Buy Awfis Space Solutions Ltd For Target Rs.750 By Choice Broking Ltd
Stock Price Correction Makes AWFIS Attractive Again!
Ever since we downgraded AWFIS from BUY to ADD (in our Q4 results update) and lowered our target price (TP) from INR 860 to INR 750, the stock has corrected by 10%. We reviewed our thesis, financials and valuation post Q1FY26 results and continue to maintain our TP of INR 750/sh, implying an upside of 30%. Hence, we upgrade AWFIS to BUY.
Despite factoring in slower growth in seat addition than previous years (FY25- 28E CAGR of 12% vs FY22- FY25 of 43%), we forecast EBITDA CAGR of 17% over the period. There is a long tail of competitors, (WeWork India, Smartworks, Indiqube, Tablespace, EFC(I), Redbricks, BHIVE, etc.) in the organised and unorganised segment which could compete aggressively with AWFIS. The structural growth in the managed office space sector and AWFIS’s established presence over the years as a reliable and premium provider are sufficient reasons for AWFIS’s right to maintain market share. We expect contribution margins to increase marginally owing to operating leverage benefit, premiumization and value-added services, etc
Valuation: We incorporate an EV/Adjusted EBITDA framework where the adjusted EBITDA is IGAAP based. We value the stock at 1-year forward EV/Adjusted EBITDA multiple of 16x, which translates into a target price of INR 750 per share, implying an upside of 30%, with a BUY rating on the stock.
Risks: Slowing demand from GCC and startups, decrease in blended occupancy levels and intensified competition from peers are risks to our ADD rating.
Q1FY26 Review: Results in line with optimistic expectations
* Revenue for Q1FY26 was reported at INR 3,347Mn, up 30% YoY and down 1% QoQ vs CIE estimates at INR 3,362Mn.
* EBITDA (excluding OI) for Q1FY26 was reported at INR 1,265Mn, up 60% YoY and 8% QoQ vs CIE estimates at INR 1,150Mn.
* IGAAP-adjusted EBITDA for Q1FY26 was INR 480Mn, up 60% YoY and flat QoQ. IGAAP-adjusted EBITDA Margin came in at 14.5% vs 11.5% in Q1FY25 and 14.2% in Q4FY25.
* In Q1FY26, Total seats (Operational + Fitout) stood at 1,55,490 vs 1,52,575 in Q4FY25 and Total Operational Seats increased 4% QoQ and 39% YoY.
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