Stock to buy: This recent stock market debutant can offer 40% upside, says IIFL

Stock to buy: Awfis Space Solutions Ltd, which got listed on May 30, could deliver 40 per cent return in the next 12 months, IIFL Securities said in a note. The stock on Monday climbed 2.83 per cent to close at Rs 700.10 on NSE, which was 83 per cent higher than its IPO issue price of Rs 383 apiece. IIFL Securities has initiated ‘Buy’ on the stock with  target price of Rs 980 per share on the first and only listed pure play on the flexible workspaces segment (flex). 

IIFL noted that the flex industry now accounts for over 20 per cent of total office leasing in India, second only to Tech, and is witnessing strong industry tailwinds due to occupiers adopting the ‘core + flex’ strategy. 

Awfis already has the largest network of flex centres and plans to more than double its seats by FY27, adding 40,000-50,000 seats per annum. A steady improvement in the occupancy of stabilised centres (to 85 per cent and increasing tenant lock-ins, especially for larger cohorts, is helping minimise potential asset liability mismatches, IIFL Securities said.

“We see Awfis area share increasing to 12 per cent by FY27ii (against 7 per cent in FY24ii), driven by a 33 per cent CAGR in seat addition (2 times of Industry). Focus on smaller cohorts, mid-sized centres and a meaningful Tier-2 presence offers product differentiation and helps optimise tenant churn and occupancy,” Awfis Space Solutions said.

IIFL said Awfis Space Solutions’ unique managed aggregation model may drive accelerated capacity ramp-up and yield superior ROCE. It estimated a 55 per cent Ebitda CAGR and a sharp return on equity (ROE) improvement over FY24-27.

IIFL said Awfis has 67 per cent seats under managed aggregation (MA), where landlords share 50-90 per cent of the fit-out capex against a share in the profitability. This enhances ROCE and allows a faster payback against the straight lease (16 versus 36 months) and lower break-even occupancy. 

“Working capital efficiency (customer deposits greater than landlord deposits; payable days greater than receivable days) is driving a healthy Ebitda to OCF conversion and helping maintain a net cash balance sheet over FY25-27ii despite increasing capex,” it said.

IIFL Securities said Awfis’ Q2FY25 and H1FY25 performances have been above the management guidance, especially on Ebitda margin front. 

“Over FY24-27, we build an Ebitda CAGR of 58 per cent, driven by 33 per cent CAGR in seat addition, occupancy management and operating leverage driving steady improvements in Ebitda margins; and doubling of revenues from the design and build (Transform) business and other ancillary services,” it said.