Smartworks Coworking Spaces Ltd Q2 FY26 Earnings Analysis

- Smartworks aims for steady growth with a 30%-35% CAGR year-on-year in seat additions. - Plans to add about 2.5 to 3 million square feet annually, achieved by signing a few large buildings each year. - Target to increase seat count from 190,000 to 275,000 seats within 4 to 5 quarters. - Revenue per square feet stood at approximately INR 173 in Q1 FY'26, with a 5% year-on-year price escalation on contracted revenues. - Occupancy expected to rise from pre-commitments of 20%-25% to 65%-70% within 12 months per new center. - Normalized Profit Before Tax (PBT) was INR 155 million in FY'25 and improved to INR 168 million in Q1 FY'26, indicating robust underlying business performance. - EBITDA margin improved from 5.1% three years ago to 12.5% in FY'25 and further to 16% in Q1 FY'26. - IndAS losses have significantly reduced, from INR 63 crores last year to INR 4 crores in Q1 FY'26, supporting margin expansion.

- Smartworks is in a high growth stage, showing robust margin improvement: EBITDA margin increased from 5.1% (INR 36 crores) three years ago to 12.5% in FY '25 (INR 172 crores), further to 16% in Q1 FY '26. - Normalized Profit Before Tax (PBT) rose from INR 155 million in FY '25 to INR 168 million in Q1 FY '26, indicating strong underlying business performance. - The company expects consistent margin expansion driven by matured centres and operating leverage. - Growth strategy targets adding 2.5 to 3 million sq ft annually, with steady seat additions (30,000 to 40,000 seats per year). - Revenue growth guidance is around 25%-30% year-on-year, driven by increased occupancy and price escalations (~5%). - Cost efficiencies and standardized operations are expected to sustain margin improvements. - Normalized cash flow from operations is growing rapidly, with an 80% CAGR from FY '20 to FY '25. - Overall, Smartworks anticipates continued earnings growth, margin expansion, and sustainable profitability in coming years.

- Smartworks plans significant expansion with 2.5 to 3 million square feet of new space added annually going forward. - Currently, 10 million sq. ft. operational with additional 1.9 million sq. ft. contracted to come live by year-end; aims to grow from 190,000 to 275,000 seats over next 4-5 quarters. - Expansion capital expenditure (capex) is approximately INR 60,000 per seat, fully borne by Smartworks. - Fitouts are done only after pre-leasing to customers, minimizing idle capex deployment. - The company aims to be self-sustaining in capex from 12 million sq. ft. scale, supporting 25%-30% growth annually without extra funding. - Efficient large building leases enable optimized capex/opex through economies of scale and standardization. - Strategic investments include proprietary platforms like BuildX to shorten office delivery time to 2 months. - Net debt is negative post-IPO; future capex to be supported by strong cash flow and minimal borrowing.

- Smartworks has efficiently worked with private international banks and PSUs to raise debt through cash flow-based lease rental discounting. - Current borrowing cost stands at a competitive ~9%, with interest expenses decreasing. - Post-IPO, Smartworks repaid some high-cost debt, saving about INR 21 crores. - The company is currently net debt negative following the IPO. - Gross borrowings have been decreasing year-on-year. - Over the next 2 years, Smartworks expects debt levels to become very negligible. - There is no mention of any planned new fundraising through debt or equity in the near future. - The company plans to fund growth via strong cash flow generation and self-sustaining capex without additional funding.

- As of June 30, 2025, Smartworks has a signed-up square footage of approximately 10 million square feet ready to go live. - Currently, 0.7 million square feet is under fitout. - An additional 1.07 million square feet is yet to be handed over in the coming quarters. - The company has visibility to expand its total footprint to 12 million square feet considering Letters of Intent (LOIs) and term sheets signed. - Pre-commitments for new spaces are typically 20%-25% before launch, with current new assets having around 25%-30% pre-committed occupancy. - Strong pipelines exist for further expansions, particularly for three assets adding around 1 million square feet in the next two quarters. - The committed revenue backlog stands in excess of INR 40,000 million, reflecting robust orderbook visibility.