Smartworks Coworking Spaces Ltd Q2 FY2026 Concall Summary

Key Takeaways

• Revenue up 21% YoY, churn is deliberate: Revenue grew 21% YoY and 12% QoQ, while the retention rate fell to 74% because Smartworks is voluntarily shedding low-yield COVID-era contracts and re-leasing at higher rates.
• EBITDA growing faster than revenue: Normalized EBITDA rose 46% YoY to ~Rs.70 crores with a 16.4% margin, as operating leverage from mature centers kicked in and corporate costs fell to 7.9% of revenue.
• The model is proving its capital efficiency: Annualized ROCE hit a record 14.3%, gross debt is down 45% since IPO, and management expects to fund 25-30% annual growth without additional capital.
• A landmark Mumbai campus anchors the pipeline: The 815,000 sq. ft. Eastbridge deal with Hiranandani, set for handover in Q2/Q3 FY27, already has 30-35% pipeline visibility from existing clients.
• What to watch next quarter: Whether the voluntary churn of COVID-era clients continues at a manageable pace, the ramp-up speed of 0.1 crore sq. ft. of new supply going live in H2, and the trajectory of per sq. ft. realization as occupancy builds.

The Voluntary Churn Story

• Retention drop is a pricing strategy, not a loss of clients: Retention fell from 94.5% in Q1 to 74% because two large renewals from the COVID period ended. Smartworks declined to re-sign these clients at below-market rates and has already re-leased both spaces at higher yields.
• More churn is coming, and that is the plan: Management expects this pattern to continue over the next few quarters as 4-5 year contracts signed during the first two COVID phases come up for renewal. Clients unwilling to pay current market rates will be let go, and some may be relocated to lower-cost spaces within the portfolio.
• The offset is higher realization: Blended revenue per sq. ft. rose to ~Rs.175 in Q2 FY26 from ~Rs.160-165 last year, and management expects this to keep rising as occupancy builds and market rentals flow through.

Harsh Binani: "While we do not comment on individual deals, two large renewals ended in Q2, which came from the COVID period. Both spaces have been leased at higher yields, which is largely driving this healthy churn and explains the retention."

The Eastbridge Campus & Mumbai Scale-Up

• A single-building bet that defines the large-format strategy: The 815,000 sq. ft. Eastbridge property in Vikhroli, Mumbai will host over 10,000 people daily, with CAPEX of ~Rs.110 crores and a rental cost of Rs.120 per sq. ft. Handover is expected in Q2/Q3 FY27.
• Demand visibility is already strong: 30-35% of the pipeline comes from existing customers who have told Smartworks where they want to grow next, and management expects the ramp-up to happen quickly once the center opens.
• Mumbai is scaling through campuses, not many small centers: Mumbai grew from 500,000 sq. ft. to 0.2 crore sq. ft. with just 2-3 buildings, enabled by the large-format campus strategy that also deepens BFSI penetration and headquarter conversions.

Neetish Sarda: "We are seeing a significant amount of demand coming in from our existing customers who are also willing to expand. One of the things that we mentioned earlier was that more than 30% comes from our existing client base and most of our growth is now informed by our clients coming back to us and telling us which part of the country or city are they looking at growing in."

Margin Trajectory & Operating Leverage

• EBITDA growth is outpacing revenue: Normalized EBITDA rose 46% YoY to ~Rs.70 crores, with margins expanding from 13.4% to 16.4% YoY, driven by mature centers reaching high occupancy and corporate costs declining as a share of revenue.
• Corporate costs are structurally declining: Corporate costs fell from 13.8% of revenue in 2022 to 7.9% in H1 FY26, and brokerage dropped to 2.4% of lease revenue as brand visibility shortened sales cycles.
• The 1.2 crore sq. ft. inflection point: Management expects that once the portfolio hits 1.2 crore sq. ft. in about 18 months, both corporate and brokerage costs will fall further as a percentage of revenue, enabling additional margin expansion.
• Center-level economics show the mix effect: Blended center-level EBITDA margins are 26-30%, dragged down by immature centers that take 8-12 months to break even at ~60% occupancy. Mature centers are at 88% occupancy with 93% committed, and H2 FY26 should see margin expansion as 0.14 crore sq. ft. of current capacity matures.

Harsh Binani: "We expect that once the company hits the critical scale of 1.2 crore square feet, which is going to happen in a year and a half from now, post-IPO both on our corporate cost as well as brokerage cost, both of which will reduce as a percentage of our revenue and also enable us to expand our margin."

The Asset-Light, Self-Funding Engine

• CAPEX is a fraction of building cost: Smartworks spends only Rs.1,350 per sq. ft. on interiors, a fraction of what owning the building would cost. Pre-IPO, only Rs.500 crores of equity was raised to build a business generating Rs.1,370+ crores in revenue.
• Cash flow timing is structured to minimize strain: Security deposits to landlords are paid 2-3 months before handover, while customer security deposits arrive 3-4 months before handover, often offsetting or topping up the outflow. ~50% of CAPEX is deployed in the first 4 months on common areas and pre-committed space, with the rest spent only after client commitments are secured.
• The model is approaching self-sustainability: Management expects to transition to a self-sustaining CAPEX model that funds 25-30% annual growth without any additional funding, supported by a two-notch credit rating upgrade to A Stable from CareEdge.
• OCF was temporarily impacted by security deposit outflows for new capacity that will become operational in FY27, not by operational weakness.

Neetish Sarda: "Asset light, we mean, sir, that because we are not going ahead and buying these buildings, the capital which is required to be invested on CAPEX is only Rs.1,350 per sq. ft. CAPEX that we typically do to build out the interiors of the office spaces. That is only a fraction of the cost of the building."

Diversification & the GCC Opportunity

• IT/ITES mix is deliberately shrinking: IT/ITES declined from 42% to 40% of the portfolio as Smartworks diversified into consumer, healthcare and manufacturing, which now account for over 60% of demand. GCCs are also growing as a share.
• SmartVantage targets the GCC pipeline directly: The newly launched GCC enablement platform bundles workspace with staffing, legal, tax, compliance and onboarding through partner tie-ups. GCC rental revenue currently at 15% is expected to double in the next couple of years.
• Other revenue is scaling fast: Other revenue doubled QoQ, driven by FAS services (~Rs.20 crores) and ancillary services (~Rs.25 crores), and management says these numbers are sustainable and expected to expand further.
• Institutional landlords are offering entire buildings: Institutional partnerships rose from 18% to 24% of the portfolio as brand visibility improved, with large developers now offering entire buildings rather than single floors.

Demand Environment & Supply Dynamics

• Large campuses are winning because of value pricing, not just flexibility: Smartworks has multiple operational campuses of 650,000+ sq. ft. with 90%+ occupancy where 10,000+ people work daily. Tenants are not using flex space as a temporary option but as a long-term solution for the ecosystem and pricing.
• Supply is not a constraint for the large-format strategy: Mature cities like Mumbai and Gurgaon have supply constraints but strong demand, while developing cities like Pune, Hyderabad, Bangalore, Noida and Chennai have more available supply. Smartworks tracks multiple assets across all nine tier-one cities.
• Industry absorption remains strong but data is patchy: Management cited industry estimates of 1.5 to 1.8 crore sq. ft. of new flex space absorption expected annually through FY28, with flex taking 20-25% of overall office leasing. When pressed for specific H1 FY26 industry numbers, management did not provide them and said published data was not yet available.
• Blended occupancy is lower on a larger denominator: The 81% blended occupancy reflects significant capacity addition. Mature centers are at 88% with 93% committed occupancy, and overall committed occupancy is 87%-plus, providing visibility into future revenue.

Neetish Sarda: "So when a customer comes and they take space in this building, they are not just looking at flexibility, they are looking at for the value pricing in terms..."

Guidance & Commitments

Key Metrics