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00:00 Hello and welcome to NDTV Profit. You are watching IPO at the and the company which
00:13 is coming to the capital markets next week is Office Space Solutions. It is India's leading
00:18 co-working space solutions provider. The IPO is opening on May 22nd and closes on 27th.
00:25 The total size of the issue is nearly 590 crores which includes 128 crores of fresh
00:34 issue and joining me is Amit Ramani who is the Chairman and Managing Director of the
00:37 company. Mr. Ramani, good morning. Thank you for joining us on NDTV Profit. My first question
00:44 to you is, sir, you know you are one of the leading co-working space providers in the
00:49 country. Can you take us through your business model and the 128 crores which you are raising
00:55 in primary capital. What is it going to be used for?
00:59 Sure. So clearly I think when we started the business the focus was on solving a very inherent
01:08 need which was the ability to find quality workplace infrastructure at an affordable
01:12 price. When we looked at the whole demand ecosystem I think there were three things
01:17 we were looking to solve in this country. One was flexibility. The user should choose
01:22 one day or five years. He should have the choice of one seat or 500 seats. Second was
01:28 accessibility with the growing commute times people would want space which is much closer
01:35 to their homes and hence we looked at accessibility or having one of the largest networks so that
01:42 people can have an office space available very close to their homes. And the third was
01:48 ease of use. It's very complicated to set up a workplace especially for SMEs and mid-sized
01:53 corporates so we said why don't we solve that problem and these were the three things we
01:58 were solving on the demand side. On the supply side actually India provided a very, very
02:02 unique story because unlike the developed markets where the large portion of commercial
02:08 real estate is controlled by large institutional landlords, in India about almost 70% is with
02:15 HNIs, mid-tier developers and family offices. So we started looking at that as a partnership
02:22 model and we call it managed aggregation and the idea was very simple. Let's partner with
02:27 our landlords for the capital so they invest the new capital into the fit-out and basically
02:33 we don't give them a fixed rent after a certain minimum guarantee free period, we give them
02:38 an MG which is much lower than the market rental. So on the supply side we solved a
02:42 problem which was essentially the large challenge that most co-working players have which is
02:49 the demand and supply mismatch. By partnering with our landlords we have kind of solved
02:52 that problem and it becomes capital efficient because they are providing a lot of the capital
02:57 into the fit-out. As for the offer, currently we are raising 128 crores. Broadly half and
03:06 half is working capital and half is capex for our centre expansion and the rest of it
03:15 about a small amount is for general corporate expense.
03:19 I was looking at your RHP, you have daily two models, one is a straight lease model
03:25 which is there which basically means that you are paying a rent for the space and then
03:29 you are seeking clients or tenancy into the seats basically. And the second one is as
03:37 you mentioned managed aggregation which is basically a minimum guarantee as well as profit
03:42 share or revenue share which you do with the space owner. My question is that you have
03:47 gradually increased that managed aggregation to nearly 66% but you are still loss making
03:55 because managed aggregation becomes more of a light kind of thing for you and you are
04:01 paying minimum cost but still the profitability is not there in the operations. Why is that?
04:11 So if you look at our journey over the last nine years, we obviously in the first few
04:17 years were testing out the model. In the next post-COVID obviously the industry itself was
04:23 a bit challenged so it took us a bit of a slowdown there. But if you look at since FY21
04:32 at the EBITDA level, we have been positive and today as of December 23 on an IGAP basis,
04:42 we are again quite positive. So clearly we are on a journey to profitability. Initially
04:48 it was a few years proof of concept development, COVID challenges but now we are on our path
04:52 to profitability. And is that going to be sustained because you have a good runway with
05:00 respect to which has fit out outlets coming in, you have additional engagements with 13
05:07 more centres which is coming in. So the CAPEX which is required, which you are seeking through
05:14 the IPO, is it going to be sufficient or you will need to take fresh capital at some point
05:20 in time as you expand your operations? So as I mentioned we are EBITDA positive as of
05:31 the December financials that we declared. That EBITDA translates into cash flow for
05:37 us and last year we spent approximately about 120 odd crores of capital. As of December
05:44 we are doing about 9 crores monthly positive EBITDA on an IGAP basis. So that gives us
05:50 enough capital to continue to fuel our growth from our current accruals.
05:54 When you spoke about cash flows, RIG mentions that on a full cash flow basis you are negative,
06:03 though operationally you are positive, you are investing and financing and that's why
06:06 it's going into negative. When do we see free cash flows coming in from the operations?
06:18 So I can't really talk about specifics on the future projections, but you can look at
06:25 our growth over the last few years. FY21 to 23 we were growing at a 75% CAGR. As I mentioned
06:35 as of December we are positive at the EBITDA level. We are also positive on a monthly basis
06:41 at the PAT level. So clearly I think we will continue to grow, that's the plan. But clearly
06:50 I think without making specific directions I think we are on that path, on that journey.
06:57 Can you also take us through your managed aggregation model which is there because how
07:03 does it work? What is the minimum guarantee that you are required to pay to the space
07:06 owner and is it linked to occupancy levels? And once you are fully occupied that centre,
07:15 what kind of rental or profit sharing happens? So we have been very fortunate to have partners
07:28 that have put their trust in us. As you mentioned 66% of the portfolio is in managed aggregation.
07:35 I think it's one of a kind which we have been able to scale at a very, very different level.
07:42 The way the model works is we essentially partner with landlords. Typically the size
07:47 of these centres on an average is about 33,000 square feet ranging from 25 to 40 odd, average
07:54 being 33. And essentially we ask the landlord to partner with us wherein he puts about 50
08:01 to 90% of the new capital towards the fit out in that centre. And essentially we request
08:09 them for an operational rent free period anywhere between 5 months to 13 months. And post that
08:16 there is a minimum guarantee that kicks in which is typically about 50% of the warm shell
08:23 rental of that specific market. And then after that minimum guarantee it's either a 70% share
08:32 back to profit share back to the landlord or minimum guarantee whichever is higher.
08:37 It is obviously occupancy linked and you know but if you look at our record in fiscal 22
08:45 any centre that we had launched within 7 and a half months achieved about 80% occupancy.
08:51 And today even at a blended level for any centre that has been operational for 12 months
08:56 or more we are at about 85% occupancy.
08:59 My final question is with respect to one of the risk factors which is there, the shareholding
09:04 or involvement of the Ranakpur family in this company. Can you give us a status of that?
09:10 How are they still shareholders or how much they are shareholders and what kind of role
09:14 they have?
09:19 So our journey has been since the last 9 years. We have had various partners and investors
09:26 that have led us through that journey and allowed us to you know essentially get to
09:31 the level that we have been. We have been very fortunate to have some of the largest
09:36 you know funds in the country supporting us. Chris Capital, Peak 15 and many large family
09:43 offices have supported us. We about a year ago went through a selective capital reduction
09:50 process and at this point there is no shareholding from the family office that you mentioned.
09:59 Thank you very much Mr. Ramani for joining us today on NATV Profit. Your IPO opens on
10:04 May 22nd priced between Rs. 364 to 383. It is a 599 crore IPO and it gives the company
10:12 a market value of roughly about Rs. 2660 crores at the upper end of the price band. Thank
10:18 you for watching Hyperdia.
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