Smartworks says Rs 5,800 crore contracts cover rents twice

Smartworks reported about Rs 5,800 crore of contracted rental revenue in Q2 FY27, up from about Rs 5,400 crore in June. It said client lock-ins cover landlord rent commitments about two times over, while the portfolio had average client tenure of 45 months and its largest client accounted for less than 5% of rental revenue.

What supports Smartworks' Rs 5,800 crore contracted rental revenue?

Smartworks' contracted rental revenue was about Rs 5,800 crore in Q2 FY27, an increase of about Rs 400 crore from the approximately Rs 5,400 crore reported in June. The contracted figure is substantially larger than Q2 FY27 revenue from operations of Rs 591.4 crore, which rose 39% year on year and 8% quarter on quarter.

Agreements entered into during Q2 FY27 included about Rs 540 crore of contracted rental revenue. Existing clients expanding across cities accounted for about Rs 235 crore, while new clients across technology, consulting, healthcare, lifestyle and customer-experience sectors accounted for about Rs 305 crore.

Smartworks had 785 clients in Q2 FY27, including more than 35 clients with over 1,000 seats and more than 75 clients operating in multiple cities. Average client tenure was 45 months, rising to 49 months for clients with more than 1,000 seats, according to the presentation.

How does Smartworks cover landlord rent commitments?

Smartworks says client lock-ins cover its landlord rent commitments about two times over. Management also said there was no asset-liability mismatch through FY30, linking the duration of contracted client lock-ins to the duration of rent commitments on its leased buildings.

The disclosed coverage sits alongside limited reported customer concentration. Smartworks said its largest client represented less than 5% of rental revenue and its top 10 clients represented about 24%, while enterprise clients accounted for 91% of rental revenue in Q2 FY27, compared with 90% a year earlier.

Smartworks reported committed occupancy of about 86% across all centres in Q2 FY27, compared with physical occupancy of about 81%. At mature centres, defined as locations open for more than 12 months, physical occupancy was 88% and committed occupancy was 91% across 9.7 million square feet.

New centres, defined as locations open for less than 12 months, had committed occupancy of 48% across 1.3 million square feet, against an indicated break-even level of about 60%. Smartworks said centres reach break-even occupancy in about 12 months and generally reach 85% to 90% occupancy in under 18 months.

Which clients are contributing to Smartworks' rental revenue?

Smartworks' clients with more than 1,000 seats generated about 41% of rental revenue in Q2 FY27, up from about 35% a year earlier. Revenue from this cohort increased 49% year on year, and its average tenure of 49 months exceeded the portfolio-wide 45-month average.

Multi-city clients accounted for about 35% of rental revenue, up from about 31% a year earlier, with more than 75 such clients in the portfolio. Smartworks cited a global customer-experience company with more than 8,500 seats in four cities and a Swiss bank global capability centre with more than 3,400 seats in Pune that expanded during H1 FY27.

Information technology and IT-enabled services accounted for about 36% of rental revenue in Q2 FY27, down from about 40% a year earlier, although Smartworks said revenue from the segment still grew. The presentation said 77% of incremental revenue during the preceding year came from outside IT and IT-enabled services, while global capability centres accounted for about 22% of rental revenue after a 110-basis-point quarter-on-quarter increase.

Smartworks said rental revenue rose about 31% year on year in H1 FY27, while total revenue increased 41%. Management raised FY27 revenue-growth guidance to 33% to 35% from 28% to 30%, citing first-half performance, larger deals, existing-client expansion and capacity available for the second half.

How much capacity does Smartworks have for contracted growth?

Smartworks had 10.9 million square feet operational across 58 centres in Q2 FY27 and a total secured footprint of 17.5 million square feet across 71 centres, including letters of intent. The operational footprint increased 20% year on year, while the secured footprint increased 38%.

The pipeline comprised 4.3 million square feet under fit-out or awaiting handover, against the 1.6 million to 2.1 million square feet Smartworks said it needs to go live in H2 FY27. It includes Eastside in Kharadi, Pune, at about 863,000 square feet and Eastbridge in Vikhroli, Mumbai, at about 815,000 square feet, both expected to open in H2 with healthy committed occupancy.

Of the 10.9 million-square-foot operational base, 7.5 million square feet had been open for more than 24 months, 2.1 million square feet for 12 to 24 months, and 1.3 million square feet for less than 12 months. Smartworks said 3.4 million square feet, or 31% of its operational space, had opened during the preceding 24 months.

Smartworks deployed Rs 306.6 crore of capital expenditure in H1 FY27 against planned FY27 capital expenditure of Rs 550 crore to Rs 600 crore, with the second half weighted towards Eastside and Eastbridge. It reported normalised operating cash flow to earnings before interest, tax, depreciation and amortisation, or EBITDA, of 0.9 times overall in Q2 FY27, while operational centres were above 1.0 times.

Conclusion

Smartworks' reported Rs 5,800 crore of contracted rental revenue reflects both a Rs 540 crore Q2 FY27 flow of new and expanded client agreements and a portfolio increasingly weighted towards enterprise, large-seat and multi-city customers. Its stated client lock-in coverage of landlord rent commitments, together with a largest-client contribution below 5%, sets out management's disclosed framework for matching client contracts with lease obligations.

The next measure of execution will be the opening and ramp-up of the 4.3 million-square-foot pipeline, particularly the 1.6 million to 2.1 million square feet expected to go live in H2 FY27. Management has guided for FY27 revenue growth of 33% to 35% and normalised EBITDA margins of 19% to 20%, while its leadership message expects about 12.5 million to 13 million square feet of operational space by March 2027.