Smartworks Coworking IPO: GMP at 7% on day 2. Should you subscribe?

The shares of Smartworks Coworking Spaces IPO are trading at a healthy premium of 7.4% of Rs 30-32 in the unlisted market on the second day of the bidding process. By 10:30 am, the issue attracted an overall subscription of 60%.

Incorporated in 2015, Smartworks Coworking Spaces is engaged in the business of customized managed workspace solutions, offering fully serviced, tech-enabled office environments with aesthetic designs and essential amenities to meet the specific needs of enterprises and their employees. So, should you subscribe to the Smartworks Coworking Spaces IPO? Here’s what brokerages say:

The analysts at Anand Rathi believe that the IPO is fully priced and recommend a “Subscribe-Long term” rating to the IPO. The brokerage firm states that at the upper price band, the company is valued at P/S of 3.3x with EV/EBITDA of 9.7x and market cap of Rs 46,448 million post issue of equity shares.

SBI Securities issues an “Avoid” rating for the issue.

The brokerage firm believes that companies like Awfis Space Solutions offer better investment opportunities within the coworking space, which is currently profitable and trades at FY25 EV/Adj. EBITDA of 26.5x.

At the upper price band of Rs 407, the stock is available at an Mcap/Adj.EBITDA ratio of 27x (FY25), which appears to be fairly priced compared to its peers. Given its asset-light business model, capital efficiency through variable rental and management contracts, and the scale-up of new revenue streams (like value-added services & fit-out as a service), which are margin accretive, further strengthen the business going forward.

SCSL has become a leading provider of office experience and managed campus platforms, focusing on long-term contracts with MNCs. While it has seen top-line growth and positive cash EBITDA at the gross level, net losses have been reported due to provisioning under new accounting standards. The company operates with high lease liabilities from fixed-cost agreements across centers, leading to significant interest and depreciation expenses under Ind AS 116. This boosts EBITDA but puts pressure on net profitability.

Ventura recommends that investors monitor PBT as it turns positive, with economies of scale improving further.

In terms of financial performance, Smart Works’ revenue from operations grew at a CAGR of 38.9% from Rs 711 cr to Rs 1,374 cr between FY23-FY25. EBITDA grew from Rs 424 crore to Rs 857 crore between the same period. PAT continues to remain negative due to high lease liabilities. SmartWorks has a net debt of Rs 299 crore.

While Smartworks demonstrates impressive revenue growth, scale, and operational efficiency, the company is currently in its growth phase and has yet to achieve profitability. Its fixed-lease model and high client concentration present certain risks in the near term.

Given the competitive landscape and the presence of already-profitable listed peers like Awfis, the brokerage firm believes it may be prudent to adopt a wait-and-watch approach.


(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)