Evaluating Awfis Space Solutions Ltd IPO opportunity; Should you invest?

In this analysis, we take a closer look at Awfis Space Solutions Ltd and present you with the exclusive IPO details.

About the Issue  

Awfis Space Solutions Ltd is set to launch its initial public offering (IPO) for equity shares, each with a face value of Rs 10. The IPO price range is set between Rs 364 and Rs 383 per equity share, resulting in a total issue size of Rs 598.93 crore at the upper price band.  

The IPO is scheduled to commence on May 22, 2024, and will conclude on May 27, 2024. The market lot size for the IPO is 39 shares, with the option to apply for multiples of this lot. Individual retail investors have the opportunity to apply for a maximum of 13 lots, equivalent to 507 shares or a total investment of Rs 1,94,181 assuming the upper price band.   

Objects of the Issue  

The offer encompasses both the fresh issue and the offer for sale. It's important to note that the company will not accrue any proceeds from the offer for sale. The company plans to allocate the net proceeds raised from the fresh issue for the following purposes:

1. Funding capital expenditure towards the establishment of new centres

2. Funding the working capital requirements

3. General corporate purposes

Promoter holding  

Amit Ramani and Peak XV Partners Investments V are the promoters of the company. The promoters currently hold a pre-issue shareholding stake of 41.05 per cent in the company.

Company profile  

The company offers a wide range of flexible workspace solutions, from individual flexible desks to customized office spaces for start-ups, SMEs, large companies, and multinational corporations. Its core offerings include co-working spaces, customized office solutions, and mobility services.

Additionally, it has developed capabilities in designing, building, maintaining, and managing flexible workspaces through its Awfis Transform (construction and fit-out services) and Awfis Care (facility management services) segments. The company also provides allied services such as food and beverages, IT support, infrastructure services like storage and customisation, and event hosting and meeting arrangements.

According to a CBRE report, as of December 31, 2023, the company is the largest flexible workspace solutions provider in India by the number of centres. The company serves around 2,295 clients and operates in 52 micro markets across India. The company boasts 1,05,258 total seats and a total chargeable area of 5.33 million sq. ft. It has signed letters of intent (LOIs) with space owners for 13 additional centres, adding 10,859 seats and 0.55 million sq. ft.

The company has implemented the Managed Aggregation (MA) Model. Risks associated with factors like low occupancy or reduced centre revenue may be mitigated within this framework, as the fixed cash outflow, such as rentals to the space owner, tends to be lower compared to a conventional lease model.

Financials  

Despite the company's robust revenue growth in recent years, it has struggled to achieve profitability. Its profit margins have been significantly impacted by substantial sub-contracting costs, finance costs, depreciation and amortization expenses, and other related expenditures. Profitability concerns are not unique to this company but also affect others in the sector, such as WeWork, Cowrks, Smartworks, and Tablespace, indicating a broader issue within the industry.

Valuation and outlook  

The company believes that with the adoption of the MA model, there are no listed entities of comparable size and business model, either in India or abroad, that match its operations. The issue is priced with a P/BV ratio of 3.09 times, calculated using its Net Asset Value (NAV) of Rs 123.86 as of December 31, 2023. Due to the losses, the IPO is priced at a negative P/E ratio. This offering lacks attractive elements, both in terms of financials and valuation.

In its risk declaration, the company noted that any slowdown in the global economy or the information technology sector could negatively impact the overall business environment and reduce demand for flexible workspaces. This could result in a prolonged decrease in demand for its solutions. Macroeconomic events might lead to reduced seat occupancy, difficulties in signing new clients, and a slowdown in acquiring new spaces from property owners.

The company’s management expects to achieve a net cash-positive position by the next fiscal year. However, concerns about sustainability persist, suggesting it may be a long-term play. Therefore, we advise investors to avoid this investment at this time.