Smartworks raises FY27 growth outlook after 41% H1 gain

Smartworks Coworking Spaces Limited raised FY27 revenue-growth guidance to 33%-35% from 28%-30% after first-half revenue increased 41% year on year, while its normalised EBITDA margin reached 19.7%. Smartworks said secured capacity, Rs 5,800 crore of contracted rental revenue and pre-committed new campuses supported the higher outlook.

Why did Smartworks raise its FY27 revenue guidance?

Smartworks raised its FY27 revenue-growth outlook because first-half revenue grew 41% year on year and management said the supply needed for the year had been secured. The revised 33%-35% range is above its earlier 28%-30% guidance. Management linked the increase to capacity additions, pre-commitments and contracted rental revenue of about Rs 5,800 crore, compared with Rs 5,400 crore in the preceding quarter.

Revenue from operations was Rs 591 crore in Q2 FY27, up 39% year on year and 8% quarter on quarter. This was Smartworks’ sixth consecutive quarter of sequential revenue growth since listing. Normalised EBITDA, or earnings before interest, tax, depreciation and amortisation adjusted by management, was Rs 117 crore, up 68% year on year, while normalised profit after tax was Rs 43 crore, up 136% year on year. Reported profit after tax was Rs 26 crore.

Management said the higher guidance does not mean revenue will rise evenly through H2 FY27. New properties generally need three to four months of build-out before rental revenue builds, and management expects much of the contribution from incoming supply in Q4 FY27 and Q1 FY28. Electricity charges, parking and meeting-room bookings can begin when clients start using a centre, while rental revenue follows 10 to 20 days later.

Can Smartworks retain its EBITDA-margin target during expansion?

Smartworks retained FY27 normalised EBITDA-margin guidance of 19%-20%, after reporting 19.7% in H1 FY27 and 19.8% in Q2 FY27. Management said the margin was trending towards the upper end of the range despite a heavy capital-expenditure cycle. It attributed the result to operating leverage at maturing centres, cost growth below revenue growth, energy-efficiency measures and cost-excellence initiatives.

Q2 FY27’s 19.8% normalised EBITDA margin was 340 basis points above the year-earlier level. Management said new campuses were not margin dilutive at its current scale because they are added to a larger mature-centre base. It cited annual pricing escalations of 5%-6%, other income and further maturation of the operating portfolio as potential contributors, but did not raise the 19%-20% guidance.

Cash conversion remains influenced by the timing of new buildings. Normalised operating cash flow was Rs 107 crore in Q2 FY27 and Rs 202 crore in H1 FY27, equal to 0.9 times EBITDA. Free cash flow was negative by about Rs 104 crore in H1 FY27 because capital expenditure ran ahead of cash generation from centres still ramping up. Net debt was about Rs 83 crore, and management said borrowing cost remained below 9% after a credit-rating upgrade.

What capacity additions support Smartworks’ higher forecast?

Smartworks’ platform covered 17.5 million square feet across 71 centres, including 10.9 million square feet across 58 operational centres at the first-half point. It added almost 1 million square feet of operational space in H1 FY27 and continued to expect more than 12.5 million to 13 million square feet to be operational by March 2027. Management said the operating footprint was close to 11 million square feet at the time of the call.

The near-term pipeline was 4.3 million square feet under fit-out or awaiting handover, against the 1.6 million to 2.1 million square feet Smartworks said needed to go live by March 2027. This included 2.1 million square feet under fit-out and 2.3 million square feet awaiting handover. Smartworks deployed about Rs 307 crore of capital expenditure in H1 FY27, against full-year guidance of Rs 550 crore to Rs 600 crore.

Eastside in Pune and East Bridge in Mumbai are the principal H2 FY27 openings. Management said the two campuses would account for most of approximately 45,000 seats planned for opening in the half. Eastside was expected to open sooner, while East Bridge awaited its occupancy certificate before a further three-to-four-month build-out. Management said both projects had about 35% visible prefill, principally from existing banking and financial services, manufacturing and logistics clients expanding in these locations.

What do occupancy and client mix indicate about growth?

Smartworks reported overall occupancy of about 81%, at the lower end of its 80%-85% band, after adding about 11,500 seats in Q2 FY27. Committed occupancy was about 86%. Its mature-centre portfolio of about 9.7 million square feet was 88% occupied and 91% committed, while new campuses were already 48% committed. Management said signed but unoccupied capacity would come online over the following 30 to 60 days.

Management expects blended occupancy to dip temporarily below 80% as the planned 45,000-seat H2 FY27 opening enlarges the capacity base before new centres ramp. It said mature centres generally reach 88%-90% occupancy within 18 months and expected overall occupancy to move towards 84%-85% as the portfolio stabilises over the next four quarters. The mature portfolio’s 88% occupancy was therefore above the group’s 81% level.

Large enterprises generated 91% of rental revenue. Clients with more than 1,000 seats contributed over 41% of rental revenue, up from 35% a year earlier, and more than 35 clients had more than 1,000 seats. More than 70 clients used Smartworks in multiple cities, contributing 35% of rental revenue. Global capability centres accounted for 22%, while information technology and information-technology-enabled services fell to about 36% from about 40% a year earlier.

Conclusion

Smartworks’ revised 33%-35% FY27 revenue-growth outlook follows 41% first-half growth, a Rs 5,800 crore contracted rental-revenue base and an operating footprint expected to approach 13 million square feet by March 2027. The unchanged 19%-20% normalised EBITDA-margin guidance means the central measure will be whether mature-centre operating leverage offsets the timing effects of rapid capacity expansion.

The next disclosures to watch are the H2 FY27 openings of Eastside and East Bridge, including the occupancy-certificate timing for East Bridge, and the effect of about 45,000 new seats on occupancy and cash conversion. Management expects free cash flow to turn positive when its mature base approaches 13 million square feet in the next few quarters, while reported cash conversion is expected to remain below one time as it pays deposits for new supply.