Smartworks raises FY27 growth guidance as H1 revenue rises 41%

Smartworks raised its FY27 revenue-growth guidance to 33–35% from 28–30% after revenue increased 41% year on year in H1 FY27. The company retained its 19–20% normalised EBITDA margin target, supported by a 19.7% H1 margin, Rs 591.4 crore of Q2 FY27 revenue and about Rs 5,800 crore of contracted rental revenue.

Why did Smartworks raise its FY27 revenue-growth guidance?

Smartworks raised its FY27 revenue-growth guidance because H1 FY27 revenue rose 41% year on year, above its earlier 28–30% full-year growth range. Its H1 scorecard sets the revised range at 33–35%, and management attributed the change to a strong first half, larger deals and expansion by existing clients.

The revision followed six consecutive quarters of sequential revenue growth since listing. Revenue from operations rose from Rs 379.2 crore in Q1 FY26 to Rs 591.4 crore in Q2 FY27, a 56% increase across six quarters. In the latest quarter, revenue increased 8% from Rs 546.2 crore in Q1 FY27 and 39% from Rs 424.8 crore in Q2 FY26.

Smartworks retained its FY27 normalised earnings before interest, tax, depreciation and amortisation, or EBITDA, margin target of 19–20%. H1 FY27 normalised EBITDA margin was 19.7%, while Q2 FY27 margin reached 19.8%, compared with 16.4% in Q2 FY26. Management said the H1 result was on track and trending towards the upper end of its stated margin range.

How did Smartworks' Q2 FY27 profitability and cash flow change?

Smartworks reported normalised EBITDA of Rs 116.9 crore in Q2 FY27, up 68% year on year and 9% quarter on quarter. Normalised profit before tax increased 137% year on year to Rs 58.2 crore, while normalised profit after tax rose 136% to Rs 43.4 crore from Rs 18.4 crore in Q2 FY26.

Smartworks presents normalised figures because it says Indian Accounting Standard 116, or Ind-AS 116, creates a structural difference between its reported accounting results and operating view. Reported EBITDA was Rs 377.6 crore in Q2 FY27; the company deducted Rs 260.6 crore of lease-liability repayments to derive normalised EBITDA of Rs 116.9 crore.

Normalised operating cash flow was Rs 107.1 crore in Q2 FY27, up 74% from Rs 61.4 crore a year earlier and 13% from Rs 95.1 crore in Q1 FY27. Operating cash flow was 0.9 times normalised EBITDA overall, while Smartworks said the measure exceeded 1.0 times at operational centres because deposits on buildings not yet open affected consolidated cash conversion.

Normalised annualised return on capital employed, or ROCE, was 21.6% in Q2 FY27, versus 13.6% in Q2 FY26 and 21.5% in Q1 FY27. Smartworks said about one-fifth of capital was in buildings that were not yet earning, and that headline ROCE would remain around 21–22% until the second-half campus bill.

What is supporting Smartworks' contracted rental revenue?

Smartworks reported about Rs 5,800 crore of contracted rental revenue, up from about Rs 5,400 crore in June. Agreements entered during Q2 FY27 included about Rs 235 crore of contracted rental revenue from existing clients expanding across cities and about Rs 305 crore from new clients in technology, consulting, healthcare, lifestyle and customer experience.

The client base reached 785, including more than 35 clients with over 1,000 seats and more than 75 clients operating in more than one city. The largest client accounted for less than 5% of rental revenue, while the top 10 clients represented about 24%, according to Smartworks' client concentration data.

Clients with more than 1,000 seats generated about 41% of rental revenue, compared with about 35% a year earlier, while revenue from this cohort grew 49% year on year. Their average tenure was 49 months, against Smartworks' 45-month overall average. Multi-city clients represented about 35% of rental revenue, up from about 31%.

Smartworks also reported a change in sector mix. Information technology and IT-enabled services, or IT/ITeS, accounted for about 36% of rental revenue, down from about 40% a year earlier, although IT revenue still grew. The company said 77% of revenue added during the preceding year came from outside IT and ITeS.

Can Smartworks deliver its FY27 space expansion plan?

Smartworks said it was on track to reach 12.5–13 million square feet, or Msf, of operational space by March 2027. At H1 FY27, it operated 10.9 Msf across 58 centres, had 2.1 Msf under fit-out and a further 2.3 Msf awaiting handover.

The 4.3 Msf under fit-out or awaiting handover exceeded Smartworks' stated H2 requirement of 1.6–2.1 Msf to go live. The pipeline includes Eastside in Kharadi, Pune, at about 863,000 square feet, and Eastbridge in Vikhroli, Mumbai, at about 815,000 square feet. Both campuses are scheduled to become live in H2.

Total supply secured, including letters of intent, stood at 17.5 Msf across 71 centres, up 38% year on year. Smartworks said this supply was secured through FY28, while work on FY29 was under way. Its H1 scorecard specified an FY27 plan to add 2.5–3 Msf of operational space.

Mature centres, defined as more than 12 months old, covered 9.7 Msf and were 88% occupied and 91% committed in Q2 FY27. New centres covered 1.3 Msf and were 48% committed, compared with an indicated break-even level of about 60%. Overall occupancy was 81%, reflecting centres that were still filling after opening.

What investment commitments remain in FY27?

Smartworks deployed Rs 306.6 crore of capital expenditure in H1 FY27 against its full-year plan of Rs 550–600 crore. Management said H2 spending would be weighted towards Eastside and Eastbridge, linking the remaining investment programme to the campuses under fit-out or awaiting handover.

Q2 FY27 capital expenditure was Rs 155.6 crore, up 64% year on year. Gross debt was Rs 233.7 crore and net debt was Rs 82.7 crore at the end of Q2 FY27. These figures were disclosed alongside the company’s 21.6% normalised annualised ROCE and its H2 development programme.

About 3.4 Msf, or 31%, of Smartworks' 10.9 Msf operational footprint had opened during the prior 24 months. Smartworks said centres reach break-even in about 12 months and 85–90% occupancy in under 18 months, after which fit-out payback and contract repricing can alter centre economics.

Smartworks said client lock-ins covered landlord rent commitments by about two times and that there was no asset-liability mismatch through FY30. Those statements represent management's assessment of the lease structure rather than a financial forecast beyond its FY27 growth, margin and operational-space objectives.

Conclusion

Smartworks' revised 33–35% FY27 revenue-growth outlook reflects H1 revenue growth of 41%, a 19.7% normalised EBITDA margin and contracted rental revenue of about Rs 5,800 crore. The company is maintaining its 19–20% margin target while deploying capital into capacity that has either recently opened or has yet to begin contributing to revenue.

The next milestones are H2 openings at Eastside and Eastbridge, conversion of the 4.3 Msf under fit-out or awaiting handover, and capital deployment against the remaining portion of the Rs 550–600 crore FY27 plan. Smartworks' target of 12.5–13 million square feet of operational space by March 2027 makes the pace of centre delivery and occupancy ramp-up central to its disclosed plan.