Compounding firmly seated
In H1FY25, Awfis Space Solutions (Awfis) delivered on two of its main FY25 guidance parameters, viz. 30%-plus revenue growth for FY25 and expansion in IGAAP EBITDA margin upwards of 12% (H1FY25 YoY revenue growth of 39% and IGAAP EBITDA margin of 13.3%). With an overall operational and committed pipeline of 150,649 seats (over 110,000 operational) as of Sep’24, we expect continued growth ahead. We estimate CAGR of 35% in seat addition, 31% in revenue and 53% in IGAAP EBITDA (EBITDA post lease payments) over FY24–27E. We retain BUY with a revised target price of INR1,049 (earlier INR 979), as we roll forward to 25x Mar’27E IGAAP EBITDA (earlier Dec’26E) of INR 2.8bn and add net cash of INR 2.4bn. Key risks: Slowdown in office leasing and pricing competition.
Strong revenue and EBITDA CAGRs over FY24–27E
Awfis’ strategy for expansion through the asset-light MA route, along with a combination of SL contracts, should enable the company to grow operational seats at 35% CAGR over FY24–27E. We assume minimal blended occupied seat price increase (4–5% like-to-like) over FY24–27E with a steady state operational portfolio occupancy of ~71% over FY25–27E, as new centres take 6-12 months to fully mature. We envisage the company delivering 31% revenue CAGR over FY24–27E driven largely by seat expansion across cities. At the same time, we estimate that it may clock 53% IND-AS 116 EBITDA CAGR over FY24–27E with EBITDA margin rising to 14.6% by FY27E, from 9.2%, as of FY24 – as the business sees operations of scale, higher contribution of non-seat revenue and cost-optimisation initiatives in existing centres.
Dual industry tailwinds of rising flex share/office leasing
As per CBRE, occupiers are integrating flexible office spaces in their portfolio as part of their “Core + Flex” strategies. As per CBRE’s India Occupier Survey 2024, ~30% of the respondents identified expanding their presence in flexible office space as their primary portfolio strategy over the next 12 months. As per CBRE, flexible office space stock across India is expected to reach 80msf by Dec’24. It further added, Q3CY24 (Jul–Sep’24) saw flexible workspace operators having 17% share in overall leasing activity vs. 12% in Q2CY24 (Apr–Jun’24). Further, we estimate pan-India Grade A net absorption of 46.8msf in CY24E, 50.9msf in CY25E and 53.0msf in CY26E to drive growth.
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