Kontor Space Limited

here are my notes
About the company

Our core business revolves around acquiring and leasing properties, which then we
sublease to a single or multiple clients on a per-seat basis, providing flexible and modern
workspace solutions.

Area of Operations

Co-working spaces across four locations:

• Thane West with 750 seats, 15000 rate per seat
• Pune with 300 seats,
• Fort which has 60 seats given to a single client, around 8-9 lakhs per month
• BKC in Mumbai which has 120 seats. 45000 per seat
• New BKC space in the same building: 50 seats and 1812 square feet.
• Current capacity: 2400 seats with 96,000 sq ft

Capex and Outlook

• We recently announced the two new centers which are upcoming. One is in Mahape in Navi,
  Mumbai, and the other one is in Andheri East, MIDC. Mahape one will commence on first of June. MIDC from 15th July.
• MIDC has a seating capacity of 500 seats and is 25,000 sq feet.
• Mahape already has a 50% anchor. The seat capacity is 400 seats and 23,000 square feet.
• Introducing a new managed office setup in one BKC itself. They already are running an existing center and have taken up a new center in the same building. This is to cater to the existing clients as well who are growing in terms of their requirements.
• Actively pursuing geographical diversification wherein we are looking to expand beyond Maharashtra and look at other cities as well, especially key business hubs like Bangalore, Hyderabad and the NCR region.
• With this geographical diversification, we aim to actually double our seating capacity annually and we aim to reach 10,000 seats by FY ’26
• Also in the process of negotiating other places within Mumbai itself and hopefully we’re looking forward to breaking some positive news soon on those lines.
• they think that the margins will come back to 40% from next year(with more expansion and not exactly a 100% occupancy, I dont see it)
• Topline goal: 100% or doubling
• capex expense will be 3000-4000 per square feet, accounting for 30-40 crores of capex. will be funded by IPO proceeds, promoter money and Internal accruals.
• Looking at other micro markets in Mumbai. But at the same time, we’re
  looking very aggressively in Hyderabad, Bangalore, NCR and also cities like Ahmedabad.
• Neil Bahal believes they can do 25,000 seats.

Industry

• WeWork is expanding in Mumbai aggressively ( gives me comfort that this is an opportunity for businesses)
• The center which are constructed they dont directly come in competition because they want to rent out the whole thing and companies dont have the capacity to do that. so these co-working place come into play ( why can’t the center themselves give small areas then?)
• Apparently they have talked to the landlords and they dont want to stray away from their core business so they dont wanna do co working. they are fine with leasing the whole thing but not in bits and parts.
• There is a thing called managed aggregation model where you go for revenue shared with the landlord because it can reduce lease rental to certain extent.
• if you take up a speculative space with 0% starting occupancy, then it takes 2-4 months to fill up.

Business details

• got a MNC in their BKC area
• our oldest customer has been with us from the time the company started and he’s stuck around and in fact, today he’s also the largest customer for us.
• The reason EBITDA margins are down compared to FY23 is because the new centers such as the BKC center, has a turnaround time of 3-4 months to fill up if they do not have an anchor client in place. It was a speculative set up (didn’t they say it was for the expansion of their existing client?)
• the occupancy rate of that center is now 100%
• Major cost component is rent. About 40-50% of revenue goes in rent.
• So we get into long-term lease-rental contract because that is in interest of the business. So
  anywhere to the north of five years and with a minimum lock-in of three years, that is the kind
  of agreement that we get into.(Prevents asset liability mismatch like WeWork)
• Because they suffered in terms of EBITDA, they will only look for places whee they have an Anchor client in place: to avoid drawdown on margins.
• Even though the price they give to the anchors is low, realization goes up because the place is occupied from day one. Discount of Anchor is 5-7% lower
• On the premise loan: one of the properties which we have given to the manager of this
  client, that is something which is owned by Kontor. And that is a loan that is there.
• dont have an in-house team for renovation and interior and get it outsourced.
• the sales people sit in the areas they have their centers in. they dont have one headquarter where all sit.
• new centers generally break even at 60-65% occupancy.
• the debt should be out of balance sheet by FY25
• Capex per seat is 80,000 to 90,000

Risks

• 5cr debt is for a premise and vehicle. Vehicle is rolls Royce**( using company money to fund luxury expenditures)** 60 lakh is for vehicle loan
• the cash flow they had was given out as a corporate loan.(Why not stick to their own business?)
• He said they also hired more employees but their team is about 24 members+ management. added a senior sales person and added more junior people on team.
• find it fishy that wc changes are -3.2 crores while they were 67lakhs Positive last year. They have gone to the deposit of new premises. However, they take deposit from people who come so that takes care of it.
• The capex per seat is 80,000 to 90,000. the capex that they expect to do is 40 crores. this means it should be 4444 seats added and about 100,000 square feet.( Calculations make sense Square feet to seat but not capex to seat)