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Nukleus Office Solutions

• Nukleus Office Solutions is coming out with an initial public offering (IPO) of 13,54,800 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 234 per equity share.
• The issue will open on February 24, 2025 and will close on February 27, 2025.
• The shares will be listed on SME Platform of BSE.
• The share is priced 23.40 times higher to its face value of Rs 10. 
• Book running lead manager to the issue is Sundae Capital Advisors.
• Compliance Officer for the issue is Pooja Jaiswal.

Profile of the company

Nukleus Office Solutions is co-working and managed office space provider which provides range of fully furnished, flexible workspaces, dedicated desks, private cabins, meeting rooms, innovative spaces, startup zones, virtual office etc. in Delhi NCR region. Its range of office solutions cater to diverse range of occupants including startups, SMEs, large enterprises, professionals, and entrepreneurs. It also offers fully serviced and managed workspace solution for enterprises ranging from 50-500 seats. As of December 31, 2024, it has 7 centres with flexible workspaces and also manages 4 Managed Offices in Delhi NCR region with an aggregate of 2,796 total seats operating with occupancy of 88.48%.

The company was founded by Nipun Gupta, who has 25 years of experience in the real estate industry. Since its establishment in 2019, it has steadily grown by opening new centres and providing a wider range of managed office solutions. Its commitment aims to provide quality services and meet the evolving needs of its clients. It remains dedicated to its journey of growth and serving its clients with improving work environment with technological developments happening in the industry. By strategically locating co-working spaces, it ensures easy commuting and comfort for its clients while also being economical at the same time.

Proceed is being used for:

• Capital expenditure and security deposit towards establishment of new centres
• Building up technology platform, integration of all centres, online client interaction and mobile application
• Advertisement expenses towards enhancing the visibility of its brand
• General corporate purposes

Industry Overview

The Indian real estate sector is one of the most globally recognized sectors. In the country, it is the second largest private sector employer after agriculture. It comprises of 2 subcategories - housing and commercial. The commercial segment typically consists of office, retail, and hospitality spaces. The growth of the commercial real estate sector has been contributed to by an increase in office spaces due to growth of the corporate environment and the demand for workplaces, increase in malls and shopping centers due to growth in the middle-income population, increase in hospitality options due to growth in different formats of urban and semi-urban accommodation options.

The total office space stock in India grew by 48.15% between 2016 and 2023, reflecting a steady increase in office space availability over the past eight years. The highest growth rate was recorded in 2019 at 8.83%, potentially due to factors like a booming economy and strong demand for office space. The year 2020 witnessed the lowest growth rate at 4.70%, which can likely be attributed to the COVID-19 pandemic that disrupted economic activity and led to a shift towards remote work arrangements. On average, office space stock has increased by 5.78% annually over this period. This indicates a consistent rise in demand for office space, potentially driven by factors like economic expansion and increasing urbanization. Interestingly, the latest growth rate in 2023 (4.88%) is slightly lower compared to the average annual growth. The growing acceptance of hybrid work arrangements, where employees split their work time between home and office, could potentially lead to a reduced need for traditional office space requirements coupled with shifting interest of developers in residential market due to booming opportunities in this sector.

While the tech sector has historically dominated seat take-up by enterprises, its share has dipped significantly in the past two financial years (FY22 & FY23) when compared to FY21. Indian startups have emerged as a powerful force in the flexible workspace market. Their share has skyrocketed, becoming the second highest for the last two financial years, reaching a peak of 31% in FY23. Meanwhile, the Indian flexible workspace market is on a robust growth trajectory, fuelled by a confluence of factors. The rising popularity of hybrid work models, evolving employee preferences, the growth of startups and SMEs, diversification of demand across industries, expansion beyond metro cities, and the continuous integration of technology and amenities will all contribute to this positive outlook. With a projected market size of 106.0 million sq ft by 2027, flexible workspaces are poised to become an even more dominant and integral part of India's commercial real estate landscape.

Pros and strengths

Strategic location advantage in the national capital region: Nukleus is strategically situated in key locations across Delhi (including business centres like Saket and Connaught Place), Noida, and Gurugram, placing it at the center of the National Capital Region. Its fully diverse, furnished, technology enabled and managed virtual and co-working spaces create a hassle-free experience for managements and businesses looking to establish and expand their office spaces in key locations in Delhi NCR. It ensures that it leases such areas and properties in the Delhi NCR which provide its clients a cost-efficient space in the heart of business and financials hubs in the region.

Customisable workspace along with flexible membership options: Flexible membership options and customizable workspace layouts enable businesses to adapt to changing business requirements, reducing capital and operational costs while increasing mobility and decision-making speed. Its cost-effective and scalable methodology optimizes development potential while also promoting employee satisfaction and productivity.

Hybrid model catering to diverse demand: Its hybrid model offers freelancers, startups, MSMEs and other institutions a solution to opt for shared spaces, private spaces or a hybrid model of both. It also provides options to customise the management and other facilities provided by the company to further help its clients customise a package that works well for their specific needs. This flexibility allows for customisation and brings down the cost of the co-working and managed space for its clients. This again helps them engage with various businesses and professionals providing great opportunities for growth and expansion for them as well as the company.

Risks and concerns

Maximum revenue comes from limited customers: The company’s co-working business heavily relies on a few key clients. The company has garnered 55.19%, 72.31% and 56.08% of its total revenue from top 10 customers in FY24, FY23 and FY22 respectively. The company’s business from customers is dependent on its continuing relationship with such customers, the high quality of its fully serviced and managed workspace solution, interiors, competitive pricing and its ability to meeting the evolving needs of its client and there can be no assurance that such customers will continue to do business with it in the future on commercially acceptable terms or at all.

Geographical constrain: Complete portion of its revenue from operations, i.e 100%, is derived from its centres from Delhi NCR. Any decrease in revenue from Delhi NCR, whether due to increased competition from the established players, decreased demand, or its inability to extend or renew existing contracts at commercially viable terms, may have an adverse effect on its business, cash flows, operating results, and financial condition. Further, any significant disruption, including due to social, political or economic factors or natural calamities or civil disruptions, impacting these geographical regions may adversely affect its business. Additionally, changes in the policies of the state or local governments of these regions may require it to change its business strategy. It cannot assure that it will be able to address its reliance on these few geographical regions, in the future.

Co-working spaces are not fully occupied: As of December 31, 2024, the company has 7 centres with flexible workspaces and also 4 Managed Offices in Delhi NCR region with an aggregate of 2,796 total seats. When an agreement with its client terminates, it may not be able to immediately find a new customer for the number of seats which were occupied with the previous client and in such situation its average occupancy may decrease till such space is re-occupied by some new client. Such reduced occupancy may impair its ability to fully absorb fixed costs during such period. Vacant seats pose risks such as lost revenue, higher per-unit costs, and operational inefficiency. Low occupancy may also damage its reputation, make it harder to attract clients and secure funding, and strain its cash flow. There is no assurance that there will be an increase in capacity utilization in the future or wherever it plans to expand its operations in new markets. If it is unable to fully utilize its co-working spaces, this could affect its costs and profitability and thereby adversely affect the financial condition of the company.

Outlook

Nukleus Office Solutions offers co-working and managed office spaces in Delhi NCR, featuring furnished and flexible workspaces like dedicated desks, private cabins, meeting rooms, startup zones, and virtual offices. The company offers various office solutions for startups, SMEs, large enterprises, professionals, and entrepreneurs. The company has efficient management, flexibility, and high-quality service create a proven record for managing co-working and office spaces effectively. On the concern side, the company’s co-working spaces are not fully occupied, which could make it difficult for it to cover its fixed costs. The company has presence only in the Delhi NCR region and 100% of its revenue from operations is earned from such centre. Any adverse developments affecting such region could have an adverse effect on its business, cash flows, results of operation and financial condition.

The company is coming out with an IPO of 13,54,800 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 234 per equity share to mobilize Rs 31.70 crore. On performance front, the company’s total revenue increased by 57.50% to Rs 1716.41 lakh for the Fiscal 2024 from Rs 1089.76 lakh for the Fiscal 2023 primarily due to expansion of the operations of the company. The company recorded a profit after tax of Rs 119.72 lakh in Fiscal 2024 compared to Rs 67.27 lakh in Fiscal 2023.

A hybrid model involves fluctuating demand due to remote work, so it’s important to ensure that office spaces are fully utilized when needed. Offering flexible options like hot-desking, part-time memberships, or pay-as-you-go services maximizes occupancy without over-committing resources. The hybrid model allows clients to avoid capital being tied up in non-core activities like cleaning, catering, or IT support and focus more on their business needs. For the company, it allows it to have fewer staff on-site at any given time with backend support from automate administrative tasks like booking management or check-ins to reduce staffing costs without compromising the quality of service. This allows the company to deploy those funds in a more productive and efficient manner elsewhere in its business operations.