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    SMARTWORKS

    SMARTWORKSGood
    Services·12 Aug 2025
    Management Summary

    Smartworks delivered a strong Q1 FY26, demonstrating robust revenue growth and significant margin expansion driven by increased occupancy and cost efficiencies. The company highlighted its asset-light, scalable model, and strong cash flow generation, positioning itself for continued growth and market leadership in the managed office space, with ambitious expansion targets for square footage and seat capacity.

    Highlights

    8

    • Revenue for Q1 FY26 stood at INR 3,792 million, marking a 21% year-on-year increase and 5.8% sequential growth.

    • Reported EBITDA was INR 2,410 million, up 25.5% YoY, with a margin of 63.6%.

    • Normalized EBITDA reached INR 607 million, a 109% YoY jump, with a healthy 16% margin.

    • Normalized PBT for Q1 FY26 was INR 168 million, a significant turnaround from a negative INR 102 million in Q1 FY25, and already exceeding FY25 full-year normalized PBT of INR 155 million.

    • Normalized Operating Cash Flow (OCF) generated INR 855 million, growing over 70% YoY from INR 501 million in Q1 FY25.

    • Operational area increased to 8.3 million square feet as of June 25, 2025, with occupancy at 83% and committed occupancy at 89%.

    • The company targets to increase its seat count from 190,000 to 275,000 within the next 4-5 quarters.

    • Capex cost per seat is approximately INR 60,000, fully borne by Smartworks, with a payback period of 32 months.

    What Changed2

    vs Q2 FY26

    Guidance items12 → 20 (+8)Risks discussed3 → 0 (-3)

    Key financials

    Single quarter

    09 metrics
    1. 01Revenue3,792 Mn+21%YoY
    2. 02Reported EBITDA2,410 Mn+25.5%YoY
    3. 03Reported EBITDA Margin63.6%
    4. 04Normalized EBITDA607 Mn+109.0%YoY
    5. 05Normalized EBITDA Margin16%

    Guidance & targets

    20
    CategoryTargetPriority
    Capacity
    Annual square feet addition
    2 million to 3 million square feet
    		High
    Capacity
    Total square feet under management
    12 million square feet
    		High
    Capacity
    Total square feet (LOIs and term sheets)
    12 million square feet
    		High
    Capacity
    Seats to be added (contracted for this year)
    40,000 seats
    		High
    Capacity
    Square feet added (contracted, revenue next year)
    1.9 million square feet
    		High
    Capacity
    Total seat count
    275,000 seats
    		High
    Capacity
    Total seats added (this year pipeline)
    45,000 seats
    		High
    Capacity
    Annual seat addition
    30,000 to 40,000
    		High
    Occupancy
    Occupancy for new centers to breakeven
    65% to 70%
    		High
    Payback Period
    Capex recovery
    30 to 32 months
    		High
    Revenue Mix
    Rental annuity income from top six cities
    75%
    		High
    Client Concentration
    Top 10 clients' share of revenue
    less than 20%
    		High
    Margin
    Margin expansion
    rise
    		Medium
    Cash Flow
    OCF to EBITDA ratio
    1.1 to 1.2
    		High
    ROCE
    ROCE growth
    double
    		High
    Capex
    Growth without additional funding
    25% to 30% year-on-year
    		High
    Brokerage Expense
    Brokerage expense as % of revenue
    less than 3%
    		High
    Cost of Acquisition
    Cost of acquisition
    less than 3%
    		High
    Growth Rate
    CAGR (year-on-year)
    30%-35%
    		Medium
    Debt
    Gross borrowings
    very negligible
    		High

    Risks & concerns

    1

    Areas of Evasion(1)

    • Direct comparison with competitor's business model/efficiency

    Q&A highlights

    3

    “Smartworks with its scale standardization has been able to reduce both our capex cost to INR 1,350 and our opex cost to INR 34 to INR 36 per square feet... our brokerage expense was 4% of our revenue. It has already gone down to approximately 3% as our dependency on the brokerage system continues to go down.”

    This question directly addresses the company's core competitive advantage (cost efficiency) and a potential risk (broker dependency), with management providing specific numbers and a clear strategy for sustainability and improvement.

    asked by Shivkumar Prajapati

    3 min read7 chapters

    Detailed Narrative

    01

    Robust Q1 FY26 Financial Performance

    Smartworks reported a strong Q1 FY26 with revenue reaching INR 3,792 million, a 21% year-on-year increase and 5.8% sequential growth. The company's reported EBITDA stood at INR 2,410 million, up 25.5% YoY, with a healthy margin of 63.6%. Normalized EBITDA saw a significant jump of 109% YoY to INR 607 million, achieving a 16% margin, reflecting strong operational efficiency and disciplined cost management.

    02

    Significant Turnaround in Profitability and Cash Flow

    The company achieved a positive normalized PBT of INR 168 million in Q1 FY26, a substantial turnaround from a negative INR 102 million in Q1 FY25, and notably, this Q1 figure already surpasses the full-year FY25 normalized PBT of INR 155 million. Normalized Operating Cash Flow (OCF) also demonstrated robust growth, generating INR 855 million in Q1 FY26, a 70% increase from INR 501 million in the prior year's quarter, indicating healthy cash generation.

    03

    Aggressive Capacity Expansion and Occupancy Targets

    Smartworks' operational area expanded to 8.3 million square feet as of June 25, 2025, translating to approximately 190,000 operational seats with an 83% occupancy rate and 89% committed occupancy. The company has visibility to reach 12 million square feet and targets to increase its total seat count from 190,000 to 275,000 within the next 4-5 quarters, with 45,000 seats already contracted for addition this year.

    04

    Enhanced Cost Efficiency and Asset-Light Model

    Management highlighted its ability to maintain industry-leading cost structures, with capex costs at INR 1,350 per square foot and opex costs at INR 34-36 per square foot. The company spends approximately INR 60,000 per seat for fit-outs, fully borne by Smartworks, with a quick capex recovery period of 32 months. Brokerage expenses have reduced from 4% to approximately 3% of revenue, and the cost of customer acquisition has decreased from 4.5% to less than 3%.

    05

    Strategic Focus on Enterprise Clients and Annuity Revenue

    The business model is heavily focused on enterprise clients, contributing around 90% of Q1 FY26 revenue, with 30% from multi-city clients. Lease rentals constitute 94% of total revenue, providing stability and predictability. The company aims to maintain 75% of rental annuity income from the top six cities and expects the share of its top 10 clients to continue to decrease from less than 20%, further de-risking its model.

    06

    Positive Outlook on Margins and ROCE

    Smartworks anticipates continued margin expansion, driven by maturing new centers, rising occupancy, and operating leverage in SG&A expenses. The normalized EBITDA margin is expected to expand beyond the current 16%. The company projects to double its normalized ROCE from 13% within the next two years, with further upside potential over the next five years, supported by a strong cash ROCE of over 47%.

    07

    Net Debt Negative Position and Competitive Borrowing Costs

    Following the IPO, where INR 3,965 million was raised net of expenses, Smartworks is now completely net debt negative. The company's cost of borrowing stands at a competitive 9%-10%, and management expects gross borrowings to become 'very negligible' over the next two years, further strengthening its financial position.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.