| Price | Lot Size | Issue Date | Issue Size |
|---|---|---|---|
| ₹ 364 to ₹ 383 | 39 | 22nd May, 2024 – 27th May, 2024 | ₹598.93 Cr |
Company Overview
Incorporated on December 17, 2014, Awfis Space Solutions Ltd. (Awfis) provides a wide spectrum of flexible workspace solutions ranging from individual flexible desk needs to customised office spaces for start-ups, small and medium enterprises, large corporates, and multi-national corporations. The company is one of the largest flexible workspace solutions companies in India as of December 31, 2023, based on total number of centres and ranked first among the top five benchmarked players in the flexible workspace segment with a presence in 16 cities in India. Furthermore, Awfis has 2,295+ clients and has presence in 52 micro markets in India. Apart from offering core co-working solutions, the company has built capabilities to design, build, maintain and manage a wide range of flexible workspace requirements such as Awfis Transform (construction and fit-out services business segment) and Awfis Care (facility management services business segment). The company’s flexible workspace solutions cater to varied seat cohorts ranging from single seat to multiple seats, which can be contracted by clients for a period ranging from one hour to several years. The company has differentiated models for sourcing and procuring workspace comprising the SL (Straight Lease) Model and the MA (Managed Aggregation) Model. Awfis has increased its focus on the lower-risk, asset-light MA model and as of December 31, 2023, 66.4% of its centres are under the MA model, based on total seats. The company also focuses on building mid-size centres to balance operational efficiency, optimal centre margins, occupancy build-up and community engagement. The average size of centres launched since April 2022 is 32,979 sq. ft. of chargeable area.
Objects of the issue:
The net proceeds from the fresh issue will be used towards the following purposes:
- Funding capital expenditure towards the establishment of new centres;
- Funding working capital requirements; and
- General corporate purposes.
Investment Rationale:
Leadership in a large and growing marketplace positions it favourably for growth
The total addressable market (TAM) for the flexible workspace operators represents a sizeable opportunity of 282 million sq. ft. (in terms of area) and Rs. 474-592 billion (in terms of value) by 2026. This growth is driven by enterprise focus on flexibility, cost optimization, workforce fluidity, reverse migration, workplace evolution, wellness, facilities and amenities, and growth of start-ups in Tier 1 and Tier 2 cities. The flexible workspaces segment can be considered one of the fastest-growing alternative real estate classes, adding value to the entire commercial office ecosystem. The CAGR for leasing flexible workspaces between 2022 and 2026 is expected to be around 18 – 19% in Tier 1 cities. As the largest flexible workspace solutions company in India as of December 31, 2023, based on total number of centres, Awfis is believed to be well-positioned to benefit and capture this growth in the flexible workspace segment. As of December 31, 2023, the company is ranked first among the top five benchmarked players in the flexible workspace segment, with a presence in 16 cities in India. In addition, the company has the largest flexible workspace footprint in Tier 2 cities among the top five benchmarked operators, based on the total number of centres and total area. In addition, the company is present in seven Tier 2 cities, of which five are top Tier 2 cities, and it intends to expand the geographical footprint to three more Tier 2 cities by FY25.
Growth through an integrated platform approach is a key differentiator
Awfis aims to provide well-suited solutions tailored to meet the needs of its diverse clientele, which spans different demographics, seat cohorts, and industry sectors. Their suite of flexible workspace solutions encompasses its space solutions, Awfis Transform and Awfis Care. The integrated platform strategy spans the major facets of modern workspace requirements, i.e., through backward integration with Awfis Transform by offering design and build services to clients and through forward integration with Awfis Care by providing facility management services for space owners. This integrated platform strategy provides a network effect, wherein each segment serves its primary clientele and complements other segments. As a result, the clients and space owners are introduced to its wider ecosystem, enhancing retention and driving cross-selling opportunities. For instance, a client engaged with the company’s space solutions for flexible office space requirements can be introduced to Awfis Transform for bespoke design and build services for their office space, if any. When a space is designed for its clients through Awfis Transform, they may also opt for its facility management services through Awfis Care. The synergy among these offerings provides its clients and space owners a seamless experience, and this network effect helps the company offer a cohesive, one-stop solution to the clients and is a key differentiator.
Valuation
India is a leading office market globally, driven by a strong, skilled workforce, well-established and evolving infrastructure, robust real estate sector, ample support infrastructure, and a strong economy backed by political stability. As of December 31, 2023, India’s commercial office stock stands at 832 million sq. ft., concentrated in the top nine cities: Bengaluru, Mumbai Metropolitan Region (MMR), Hyderabad, Gurgaon, Chennai, Pune, Noida, Kolkata, and Delhi, listed in order of market size. This stock is organized and purely utilized as office space. The growth in flexible workspace is influenced by enterprises focusing on flexibility, cost optimization, workforce fluidity, reverse migration, workplace evolution, and a focus on wellness, facilities, and amenities, alongside the rise of start-ups in Tier 1 and Tier 2 cities. The demand for flexible workspaces across different seat cohorts (1-50 seats, 51-100 seats, 101-500 seats, and over 500 seats) increased at a CAGR of approximately 29%, 41%, 54%, and 57%, respectively, between 2020 and 2022, based on the total number of customer contracts signed. This trend is expected to continue, with the number of customer contracts signed across cohort sizes increasing proportionately with the overall seat demand in future. Awfis, an emerging leader in India’s flexible workspace solutions, presents an attractive proposition given its unique product profile and promising growth prospects. The company’s capital expenditure per seat was around Rs. 50,000 in FY22 and FY23, and the first nine months ended December 31, 2023. In comparison, the average capital expenditure per seat in 2023 by top operators in India typically ranged between Rs. 80,000 and Rs. 200,000. Awfis’ revenue from customer contracts has grown at a CAGR of 74.9%, from Rs. 178 crores to Rs. 545 crores from FY21 to the nine months ending December 31, 2023. Additionally, the company’s ROCE was 25.3% in FY23Despite steady growth in its top line, Awfis has seen declining losses. Considering the favourable market dynamics and Awfis’ performance, we maintain a positive outlook on the company. Therefore, we recommend a “SUBSCRIBE” rating for the issue from a long-term perspective.
