Kontor Space NSE SME IPO review (Apply)

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Review By Dilip Davda on September 24, 2023

•    KSL is in the business of co-working i.e. space-as-a-service.
•    It has posted growth in its top lines for the reported periods. 
•    FY23 financial performance hints at the prospects ahead.
•    With expansion plans afoot, KSL is confident of fast-forward mode.
•    Investors may park funds for medium to long-term rewards. 

PREFACE:
In the old days, we all must have seen or visited a Business Centre or a Communication Centre, which lacked visibility, desired atmosphere, and necessary infra. But as lifestyle and business life changed over the years and in particular post the Pandemic, Office Space with all amenities and infrastructure at an affordable cost has become the order of the day. Though we have seen Office parks model of business from realty developers, with the changed pattern of work from home, from the hub and spoke centers, the demand for such co-workers' services are on the rise and Kontor is emerging as one of the leading players. Post listing, it may attract first-mover fancy. 

The word "KONTOR" is derived from German terminology where it means -commercial branch, writing room, counting desk/table, computer counter. 

ABOUT COMPANY:
Kontor Space Ltd. (KSL) is engaged in the business model of co-workers. It provides "space-as-a-service" by renting and managing commercial spaces. With its technological expertise, the company aims to foster a culture of collaboration and productivity by offering flexibility, convenience, and astounding quality at a significantly competitive price to clients ranging from small-scale startups to large conglomerates.

Being the trademark owners of 'Kontor', it has established a significant brand image and positioning in the co-working industry which has given it the opportunity to aggressively expand into newer markets by acquiring and managing more spaces in addition to existing 4 in Thane, Pune, Fort and BKC (Mumbai).

The Company purchases the property and/or takes properties on rent, to sub-rent/sub-lease the same to single or multiple clients for their workspace requirements with or without furnishing the same as per their needs on a per-seat basis. KSL further invests in fit-outs to customize the property to suit the business model and renovate, and modernize the properties according to the working needs in terms of business requirements such as furniture, work desks, open work areas, cabins, meeting rooms, conference rooms, cafeteria, play area, reception, lockers, de-stress zones, etc., and equip the same with peripherals like printers, scanners, attendance devices, telephones, hi-speed internet, air conditioners, water-coolers, smoking-zones, and other facilities.

The company is operating on an asset-light business model. Out of its current 4 facilities, Pune and Fort Area spaces are owned by the company, and BKC and Thane spaces are on lease. It has plans to establish two more spaces in Maharashtra at the identified areas in Andheri and Navi Mumbai. Its biggest center at Thane is operating at 90% occupancy followed by Pune (90%), and Fort Area (100%). Its BKC space occupancy is not yet available.  As of the date of filing this offer document, it had 12 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 1680000 equity shares of Rs. 10 each at a fixed price of Rs. 93 per share to mobilize Rs. 15.62 cr. The issue opens for subscription on September 27, 2023, and will close on October 03, 2023. The minimum application to be made is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.18 % of the post-IPO paid-up capital of the company. KSL is spending Rs. 0.60 cr. for this IPO process and from the net proceeds, it will utilize Rs. 2.39 cr. for payment of rental deposits for co-working centres, Rs. 9.67 cr. for capex for fit out of new co-working centres, and Rs. 2.96 cr. for general corporate purposes.  

Srujan Alpha Capital Advisors LLP Is the sole lead manager and Cameo Corporate Services Ltd. Is the registrar of the issue. Rikhav Securities Ltd. is the market maker for the company. 

The company has issued entire equity shares at par value so far and has also issued bonus shares in the ratio of 1 for 8 in July 2023. The average cost of acquisition of shares by the promoters is Rs. 8.89 per share. 

Post-IPO, KSL's current paid-up equity capital of Rs. 4.50 cr. will stand enhanced to Rs. 6.18 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 57.47 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, KSL has posted a total income/net profit/-(loss) of Rs. 3.90 cr. / Rs. - (0.62) cr.  (FY21), Rs. 4.04 cr. / Rs. 0.30 cr. (FY22), and Rs. 9.18 cr. / Rs. 1.88 cr. (FY23). FY23 performance indicates the future prospects for the space-as-a-service concept and Kontor is all set for grabbing the opportunity. 

For the last three fiscals, the company has reported an average EPS of Rs. 3.88 and an average RoNW of 16.32%. The issue is priced at a P/BV of 5.01 based on its NAV of Rs. 18.55 as of March 31, 2023, and at a P/BV of 2.84 based on its post-IPO NAV of Rs. 32.80 per share. 

If we attribute FY23 super earnings to the post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 30.59. The issue appears fully priced with the bumper profits of FY23.

The company has posted PAT margins of - (12.31) % (FY21), 7.76% (FY22), and 20.68% (FY23), and its RoCE margins for the corresponding periods were - (10.64) %, 20.48%, and 31.19% respectively. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer documents, the company has no listed peers to compare with. However, it has shown a list of unlisted peers in the domestic market that includes Awfis, 91Springboard, Simpliworks, Smartworks, and CoWrks, and on the international front, the peers are WeWork, The Executive Centre, Regus, and VentureX. All of these peers are faring well. 

MERCHANT BANKER'S TRACK RECORD:
This is the 2nd mandate from Srujan Aplha in the last two fiscals (including the ongoing one). Out of the only listings that took place so far, it opened at a premium of 5% on the date of listing.

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