SMARTWORKS

Smartworks reported a strong Q2 FY26, with revenue reaching ₹425 crores, marking a 21% year-on-year and 12% quarter-on-quarter growth. Normalized EBITDA increased by 46% YoY to ₹70 crores, achieving a 16.4% normalized EBITDA margin. The company's PBT stood at ₹25 crores, up 40% QoQ, with the PBT margin expanding to 5.8% from 4.6% in Q1. Annualized ROCE improved to 14.3%, the highest in the company's history, reflecting capital discipline and operating leverage.

As the largest Pan-India managed office platform, Smartworks continues to lead India's managed workspace evolution. Its total super-built-up area reached 12.7 million square feet across 14 cities, serving over 760 clients. The mature portfolio, comprising 7.5 million square feet, operates at an 88% occupancy with a committed occupancy above 93%. The company aims to continue growing at 30%-plus in the near-term, supported by its ability to add 2.5 to 3 million square feet of space annually.

Smartworks' managed campus model, transforming bare shell buildings into tech-enabled ecosystems, differentiates it in the market. Large enterprise deals are a key driver, with the 1,000-plus-seats cohort now contributing 35% of rental revenue, tripling from 12% three years ago. Rentals from multi-city clients account for over 30% of revenue, indicating strong client stickiness. The company's landlord base has also strengthened, with 24% of its portfolio now from institutional developers like DLF and Hiranandani.

Global Capability Centers (GCCs) are a significant growth driver, currently contributing over 15% to rental revenue, with an expectation to double in the next couple of years. To capture this demand, Smartworks launched 'SmartVantage,' a dedicated GCC enablement platform offering end-to-end solutions beyond just workspace, including compliance, technology, and partnerships. This platform positions Smartworks to capture a meaningful share of the estimated 50-55 billion square feet of new office demand from GCCs over FY26-27.

The company's asset-light model continues to demonstrate efficiency, with gross debt reduced by nearly 45% since its IPO. Normalized operating cash flow stood at ₹62 crores, with an OCF-to-EBITDA ratio close to 1x. Corporate costs as a percentage of revenue from operations declined from 13.8% in 2022 to 7.9% in H1 FY26. Smartworks expects to transition into a self-sustaining CAPEX model, enabling 25%-30% annual growth without additional funding, by focusing CAPEX on interiors rather than property acquisition.

Smartworks has strengthened its supply visibility, with a signed-up portfolio of up to 14 million sq ft and clear visibility for FY26 and FY27. In H2 FY26, the company expects 1 million sq ft of new operational supply and 1.4 million sq ft of existing capacity to mature. The industry is projected to see 15-18 million sq ft of new flex space absorption annually. Smartworks' strategy of taking large individual buildings (400,000-500,000 sq ft) allows it to meet demand even in mature cities with limited supply.

The retention rate for Q2 FY26 was 74%, a decrease from 94.5% in Q1. Management clarified this was a 'voluntary churn' for clients who signed during the COVID period at lower rates, allowing Smartworks to re-lease spaces at higher yields. This strategic churn is expected to continue over the next few quarters. However, committed occupancy remains high at 88%, and the company expects the retention rate to normalize upwards of 80-85% in the foreseeable future.