thank you for the detailed post. Some thoughts/ questions
- Tried to do a IRR on capex/seat to see how payback period plays out. My math says 4-year payback and 15% IRR @ 25% EBITDA. At 30% EBITDA, 3 year payback, 22% IRR.
| Per seat IRR | ||||||
|---|---|---|---|---|---|---|
| Y1 | Y2 | Y3 | Y4 | Y5 | ||
| Capex / seat | 50,000 | |||||
| Revenue / month | 6,500 | 6,825 | 7,166 | 7,525 | 7,901 | |
| 5% | 5% | 5% | 5% | |||
| Occupancy | 92% | 92% | 92% | 92% | 92% | |
| Annual revenue | 71,500 | 75,075 | 78,829 | 82,770 | 86,909 | |
| EBITDA % | 25% | 25% | 25% | 25% | 25% | |
| EBITDA | 17,875 | 18,769 | 19,707 | 20,693 | 21,727 | |
| Depreciation | 10,000 | 10,000 | 10,000 | 10,000 | 10,000 | |
| EBIT | 7,875 | 8,769 | 9,707 | 10,693 | 11,727 | |
| Tax | 1,969 | 2,192 | 2,427 | 2,673 | 2,932 | |
| PAT | 5,906 | 6,577 | 7,280 | 8,019 | 8,795 | |
| Recievables @ 30 days | 5,958 | 6,256 | 6,569 | 6,898 | 7,242 | |
| Increase in recievables | 5,958 | 298 | 313 | 328 | 345 | |
| Cashflow from Ops | 9,948 | 16,279 | 16,968 | 17,691 | 18,451 | |
| Maintainence Capex @ 3% of Capex | 1,500 | 1,500 | 1,500 | 1,500 | 1,500 | |
| Cashflow | (50,000) | 8,448 | 14,779 | 15,468 | 16,191 | 16,951 |
| WC reversal | 7,242 | |||||
| 18-Jun-24 | 18-Jun-25 | 18-Jun-26 | 18-Jun-27 | 18-Jun-28 | 18-Jun-29 | |
| IRR | (50,000) | 8,448 | 14,779 | 15,468 | 16,191 | 24,193 |
| 15.0% |
Ofcourse the IRR is very sensitive to EBITDA margins – at 30% EBITDA, the IRR shoots to 22%. But not sure how to underwrite 30% corporate EBITDA since they are and will be in the growth phase, and supply side dynamics weigh on the margins over time.
- Keen to understand where they save on capex / seat. They seem to suggest theyre Insourcing but unable to contextualise how much can be saved with insourcing.
(attaching below a sample for AWFIS so we have context)
-
How much capex are they doing in furniture factory? What makes them make such high margins in furniture despite being the lowest cost? Are there examples of other furniture companies making such high margins when they’re selling at lower than market cost?
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Design and build is like an EPC business and have not seen other office contractors who make 20-30% margins. How does EFC achieve this? What do they do differently?
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