD:
The four BRLMs associated with the offer have handled 73 public issues in the past three fiscals, out of which 21 issues closed below the offer price on listing date.

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