Broker’s Call: Awfis Space Solutions (Buy)

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Target: ₹839

CMP:₹726.4

In Q1FY25, Awfis Solutions (Awfis) began to deliver on its two main FY25 guidance parameters: 30 per cent+ revenue growth for FY25 and expansion in IGAAP EBITDA margin at 11.5-12 per cent. With an overall operational and committed pipeline of 127,726 seats (over one lakh operational), we expect continued growth ahead. Awfis’ strategy for expansion through the asset-light MA route and a combination of SL contracts may enable the company to grow operational seats at 35 per cent CAGR over FY24-27E.

We assume minimal blended occupied seat price increase (4-5 per cent like-to-like) over FY24-27E with a steady-state operational portfolio occupancy of about 70 per cent over FY25-27E, as new centres take 6-12 months to fully mature. We estimate the company to deliver 30 per cent revenue CAGR over FY24-27E driven largely by seat expansion across cities.

The company in a recent exchange release announced entering into a Business Transfer Agreement with SMS Integrated Facility Services Pvt Ltd for divestiture of its facility management division – Awfis Care – for a total consideration of ₹27.5 crore. Awfis Care contributed ₹23.9 crore or 2.8 per cent of the company’s FY24 revenue with estimated single-digit EBITDA margin. With the transaction likely to fully consummate in FY25, it will lead to freeing up of working capital, while facilities management across Awfis’ operational and upcoming centres is handled by SMS, which currently manages over 5,000 sites across tier I-III cities and employs a workforce of more than 21,000 employees. 

We estimate 35 per cent operational seat CAGR, 30 per cent revenue CAGR and 48 per cent IGAAP EBITDA CAGR (EBITDA post lease payments) over FY24-27E. Upgrade to BUY from Add with a revised TP of ₹839 (earlier ₹757) based on 26x September 26E IGAAP EBITDA of ₹220 crore (earlier June 26E IGAAP EBITDA) and adding net cash of ₹170 crore.