What you must know about Awfis Space Solutions IPO?

Awfis Space Solutions Ltd – About the company

Awfis Space Solutions Ltd was incorporated in the year 2014 to offer workspace solutions with a range of flexible options to cater to individuals, start-ups, SMEs, and companies. The company currently operates 169 centres across 16 Indian cities, with capacity of 1,05,258 seats. The total chargeable area that Awfis Space Solutions Ltd currently has under custody is 5.33 million square feet (SFT). It is also adding capacity in the form of 31 centres with 25,312 seats and additional chargeable area of 1.23 million SFT. While around 82% of the assets of Awfis Space Solutions Ltd  are commercial assets, the balance 18% are alternate assets. The company also employs a team of 63 designers and project managers to enhance the industry experience.

The company operates across 5 verticals; coworking, enterprise, mobility, Awfis Transform and Awfis Care. The coworking vertical is about ready to move workplace solutions for short term or for longer term agreements. The enterprise vertical offers customized office setups to enterprises, along with a complete spectrum of support services. The mobility solutions verticals offers meeting rooms to day passes and virtual office solutions. It also offers bundled solutions. The Awfis Transform Vertical provides comprehensive design and build solutions, for its existing centres and also for developing external commercial offices. Its space planning includes user-centric approach, accessibility, flexibility, and efficiency. Finally, the Awfis Care vertical offers facilities management services within these centres as well as such services to external commercial, retail, and residential spaces. This includes cleaning, security, and housekeeping, among others.  

The fresh funds will be used for funding capex of new centres, and for working capital requirements. The company has been promoted by Amit Ramani and Peak XV. The IPO will be lead managed by ICICI Securities, Axis Capital, IIFL Securities, and Emkay Global Financial Services; while Bigshare Services Private Ltd will be the IPO registrar.

Highlights of the IPO issue of Awfis Space Solutions Ltd

Here are some of the key highlights to the public issue of Awfis Space Solutions IPO.

• The IPO of Awfis Space Solutions Ltd will be open from May 22nd, 2024 to May 26th, 2024; both days inclusive. The stock of Awfis Space Solutions Ltd has a face value of ₹10 per share and the price band for the book building IPO has been set in the range of ₹364 to ₹383 per share.
   
• The IPO of Awfis Space Solutions Ltd will be a combination of a fresh issue of shares and offer for sale (OFS) component. The fresh issue brings in funds into the company, but is also EPS and equity dilutive. On the other hand, OFS is just a transfer of ownership.
   
• The fresh issue portion of the IPO of Awfis Space Solutions Ltd comprises the issue of 33,42,037 shares (33.42 lakh shares approximately), which at the upper price band of ₹383 per share will translate into a fresh issue size of ₹128 crore.
   
• The offer for sale (OFS) portion of the IPO of Awfis Space Solutions Ltd comprises the sale / offer of 1,22,95,699 shares (122.96 lakh shares approximately), which at the upper price band of ₹383 per share will translate into an OFS size of ₹470.93 crore.
   
• Out of the OFS size of 122.96 lakh shares, 1 promoter shareholder Peak XV Partners Investments will offer (66.16 lakh shares). Out of the 2 other selling shareholders, Bisque Limited will offer (55.95 lakh shares), and Link Investment Trust will offer (0.85 lakh shares).
   
• Thus, the total IPO of Awfis Space Solutions Ltd will comprise of a fresh issue and an OFS of 1,56,37,736 shares (156.38 lakh shares approximately) which at the upper end of the price band of ₹383 per share aggregates to total issue size of ₹598.93 crore.

The IPO of Awfis Space Solutions Ltd will be listed on the NSE and the BSE on the IPO mainboard.

Awfis Space Solutions IPO – Key Dates

The IPO of Awfis Space Solutions Ltd IPO opens on Wednesday, 22nd May 2024 and closes on Monday, 27th May 2024. The Awfis Space Solutions Ltd IPO bid date is from 22nd May 2024 at 10.00 AM to 27th May 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 27th May 2024.

It must be noted that in ASBA applications, there is no refund concept. The total application amount is blocked under the ASBA (applications supported by blocked amounts) system. Once the allotment is finalized, only the amount is debited to the extent of the allotment made and the lien on the balance amount is automatically released in the bank account. The credit of shares to the demat account on May 29th 2024, will be visible to investors under the ISIN Code – (INE108V01019). This allocation to the demat account is only applicable to the extent of the allocation of shares and if no allocations are made in the IPO, then no credit would be visible in the demat account.

Promoter holdings and investor allocation quota

The promoter holding in the IPO currently stands at 41.05%, but will get diluted post the IPO since there is a fresh issue and existing promoters are also offering shares as part of the OFS portion of the IPO. As per the terms of the offer, not less than 75% of the net offer is reserved for the qualified institutional buyers (QIBs), while not more than 10% of the net offer size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors. The table below captures the gist of the allocation to various categories.

It may be noted here that the Net Offer above refers to the quantity net of employee and promoter quota, as indicated above. There is an employee quota of up to ₹2.00 crore that has been communicated by the company as the shares reserved for employees in its red herring prospectus (RHP). The anchor portion, will be carved out of the QIB portion and the QIB portion available to the public will be reduced proportionately.

Lot sizes for investing in the Awfis Space Solutions IPO

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of Awfis Space Solutions Ltd, the minimum lot size is 39 shares with upper band indicative value of ₹14,937. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of Awfis Space Solutions Ltd.

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Financial highlights of Awfis Space Solutions Ltd

The table below captures the key financials of Awfis Space Solutions Ltd for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI (FY refers to Apr-Mar period)

Since the company is a loss making company as of the latest available full year of FY23, many of the yield ratios may not add value. Hence we will only look at 2 ratios here viz. the sales growth and the asset turnover ratio

1. In the last 3 years, revenue growth has been robust with the sales growing more than 3-fold in the last 2 years. The growth has been very robust in the last two years, but what is striking is that the sales traction has been really strong. However, due to the upfront nature of costs that this kind of business has to incur, the company is still in losses.
    
2. The asset turnover ratio or the sweating ratio is quite low at 0.59X and has been below 0.50 in the previous two years. However, that is more because it has been adding space at a rapid pace while the revenues normally grow with a lag. This should be taken care of as the revenues pick up in the next few quarters.

Overall, the company has maintained healthy top line growth. However, profitability ratios are not too relevant in the wake of sustained losses by the company.

Valuation metrics of the Awfis Space Solutions IPO

Let us turn to the valuations part. It is normally tough to validate the assumptions on valuations in the absence of tangible profit data. Hence, we shall look at other proxy ratios and at the non-financial intangibles to take a view on the IPO of Awfis Space Solutions Ltd.

There are a few fundamental challenges in the valuation of Awfis Space Solutions Ltd. Firstly, it does not have profits to use any of the standard profitability discounting matrices. Secondly, there is no peer group where we can use the proxy valuations ratios based on sales. One way is to look at the Price to book ratio. The Net Asset Value of the company stands at ₹39.79 per share after considering the dilution effect of convertible debenture and convertible preference shares. That boils down to a book value discounting of 9.6X on the IPO price. That looks OK for a pure service oriented model that is betting on the future of work from a different perspective.

What about intangibles? Apart from the fact that it is a very low debt stock, Awfis Space Solutions Ltd brings some other clear intangibles to the table. Its innovative and flexible workplace model has been finding a lot of willing takers. It has managed growth through an integrated platform approach. Also, its allied services like Awfis Care allow the company to deepen the customer penetration and also to improve the revenue per customer. With its low debt and growing leadership, it could be a good business to bet on for the next 2-3 years. However, it would be a higher risk play and a long term perspective is advisable.