Buy EFC Ltd For Target Rs.275 by Choice Institutional Equities Ltd
Execution Momentum Continues across Business Verticals
EFCIL reported a strong YoY growth in its office leasing, design & build (D&B) and furniture manufacturing businesses. Office leasing remains a strong vertical, supported by a stable annuity income, a healthy occupancy level, and long-term customer relationships. EFCIL added 5,605 seats in the quarter with stable occupancy rate of ~90% and retention rate of ~95%. The D&B segment continued to witness healthy demand, with an order book of over INR 2,280 Mn and execution across 5.91 msf. The furniture manufacturing segment recorded its highest quarterly revenue and a sharp YoY growth on a low base. The robust performance underscores the effectiveness of EFCIL’s integrated workspace solutions model, with increasing cross-synergies across its three verticals.
We continue to be constructive on EFCIL owing to :
1) Seat addition of 18k/15k/15k projected for FY27E/28E/29E, respectively, ultimately taking the total seats under management to 127k by FY29E.
2) Revenue from the D&B segment is expected to expand at a 39% CAGR over FY26–29E with EBITDA margin of 20%. The Furniture vertical is anticipated to deliver a 41% CAGR over the same period with EBITDA margin of 25%.
3) We forecast EFCIL’s consolidated EBITDA to expand at a CAGR of 27% over FY26–29E, supported by our assumptions as discussed above.
Valuation:
We maintain our ‘BUY’ rating on EFCIL with an unchanged target price of INR 275/share. We value the company at 9x FY28E EV/Adjusted EBITDA, supported by its strong earnings visibility, a scalable integrated workspace platform, an improving operating leverage and a healthy margin profile.
Risks: Possible general slowdown in the domestic economy, dwindling of startup funding, chances of abating of offshoring/GCC trend and probable predatory pricing by larger competitors.
Q1FY27: Strong Rental Growth Drives Overall Performance
* EFC(I) added 5,605 seats, taking the total count to 84,387 by end of Q1FY27
* EFCIL reported revenues from operations at INR 2,829 Mn, up 28.8% YoY and down 3.4% QoQ
* EBITDA (excluding OI) was reported at INR 1,230 Mn, up 20.3% YoY and down 14.4% QoQ. EBITDA margin came in at 43.5%, down 309 bps and 555 bps YoY and QoQ, respectively
* RPAT came in at INR 709 Mn, up 51.8% and 2.9% YoY and QoQ, respectively. RPAT margin came in at 24.1%, up 317 bps and 91 bps YoY and QoQ, respectively
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