Smartworks Coworking IPO review (May apply)

•    The company has emerged one of the leading suppliers of office experience and managed campus platforms.
•    It’s thrust on MNC customers with long term contracts has yielded desired benefits.
•    The company has posted growth in its top lines with cash EBITDA at gross levels.
•    It posted losses at net levels following accounting provisioning required new accounting standards.
•    Prima facie the issue appears negatively priced, but has good cash surplus for the reported periods.
•    Well-informed/Cash surplus investors may park moderate funds for medium to long term.

ABOUT COMPANY:
Smartworks Coworking Spaces Ltd. (SCSL) is an office experience and managed Campus platform. As of March 31, 2024, it was the largest managed campus operator, amongst the benchmarked operators in terms of total stock, with a lease signed portfolio of 8.0 million square feet. (Source: CBRE Report). It has leased, and e managed a total SBA of 8.99 million square feet as of March 31, 2025. The company strives to make Enterprises and their employees in India more productive at work by providing value-centric pricing and superior office experience vis-à-vis traditional workspaces, with access to enhanced services and amenities. 

Landlords, especially passive and non-institutional, benefit from the transformation of their bare shell properties into ‘Smartworks’ branded, fully serviced managed Campuses. It focuses on mid-to-large Enterprises and have built a growing Client base, which includes Indian corporates, MNCs operating in India and startups. SCSL equipped its Campuses with modern and aesthetically pleasing designs using extensive design library, integrated proprietary technology solutions and amenities such as cafeterias, sport zones, Smart Convenience Stores, gymnasiums, crèches and medical centres. Some of these amenities take care of the daily needs of the employees of Clients, and some are aspirational in nature, leading to collaborative workspace and team building. These aspects are likely to enhance well-being, fostering a vibrant and engaging work atmosphere.

Its managed Campus platform consists of a total SBA of 8.99 million square feet across 50 Centres in 15 cities such as Bengaluru (Karnataka), Pune (Maharashtra), Hyderabad (Telangana), Gurugram (Haryana), Mumbai (Maharashtra), Noida (Uttar Pradesh) and Chennai (Tamil Nadu), with 203,118 Capacity Seats, as of March 31, 2025, As on June 30, 2025, it has signed non-binding letters of intent/MoUs with Landlords for an additional SBA of 1.46 million square feet across three Centres in Pune (Maharashtra), Kolkata (West Bengal) (partially handed over to the extent of 0.02 million square feet which has been excluded) and Mumbai (Maharashtra). As on June 30, 2025, it has signed term sheets with Landlords in Gurugram for a Centre with a total SBA of 450,000 square feet under the variable rental business model, of which SBA of 33,504 square feet has been operationalized pursuant to agreements entered into by the Company with the Landlord and each of the respective Client(s). As of March 31, 2025, its Operational Centres served 738 Clients occupying 152,619 Seats. Further, as on June 30, 2025 it had 728 Clients with 169,541 Seats, out of which 12,044 Seats were yet to be occupied at its Operational Centres by the respective Clients.

The company has also taken on lease two Centres in Singapore with a total SBA of 35,036 square feet and serve 83 Clients as on June 30, 2025. Singapore has emerged as one of the preferred locations for corporate headquarters with the highest number of completed regional headquarters in the past 10 years in Asia Pacific (2014 – 2023) (Source: CBRE Report). SCSL’s presence in Singapore provides it the opportunity to explore further business opportunities in both India and Singapore. It had a total of four lease signed centers in India above 0.5 million square feet in size, with the largest center of approximately 0.7 million square feet. located in Vaishnavi Tech Park in Sarjapur, ORR in Bengaluru (Source: CBRE Report). The company has constantly outranked itself in leasing large Campuses in India. Vaishnavi Tech Park in Bengaluru (Karnataka) surpassed other Campuses, namely, M-Agile in Pune (Maharashtra), with a total SBA of 0.69 million square feet and AP-81 in Pune (Maharashtra), with a total SBA of 0.55 million square feet. As of March 31, 2025, our average Centre size is SBA of 0.18 million square feet.

It has developed a mutually beneficial proposition by partnering with passive and non-institutional Landlords to typically take on lease their entire/ large bare shell properties. SCSL takes on lease a mix of newly constructed properties and existing properties transitioning from expiring leases. Its proven success in converting existing properties to its platform highlights Landlords’ growing preference for SCSL’s model of managed leasing over traditional leasing arrangements. This has unlocked an additional addressable market for the company. According to the CBRE’s India Office Occupier Survey 2024, the number of companies with over 10% of their office space being flexible is expected to jump from 42% (Q1 2024) to 59% by 202651 (Source: CBRE Report). Majority seats have been getting transacted in 100+ seats cohort categories in flexible workspace centres over the last 2-3 years (Source: CBRE Report). This represents a market opportunity for it, given its Pan-India presence, value-centric pricing and expertise in leasing entire/ large properties.

The flexible workspace stock in Tier 1 Cities grew from more than 35 million square feet by the end of 2020 to over to 82 million square feet by the end of 2024, at a CAGR of approximately 23-24% (Source: CBRE Report). SCSL’s advantage of being one of the first few operators to start offering managed office solutions coupled with the strength of its business model and leasing strategy focused on mid-to-large Enterprises, have driven steady growth of SBA managed by it in Tier 1 cities at a CAGR of 38.37% between 2020 and 2024, enabling the company to outpace the industry growth rate by more than 1.50 times in terms of total SBA during the same period. The company continues to benefit from the supply and demand opportunities in the managed workspace segment to grow business.

SCSL launched value-added services (“VAS”) in Fiscal 2023, whereby, through revenue sharing arrangement with its service partners, it offers services like cafeterias, sport zones, Smart Convenience Stores, gymnasiums, crèches and medical centres. Some of its service partners include Chaipoint (Mountain Trail Foods Private Limited), Park+ (Parviom Technologies Private Limited), ClearTax (Defmacro Software Private Limited), Nutritap Technologies Private Limited and CloudKitch Private Limited. It also launched fit-out-as-a-service (“FaaS”) in 2024. Under FaaS, the company utilize its extensive design library and vendor network to provide tailored design and build solutions for customers’ offices with advance payments from such customers. VAS and FaaS are ancillary businesses that serve as monetizing opportunities with its existing Clients, and also help it to engage with new Clients through these offerings. VAS and FaaS are asset light businesses for it considering the low capital investment and minimal upfront capital deployment, which are margin-accretive.

The company has a diverse Client base that includes Indian corporates and MNCs, such as Google IT Services India Private Limited, L&T Technology Services Limited, Bridgestone India Private Limited, Philips Global Business Services LLP, Persistent Systems Limited, Billionbrains Garage Ventures Private Limited (Groww), MakeMyTrip (India) Private Limited. Many of its Clients have long-term contractual arrangements with it across multiple locations. As of March 31, 2025, it had 794 employees on its payroll, and 3177 additional contract workers on various sites.

According to the management, since they have posted cash EBITDA growth for the last three fiscals, SEBI has permitted them to float their IPO under rule 6(1) allowing for 35% quota for Retail investors despite net losses as per restated accounts for the said periods. It has 80+% land owners/investors properties for business spaces and balance from institutional owners, this gives more leverage and better pricing/valuations. They have major thrust for MNC customers for long term contracts for bigger office spaces. With ever surging top lines and additional capacities, it is likely to be net cash positive in coming years.

Off late, they are witnessing shift from small office space to big office space and considering India’s move towards becoming global hub, many MNCs are gearing to come to India and are the most preferred customers. Considering the trends, the company hopes to turnaround by this fiscal end and mark growth in its net earnings in years to come. Its repayment of Rs. 114 cr. debt will bring saving in finance cost and improve its net level margins.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route combo IPO worth Rs. 582.56 cr. (approx. 14313400 equity shares at the upper cap). The issue consists of fresh equity issue worth Rs. 445 cr. (approx. 10933660 equity shares at the upper cap), and an Offer for Sale (OFS) of 3379740 equity shares (worth approx. Rs. 137.56 cr. at the upper cap). The company has announced a price band of Rs. 387 – Rs. 407 per equity shares of Rs. 10 each. The issue opens for subscription on July 10, 2025, and will close on July 14, 2025. The minimum application to be made is for 36 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 12.54% of the post-IPO paid-up equity capital. From the net proceeds of the fresh equity issue, the company will utilize Rs. 114.00 cr. for repayment/prepayment/redemption of certain borrowings, Rs. 22.5.84 cr. for Capex on fit-out at new centres, and the rest for general corporate purposes.

The company has reserved equity shares worth Rs. 3.75 cr. (92137 equity share) for its eligible employees and offering them a discount of Rs. 37 per share. From the rest, it has allocated not more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors.

The joint Book Running Lead Managers (BRLMs) to this issue are JM Financial Ltd., BOB Capital Markets Ltd., IIFL Capital Services Ltd., and Kotak Mahindra Capital Co. Ltd., while MUFG Intime India Pvt. Ltd., is the registrar to the issue. JM Financial Services Ltd., and Kotak Securities Ltd. are the syndicate members.

Having issued initial equity shares at par, the company issued further equity shares in the price range of Rs. 32.50 – Rs. 269.00 per share (based on Rs. 10 FV) between December 2017, and December 2024. The average cost of acquisition of shares by the promoters/selling stakeholder is Rs. NIL, Rs. 9.08, Rs. 9.23, Rs. 13.72, Rs. 16.14, and Rs. 107.25 per share. 

Post-IPO, its current paid-up equity capital of Rs. 103.19 cr. will stand enhanced to Rs. 114.12 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 4644.82 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated restated basis) posted a total income/net profit/ - (loss), of Rs. 774.07 cr. / Rs. – (101.05) cr. (FY23), Rs. 1113.11 cr. / Rs. – (49.96) cr. (FY24), and Rs. 1409.67 cr. / Rs. – (63.18) cr. (FY25). The company marked steady growth in its top lines, but its bottom lines reported losses for all these fiscals.

For the last three fiscals, the company has (on a consolidated restated basis) posted an average negative EPS of Rs. – (6.58) and an average negative RoNW of – (116.20) %. The issue is priced at a P/BV of 38.58 based on its NAV of Rs. 10.55 as of March 31, 2025, and at a P/BV of 8.40 based on its post-IPO NAV of Rs. 48.45 per share (at the upper cap).

Since the company has (on a restated and consolidated basis) posted losses for the last three fiscals, the issue is priced at a negative P/E 

The company has reported net loss of – (13.58) % (FY23), - (4.49) % (FY24), - (4.48) % (FY25), and RoCE margins of 11.90%, 28.12%, 42.30%, respectively, for the referred periods.

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of the offer document. It has already adopted a dividend policy in July 2024, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Awfis Space Solutions as its peer. It is trading at a P/E of 102 (as of July 08, 2025). However, they are not truly comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:
The four BRLMs associated with the issue have handled 86 public issues in the past three fiscals, out of which 19 issues closed below for issue price on the listing date.