EFC - Entrepreneurial Facilitation Centre

[manhar]

EFC (I) Ltd is in the business of providing office space solutions like Co-working Spaces, Enterprise Offices, Asset Renting, Turnkey Projects & provides complete Fit Out Solutions via its subsidiary Whitehills Design Ltd. EFC Ltd was started in 2012 by Mr Umesh Sahay and Mr Abhishek Narbaria, both first generation entrepreneurs on a remarkable journey in a capital-intensive industry, starting with virtually no capita

EFC (l) is the holding company of EFC limited. Mr Umesh Sahay and Mr Abhishek Narbaria bought controlling stake in Amani Trading and Exports Ltd and converted it into EFC (l) ltd then EFC (l) bought 100% stake in EFC limited which is into business since 2012

Having about 23000 seats spread across 1 million sq feet by FY23 end and about 32000 seats over 1.5 million sp feet by october 2023.

About Umesh Ji

1 Started doing business from the age of 21yrs. His father was an engineer and Umeshi Ji did his MBA from Pune.

2 Started his first business maverick software pvt ltd in 2006 with his cofounder. They used to provide the entire IT infrastructure and made one of the most advanced CMR software and sold that business in 2010.

3 With that money they started EFC and since then have been raising money on merit and this is how they funded their business with a lot of struggle and working on all level of roles.

Few Quote by umesh ji

1. Business asa karo jis mai catchment hau
2. Shopper stop mai cycle wala nahi jayega par Dmart mai Mercedes wala jata hai. Dono retail mai hai aur hum is dhandhe ke Dmart hai, cycle wale se lekar marcedes wala sab ate hai
3. Promoter pe hai usko apni jindagi kitni mushkil karne hai. Dhande ko asa karo jo apke control mai hai
4. Ye industry furniture ko rent pe dene ka hai

EFC limited financials

There are three main players 1 Owner(who owns the space) 2.Operator(EFC) and 3.Client

Different type of business model in the Flex space

1. Coworking- Under this the operator takes large space on lease, does the interior and rents to different people (individuals/entities) can come and work in the same place. Out of the entire seating capacity in PAN india there are very few seats available for individuals.

You can rent seats here even for 1 day, this is a volatile model as you have to maintain the occupancy level.

2. Managed office - This is like a hotel business where one office space is rented out to a cluster of clients. Like you can have 10 clients for 100 seats or 2 for 500 as well.

You can also have 2 formats here one is large format where in the entire office space you make larger sub sections like 100+ section only and short format where you can make smaller subsections like under 50.

Since EFC operates in large format they end up dealing with lesser clients, Which leads to less operational intensive and their occupancy hits 90% within 2 to 3 months once the site is live and their rental contracts is minimum 3 to 5 yrs unlike 18 months for other players

EFC would take 2-3 months for 90% occupancy post launch and this is how others build occupancy

EFC has clients majorly with more than 100 seats and for context tenure would look like this - From AWFIS rhp

So the industry has 70% of their clients under 100 seats and EFC has 70% of clients with more than 100 seats. This make EFC business rock solid and volatile for others because of smaller clients

Within the above 2 models there are 2 more ways to operate one is SL(Fixed lease) and second is MA(Profit sharing).

1. SL - In this I take the property on Fixed lease form the builder and the operator is the one to gain the most and lose the most. This is done by operators who have confidence in their business and their capability of getting the occupancy to 90%+ because any operator who has the confidence would not do revenue sharing. EFC has 100% of its properties under SL model

2. MA - Under this model you do revenue sharing with the builder, he is now part of your profits and losses. This is done by operators with not so much control on their business and who lack confidence on getting occupancy hece they want to play it safe. AWFIS is aggressively increasing under the MA model

Indistary size and growth for perspective

.India’s Grade A CRE market today is close to 810 Mn sqft, adding roughly around 50 Mn sqft new office space every year. Grade A CRE market to scale up to ~1,060 Mn sqft by CY28

India’s flex workspace sector is around 61 Mn sqft (expected by CY23-end), corresponding to ~7% of the total Grade A office stock in India – largest in APAC, and the penetration rate being larger than that of the US as well. Approx 680000-880000 seats

It is expected to grow at CAGR of ~15% over the next 5 years to become ~126 Mn sqft by 2028, from ~61 Mn sqft in CY23. From a value perspective, India would be addressing ~USD 9.0 Bn market by 2028, growing at a CAGR of ~21% from ~USD 3.5 Bn currently

Approximately 26% of the total commercial organized stock in India are institutionally held (REITS) as on June 30, 2023. Further, approximately 74% of the total commercial organized stock in India is non-institutionally owned stock as on June 30, 2023

The demand for seats in flexible workspaces has been growing annually at 30%-40% from 2019-2021. From approximately 59,000 – 69,000 seats per year in 2019 to approximately 167,000 – 177,000 seats per year in 2022 and expected to reach 335,000 – 345,000 seat per year by 2026.

Above are cut outs from various sources, EFC having around 33k seats and 1.5 million sq of area gives us a good context of their size in the market and growth prospects.

Different players in the industry

We work financials

AWFIS financials

Most of the larger competitors of EFC have been burning cash in their quest for scale. Among the players that have raised external equity none are profit making. EFC is the one with the highest PAT margins among a handful of profitable companies.

What is EFC doing differently?

1. EFC is a fully integrated player with 51% stake in Whitehill’s Interiors Ltd. They have their own in-house design and architecture team. They also make their own furniture which is about 20% of capex. Having your inhouse team decreases the turnaround time for interiors like EFC just takes 2 to 3 months to do the interior of a bare shell and 4 to 6 months for 90% + occupancy

2. More than 75% of their business is from managed offices, this is a low asset liability mismatch and higher occupancy business. 100+ seats are generally enterprise clients and below is the industry breakup. (In industry people say more than 12 months contract as enterprise client by that way he is 95% enterprise otherwise on 5yrs he is 70 to 75%

Industry standard is 70% less than 100 seats and EFC is 70% more than 100 seats. When you have a higher number of clients your center size decreases and the number of centers increases which makes your business more complicated and operationally intensive. AWFIS employee cost as a % of revenue is 15% to 17% where as for EFC it is 2% to 3% we can see a huge difference here.

3. Being a professional company by being VC funded and having a foreign CEO with 5yrs tenure leads to no skin in the game and leads to the company being run from the boardroom. This also leads to having a large corporate hierarchy which in turn reduces flexibility and increases decision making and you end up having lesser relationships and try to fund your inefficiency from your broker and clients. Example

a) EFC would give their client 20hrs of free usage of the board room. AWFIS 60k per month for 6 seats
b) When you make an office space you make it based on speculation.Lets say 200 seats and your client needs 100 seats with 2 cabins. EFC having an in-house team and an accessible warehouse with all the material stocked they just need to put a wall in btw, fit AC and dismantle/rebuild the cabin and they do it free of cost. Majority of players charge for it because it is outsourced and they end up taking more time
c) EFC does not charge for longer sitting time, no charge from parking, no charge for working on saturdays. Since EFC takes entire buildings also they end up having ample parking and most of the clients come to then just because they have parking, free wifi. Other charge for everything mentioned above like in AWFIS you useWifi through their app and they charge after certain data usage, they keep a tab on their App. They have an app based system to track everything.
d). Other companies end up taking longer rent free period because their Fit outs process is slow whereas EFC takes for 5 to 6 months this also increases their ability to acquire properties from brokers
e) Having your own interior team helps in economy of scale. You start manufacturing furniture in bulk, you buy AC in bulk like EFC buys at 20-25% discount and if you are left with some you sell it to sub vendors at 5% to 10% discount and still end up making 10% on it. Like in Q3FY24 they make 9cr PBIT on 40cr trading.
f) During covid EFC used to share his entire cost with clients they became extremely transparent like lift was not working so common maintenance reduced, electricity, water, internet everything was discounted and passed on to the client and with that they used to pay their lease. This is the emotion /relationship /flexibility they offer.
g) If I have 100 sq of carpet area and out of which 20sq is common area with 10 seats. My per seat area is 8sq and blended is 10sp. This means higher common area and inefficient seating capacity would lead to higher sq per seat. EFC has one of the lowest area per seat in the industry

If you make money and create value you can share it in the ecosystem but if you are loss making you fund it from the ecosystem

EFC also turns out to be 20% to 25% cheaper than most of its competitors. So one of the lowes cost provider with highest margin

Most of them chasing top line with ton of money and not caring about occupancy and making it too lavish

What does the client want/looks at

1. This is not a brand or a cost based industary, relationship and accessibility is what this industry is about. Location is the most important thing here so your ability to bargain with a broker and access to all location is what gets you clients
2. Turnaround time plays a huge role here for the broker (will have to give a lesser rent free period) and client. Having an inhouse team gives you an edge
3. Quality of fitment, design and flexibility of the operator also plays a huge role
4. Having good parking space also plays a role here

What is driving the demand in this industry

1. Taking up space from a flex workspace operator can lead to 20%-25% cost savings for the occupier, as compared to traditional leasing. Some of this cost saving is passed on to landlord who ends up with more yeild

2. If I have a large space I will have to rent it out to multiple clients and deal with multiple clients but if I give it for co working then I will have to deal with one

3. Selling an empty property is difficult from selling an occupied one the saleability increases for the landlord when the coworking starts

4. Grade B property in pune rental yield commercial is 5% but when coworking comes into play it becomes 8% (source ppafs)

5. There are no operational hassle like cleanliness, security, repair and they will also give free tea and coffee

6. Flex space acts as a hedge against head count uncertainty, where companies avoid committing to fixed location and high upfront cost. It also give flexibility to startups to upscale and downscale their team as and when required

2008 kind of recession is possible but covid like situation is one time. Any kind of 2008 recession forces large corporations to not own office space and rather rent it in a flexible way which actually increases demand for flex. WE WORK USA was born after the 2008 recession

Covid also accelerated the demand for flex space. So head count decreasing can be an opportunity to move more towards flex

https://www.youtube.com/watch?v=QP20QMad1eE (definitely see the entire video but check out from 3 minute now)

7. Start up driving the demand. WIthing startups the share of GIC & Foreign company is 40%

8. GCC being one of the biggest driver of demand in this industry

With India having cheap labor and lower rent, global companies coming here and setting up their office is one of the biggest drivers of demand in the flex market.

IT companies have nothing to do with this industry. There is no software company who would do flex working because they get state sponsored infra . Since they generate employment they have government schemes which help them get land at peanut rates so it would never make sense for them to do managed office. It is only ITES who drive this industry. So slow down in TCS/INFY have 0 impact because they are not the clients.

They can only give Fitout work which EFC already gets

New model which EFC is entering

EFC now wants to own property instead of taking it on lease and they are going to do that in multiple ways

1. They would be creating REIT to operate in the flex space. So the operator would be raising money from investors for the REIT and that REIT would buy office space and give it on rent. The yield is now passed on to the investors and the REIT operator takes their fees/cut.
2. They would start owning properties by taking debt . So instead of paying lease I am paying fixed EMI every month and after the tenue I own the property 100%
3. They would also raise money in AIF and start buying the property and operating

This model leads to no equity dilution and cutting off the landlord from the picture because you are buying the property and also reduces the asset liability mismatch.

What happens in a 2008 kind of situation

If you own a property via debt it is the same as taking it on lease as you have a fixed contractual obligation but with owning via debt as the year passes my interest and principal repayment reduces and during a down cycle I can sell my property at huge discount and exit the debt.

Let’s say I have a 10yrs repayment and a crisis occurs in year 5. So by this time my property has x amount of appreciation so now the devaluing happens from the appreciated price + half of my principal is paid so I have to sell my property at 20% to 40% kind of value to exit my debt. But as an opertor If I already own huge amount of property during down cycle I can take loan against them and buy properties at deep discount.

EFC is making their business so diversified and with economies of scale their purchasing power in each vertical would increase so much that their cash position relative to the entire industry would be extremely strong during such down time. Like they do furniture, interior, REIT, AIF etc etc.

Since the number of clients with more than 100 seats is high for EFC they would be the last one to be impacted in such a crisis. So companies like Awfis would have to consolidate and EFC would expand. This is exactly what they did in covid and they were one of the largest buyer in Flex industry during covid

Valuations

Very subjective and a lot of assumptions here, can be 100% wrong but once I get more clarity can update this. But as of now it looks like this

Cash Flows

Their receivables have gone up by 10x this year but this is primarily because of the huge amount of interior and trading in Q3FY24. Almost 100cr

Interior business is such that by the end of the quarter if I complete 50% of the work I would recognise the revenue but I might get the payment after the entire work and trading is them selling AC and furniture to sub vendors. All are under 6 to 8 months and should clear off by next qtr

Why Negative Cash Flows ?

I am growing at 100% so the moment I get cash I need to put it in working capital. If I slow down I would be flushed with cash. Let us understand where cash is going

1. If I want a building today I need to block it 12 months prior. It is like reserving a hotel
2. The longer the rent free period the higher the Minimum guarantee, need to pay this to builder
3. When you are making a new building large infra despite it being rent free you have to do a lot of work like cabeling/infra. Like if the building is 15yrs old you have to change the entire urinal line as it can choke, u need to check density all these expense are there
4. When I come live it still takes time to build on the occupancy an meanwhile I have to pay the entire common area maintenance, electricity etc etc

Majority of cash goes through other financial asset/ other asset. Except receivable if cash is flowing to other section they are not a big concern imo

Major cash goes into other deposits/advances so we need to understand where the clash is flowing out and in this case we know it is purely for expansion. Receivables is a concern but now we understand what exactly it is

New developments

1. They are coming up with a 3 acre furniture factory in navi mumbai with all german machines
2. He would make furniture here and sell it to middle class consumers and coworking space
3. They are going to come here in a big way

This would be 100% owned by EFC and in my valuation report the revenue form here is not included

EFC Clients

RISK

1. Industry is Cyclical and commodity type only if you understand the business and are present in the entire value change with enough diversification you can minimize the impact
2. Lot of new players are entering. This can increase the competition and there can be a possibility of supply exceeding demand leading to lower occupancy.
3. Any further equity dilution can reduce the skin in the game for the promoter
4. High growth funded by debt can be a huge risk if things go terribly wrong and you end up with negative cash flows
5. There is an asset liability mismatch in this industry. If you cannot fill up your space then you end up paying lease and earn nothing

One of EFC office space in feb 2024 with 1400 seats, entire building leased out with 200+ parking

As on 08/06/2024 within 4 months with 300+ seats booked

EDIT
EFC is guiding for 800cr to 900cr revenue for next year with 130cr to 150cr PAT. They are also saying that the new factory would generate 300 to 400cr of revenue and going forward they expect huge amount of interior work as well

Link - [Video] ET Now Swadesh on LinkedIn: #corporateconnection

Source

Flex Workspaces_ A USD 9 Bn Market Opportunity By 2028_compressed.pdf (6.0 MB)
Profit Mart sees 58 UPSIDE in EFC Limited_compressed.pdf (631.2 KB)
Awfis-Space-Solutions-IPO-Note-Axis-Capital_compressed.pdf (548.7 KB)

1. AWFIS DRHP
2. EFC annual report
3. https://www.youtube.com/watch?v=-xJlmIdUYEg
4. https://www.youtube.com/watch?v=vfqgWB6km5g
5. EFC takes 3.6 lakh sq ft office space in Pune, Noida to expand its coworking business | Zee Business

Special thnx to sahil sir and nikhil bahi

Disclaimer - Invested and my views can be biased

[Tanishqpomal]

Dear investors, I hope you are all doing well with your research.

Can anyone explain why the promoter’s holdings keep decreasing quarter over quarter? Please provide some insight.

[Dhruv_Bajaj]

Promoters Haven’t sold any shares…they have raised funds to the tune of 240 Crs from investors like Zerodha, Samit vartak (Sageone) & other marquee investors for funding the growth prospects (this is common for a reverse merger case & should be looked similar to a promoter’s shareholding reducing post IPO)
Therefore shareholding has reduced.

[manhar]

Q4FY24 con call notes

1. They are targeting 92k seats by march 2026

2. Closed single largest Contract with Co-Forge for developing 100,000 sq. ft. of commercial space

3. They are the preferred vendor for large organisations, delivering successfully on a timely basis like TCS, coforge.

4. Furniture factory would be fully operational in FY 25

5. They are present in 7 cities with 50 centres with about 1.9million sq area

6. The Idea behind AIF/REIT is they need to go and control Real estate assets . They are operating and want to continue with asset light but when it comes to creation of assets, they want to own it through fund, they will be the sponsor. They want to acquire those asset and manage those properties in an efficient manner and offer good returns to investors. The standard yield is 7-8%, but when you convert to a managed office, you are likely to earn much better returns. They would be chagrin some fees here for the management and that would flow to bottom line directly

7. This year they did 263cr form rental , 46cr from furniture and balance form D&B segment

8. We are looking at SPV to partipciate in strategic investments, we see in market we get lot of opportunities development of IT parks, development of A grade properties, we want to block these properties for our management, we want to ensure we manage by the time they come up for management or fully furnishes. This would be funded from internal accruals

9. Margin profile 2-3 years :
   Furniture : margin will be 40% EBITDA
   Rental : Margin : 30-35% EBITDA, average post occupancy
   Design and build, whitewalls : EBITDA and PAT more or less same, except receivables, no investment on capex side, 16-17%
   Blended level PAT for FY24 : 15% and going forward 15% to 20% because of furniture business which has higher margins

10 Furniture start in Q2. Structure is ready, machinery are ordered, will be installed in this month, we are expecting it to go live in Q2. They are expecting it to go live in Q2 and don’t need to find market for this as they are planning to add about 15k seating capacity in H1FY25 so lot of that is going to go into captive use. Planning to achieve substantial turnover this year itself

11 Receivable cycle for Whitehill’s and Furniture is 90-120 days, ideally they try for 60 days, but end of it, it goes to 90-120

When they work with TCS, coforge, they ask for retention money, for safety, they would like to ensure, certain amount of money, blocks working capital. With regards to Co-working there is a 30 days pay gap and it is pretty much on time and within 30 days, they receive every payments, who are under managed office space.

12 By September they would touch : 50k-55k
By march 2025 : 65k seats

13 They generally take 3months to get occupancy once the property is live and 4 to 6 months from development stage

14 Under whitehills, apart from commercial spaces they develop RD center, Research labs, healthcare centers etc

15 They want to establish as integrated player, RAAS, they don’t want to be known as managed office player only

16 Top clients Contribute 80% of their total revenue with contract duration of 3yrs locking and 5 yrs contract and balance 20% comes from 12 to 24 months kind of clients

17 For Special clients the contract is for 6-8 years, they are in industry for more than 10 years, there are clients who are with them for such long periods, they have so much confidence in them

17 Their major clients in Managed office are Bajaj finance, eureka, tech Mahindra

18 Q4 occupancy was more than 90% and for FY24 88-90%. generally on an average they are more than 90%

19 Their capex cost is less than peers because oof the huge purchasing capacity and sourcing is one of the key factors maintaining cost

Over 10 years, they have been doing this, developing their own center without using 3rd party contractors, in this process they have developed efficiency levels, whether it is creating internet connectivity, we have efficiency across

20 Weighted average duration with landlords : state of Maharashtra if more than 5 years, it gets converted into Lease and they have to pay large Stamp duty. So in Maharashtra it is 5 years and it gest renewed every 5yrs. Other than MH it is 7-9 yrs

21 Capacity operational : ready and given for working
Billed seats : billing to customers and getting revenue
Capacity development - Capacity operational : seats under development

23 Revenue from managed office space will reduce as % of sales. In managed office space, incremental revenue is matter of adding more and more seats. Ideally they would like to achieve good mix.

24 Whitehills infinite growth possible, can do big contracts as long as the market grows. In
Whitehills they signed contracts worth 132 crores includes co-forge, TCS, yes works and 60cr of contract is under negation so 200 crores business fy25. Out of which 132 crores in Q1. Q2

25 Capacity of 300-400 crores for new furniture factory. Will achieve 50% utilization is FY25

26 Last year they did testing of their products like buying from direct manufacturers and trading they did to understand furniture market and create a network of potential buyers, potential raw material, 46 crores trading revenue in FY24 to establish ourselves

27 They are looking at B2B and B2C, primary in B2B market

28 They spend 50k per seat on capex with 60% of it being furniture cost

29 In AIF they are the sponsor and 2% is commitment which is required for sponsor.

30 Listing on nse in this FY

[Darshan_Gala]

concall notes:
They have presence in 7 cities having 35 centers
They offer end to end solutions

Whiteless interiors and dnb vertical offer interior designs and commercial space furnishing solutions
Backed by strong supply chain

Total asset under management was 1.9million sqt

The total seating capacity 40k
Avg per seat rental =6250rs

The BND VERTICAL CLOSED a single largest contract with coforge for developing 1lakh sq feet of commericial space in fy23-24

By march 2026 want to take seats to 92k

India ranks 2nd largest coworking market in the world

Estimiated 60million sq ft of flexible office stalk available

In 2023 office coworking space had 20% of the total office space

Strategically diversified into intetrior fit out and furniture manufacturing biz
This will not only broaden their operations but integrate their operations

Their interior fit out division give customised designs and solutionns to client
Nd their furniture manufacturering gives modern space office furniture

Manufacturing will be commissioned 2025
Their interior fitting is already seeing an upward trend

They have already become a preferred vendor to many large organisations
Tcs,coforge and many more

Rental 268ct
BND 113cr
Furniture -46cr
Rev split

They’re thinkng of going in reits and aifs by being a sponsor and brining in more unit holders
Why?
See in leasing not being the operator is fine
But in process of asset creation wee think this is a win win situation
As in todays reits the max yeilds you get se 5-6% but in this case with the epertise they have they
Will choose a property which can be leased out so all this will lead to much better yields for unit holders as well
And since efc will be managing these offices they will charge a feee ehich will directly flow to bottom line

They have made a subsidiary
Efc estate private limited
They would like this spv to take part in some of the investments theyre going to make
They see/get alot of opportunities wheather it is development of IT park or development of large commercial a grade property so as part of their biz they need to block such properties for their biz gng fwd so taking those strategic decisions
Theyre doing this so those assets come under their management fully furnished which helps them
Efc estate will look for making such strategic investments in commercial spaces ,it parks where they feel there is an upside as its own from a investment point of view and also another upside in the form of securing those reits form managing those reits either through getting the leased reits or otherwise

How will they fund this ?
As reits case they will use another holders funds
(At present going through internal accrual )

Furniture 40%
Rental -30(central level )avg comes out to about 23-24% if you account for the occupancy gap)
Design and build divison: negative wc biz so margins here 16-17%
(Ebita margins )
Blended pat margins 15-20%

Furniture production will start in Q2 fy25
Plant is almost ready etc etc
Will go live by q2
Efc india rental biz which is the managed office biz is always the anchor clinet for this units
Should achieve 150-200cr from this infy25

They work like a family

Bnd
Furniture
Fitting
Here working capital cycle is 90-120days
They try to do it 60days also but generally it takes 90-120days
And in large contracts when the work with tcs,coforge and all you have some rentention money involved bcz they also want to ensure that once you finshed ur work ur quality ,testing and their own internal control ,handover of the property and etc they would still like to retain a certain amount of money that way wc blockagege more
In managed office biz expect the monly gap you have of 30days otherwise it is pretty much on time
And on a avg there is no bad debt or delay situations

65k plus in fy25
By sept 50-55k seats
And these are all already contracted meaning under development or beginning to development
So by sept 50-55k seats

Here their clients are like
Quesscorp,flipkart,tech mahindra,mahindra finance,meta ,bajaj finance etc
In managed offices they typically focucses on established biz offices or players who can commit you a certain period of lock in to you ,so they derive certaintiy for their biz as well

Tcs ,coforge clinets are in BND
In BND they also devleop R&D centers,research labs,health care centers and these are some spaces where they make higher margins then normal office spaces bcz there are standard products in offices
In offices 13-15% on a net level
But in others it increasees to 5-6%
15-16%blended

Will Spread acorss in major 9cities the expansion to 92kseats

75% growth in seats atleast for coming years in total number of seats

Minium lock in period with top clients is 3-5years
Some of the top special clients with whom they have been with 6+years bcz wee have been in here from 10years so they join for 5year contract

Tam
65million sqft for leasing (coworking)
They’re among top 5,top -10
In terms of profits theyre in top 3-5

Flex office industry is growing 20%+कॅcagr
Will like to beat these numbers

Q4 they were around 88-90%occpany the same range for the full year

generally always theyre at 90% utilisation
As 75-80% of the rev is contributed from the longterm clients

Capex cost per seat 50k
Their cost is lower then others bcz
They have a large huge purchasing capacity
And doing this for 10years
Developing their own centers without use of any external parties ,contractors or etc
So what has happend that in the process now they can do things by their own be it setting up interet connectivity etc etc that is enabling them to lower the cost and maintian the efficiency
And why they have gone into bnd and furniture divison

In Maharashtra their leases are for 5years not more then that bcz in Maharashtra above 5years there is a heafty stamp duty
And they have been always been able to extend tgis by another 5years
Otherwise avg contract range between 8-9years
With their large customers they have contract for 5 years and lockin of 3-5years depending in the comfort they have with the client
(For ALM)

5differnt parameters in seats
Seats under development :means the capacity which are already contracted and where eager the seats are under development ir seats are being made as of now or interior is yet to be done

Capacity operational is the capacity which is fully ready and operational so those centers are operational

And billed seats are those which they’re billingto the customers

Seats under development means the difference between capacity opertional and capacity under development
So the development capacity will come live in one month or so

Inventory is the difference between the operational capacity and the billed seats

Rev from the managed office as a percentage will go down
Beyond a point there is a limitation here

Ideally they would like to achive mix of all the verticalls equally

BND there is a infinite growth available

Bnd -132cr order book from tcs ,coforge etc
And thereabout 60crs are in advance talks as they speak
This 132 will be translted in revs in Q1 or Q2

Top 10clients in the coworking space will capture 50%
By the time their furnishing work finishes they aim to capture 80%occupany
The development gestation period is 3-6months
From the time the center is ready to occupy

What kind of customer do they target?
They

The quality of infrastructure they provide they attract both international and domestic clients

The only uniqueness is how you minimise ur costs and increase ur efficiency

They’re making a sqft @1250rs
They dont have virtual offce as of now
Theyre are some legal issues in this
Will look at this in the future not now

Looking for b2c and b2b both for furniture

60-80%utlisation is possible in the first year itself

50k per seat cost
30k goes for furniture(all furniture )

For aif 2% is fractional required

[Malhar_Manek]

Source: https://www.rprealtyplus.com/mypdf/06082024001517-RP_May_3-revised.pdf#page=36

[akj]

thank you for the detailed post. Some thoughts/ questions

1. Tried to do a IRR on capex/seat to see how payback period plays out. My math says 4-year payback and 15% IRR @ 25% EBITDA. At 30% EBITDA, 3 year payback, 22% IRR.

Per seat IRR
		Y1	Y2	Y3	Y4	Y5
Capex / seat		50,000
Revenue / month		6,500	6,825	7,166	7,525	7,901
			5%	5%	5%	5%
Occupancy		92%	92%	92%	92%	92%
Annual revenue		71,500	75,075	78,829	82,770	86,909
EBITDA %		25%	25%	25%	25%	25%
EBITDA		17,875	18,769	19,707	20,693	21,727
Depreciation		10,000	10,000	10,000	10,000	10,000
EBIT		7,875	8,769	9,707	10,693	11,727
Tax		1,969	2,192	2,427	2,673	2,932
PAT		5,906	6,577	7,280	8,019	8,795
Recievables @ 30 days		5,958	6,256	6,569	6,898	7,242
Increase in recievables		5,958	298	313	328	345
Cashflow from Ops		9,948	16,279	16,968	17,691	18,451
Maintainence Capex @ 3% of Capex		1,500	1,500	1,500	1,500	1,500
Cashflow	(50,000)	8,448	14,779	15,468	16,191	16,951
WC reversal						7,242
	18-Jun-24	18-Jun-25	18-Jun-26	18-Jun-27	18-Jun-28	18-Jun-29
IRR	(50,000)	8,448	14,779	15,468	16,191	24,193
	15.0%

Ofcourse the IRR is very sensitive to EBITDA margins - at 30% EBITDA, the IRR shoots to 22%. But not sure how to underwrite 30% corporate EBITDA since they are and will be in the growth phase, and supply side dynamics weigh on the margins over time.

2. Keen to understand where they save on capex / seat. They seem to suggest theyre Insourcing but unable to contextualise how much can be saved with insourcing.
   (attaching below a sample for AWFIS so we have context)

3. How much capex are they doing in furniture factory? What makes them make such high margins in furniture despite being the lowest cost? Are there examples of other furniture companies making such high margins when they’re selling at lower than market cost?

4. Design and build is like an EPC business and have not seen other office contractors who make 20-30% margins. How does EFC achieve this? What do they do differently?

[avthakkar]

Q4 FY24

Financials

• the rental segment that clocked about 263 crores, which is about 62.2% of the total revenue, whereas the revenue from DNB business stood at 113 crores, which is approximately 27%. The revenue from furniture business stood at about 46 odd crores, which is nearly about 11%.
• Top clients like Quest Corp, we have topclients like Mahindra Finance, we have top client like Bajaj Finance, Tech Mahindra, Eureka Outsourcing which contribute 80% of revenue and 20% from clients which aren’t leased for a long time and are small clients,

Business Info

• DNB: Interior fitting division.
• Closed single largest Contract with Co-Forge for developing 100,000 sq. ft. of commercial space.
• In addition to our core offering of managed office spaces, we have strategically diversified into interior fit out and furniture manufacturing business.
• The idea behind coming up with AIF and REIT is that we need going forward we need to go and control some of the real estate assets which we are actually right now managing and operating. we would like to create this fund structures whereby we would be one of the sponsors to the fund. And bring other contributors other potential unit holders to the fund and together we want
  to acquire assets and again we want to use our expertise of which we have acquired over a period of last dozen year to you know manage those properties in a most profitable manner and also offer the same kind of returns to our unit holders under AIF so that which is in the market today, if you see the standard yield that you know kind of generate for a commercial property is between 7
  to 8%. But when you convert these properties and run it like a managed office, you know you are likely to earn much better returns and that is what we are trying to aim and trying to create a differentiation in the market that we probably will be the one of the first one to come in the market and run AIF for the investor as an operator and not just as a real estate developer or not
  just as an investment fund manager. So that’s the structure that we are trying to implement and this is how we are trying to you know, complement the business that we are doing within our EFC India group

Operational numbers

• Seating capacity from 25,000 to 40,000 for FY24.
• area AUM increased from 1.5mn to 1.9 mn sqft.
• minimum lock-in period with top clients are either three years and five- years contract or some of the special clients with whom we have been you know in contract for more than 6, 7, 8 years
• CapEx cost per seat for us is around ₹50,000.
• In Maharashtra, landlord contracts are 5 years while rest of India is 7-9 years. With long term clients, their contracts are generally 5 years with lock in period of 3-5 years.
• by the time our development work finishes in about next three months’ time, we occupy you know around 80% plus of the capacity
  and the balance 20% takes the so around if you look at from the development point of view, generally the gestation period is about four to six months from the time the seats and from the time the center is ready to occupy.
• they develop the space at 1250 rupee per sqft which is really cheap and one of the lowest in the industry.

Furniture and DNB

• the furniture business has a potential of 300-400 crores and will positively impact the ebitda margins. the current PAT margins of 14.76% should remain at round 15-20%
• On the DNB division, I have already signed contracts of 132 crores, which includes contracts from Coforge, TCS and then many other organizations like, YesssWorks, Bosch, Saga University and such contracts are already there, signed for 132 crores and they’re about 60 odd crores or contracts under documentations and negotiation while we speak. this 130 revenue will get recognized together fully in H1.
• For the furniture business: I think our ability to achieve a reasonable capacity of more than 60 to 80% is pretty much possible during the first year itself.

Outlook

• Incorporated Ek Design Industries Limited as a subsidiary for Furniture Manufacturing Venture.
• Incorporation of EFC REIT Private Limited as a step-down subsidiary for REIT.
• Incorporation of EFC Investment Manager Private Limited as WOS for AIF.
• Incorporation of EFC AIF LLP for AIF.
  
  
• the seat under development means will be ready in a month or so. the capacity under development is proper capex and can take time.
• If I am right, billed capacity of 33829 at a operational seating of 41139 means gives a capacity utilization of 92.5%
• Capacity under development is double.
• Increase seat capacity to 92000 in FY26
• the furniture production will start from second quarter. and their Managed offices business itself will be an anchor client and hence will consume most of it themselves so they dont need to go to market to find a lot of client and this the requirement of these furniture’s are also quite voluminous when it comes to the managed-office players in our industry.
• At least around 50% of what we really are setting to target this financial year
• By FY25, we should be closing at around our target is to close around 65,000 plus seats that we like to achieve by then. So just to give you a bit of trajectory, I mean as we speak already, by September we’ll be touching around 50,000 to 55,000 seats which are already contracted in thebsense that you know they are already in the development or you know beginning to get into development. So, by September we’ll be touching between 50 to 55 and by March certainly would be crossing 65,000 seats.
• as long as the market is really positive on the real estate side and also the demand from the GCC clients
  and also the domestic client is on an upstream, we truly believe that we should be at least if not
  more be able to kind of achieve .75 times of growth every year in the total number of seats that
  we will be keep adding to.
• out of the 50,000 per capex, 30,000 goes towards furnitures and fixtures.

Risks

• top client contribute 50% of revenue

Industry

• The major share of commercial supply witnessed in Indiahas been in Tier 1 cities, i.e., Bengaluru, Delhi, Gurgaon, Noida, Mumbai, Hyderabad, Chennai, Pune, and Kolkata.
• Bengaluru has emerged as the largest market for flexibleworkspaces in India with a total of approximately 32%
  followed by the Delhi NCR market comprising a total of roughly 20% and 29% Hyderabad and Pune each with 13%vand 14% respectively of the total stock.
• India Commercial Office stock is standard 832 million square feet as of December 31st 2023, in the top nine cities, grade A and grade B,
  bifurcation 85% to 15%. Flex office space occupy occupancy about 1,000,000 seats spread over 65,000,000 square feet across major cities in India
• In 2023, co-working space accounted for about 20% of the total office space absorption in major Indian cities, reflecting a strong and growing demand.
• total Office leasing space market is more than 800 million square feet of stock available in the top nine cities. Out of that, the Flex office market you know has been continuously growing. You know earlier they used to occupy not more than 5%, 7% kind of share and today, you know, it is already kind of occupying 25%.

[avthakkar]

Thoughts: My first concerns were it’s a commodity business with little to no differentiation. However, the way EFC is integrating itself in all the essential parts of the value chain is really impressive and help become a sustainable business model that can protect its margins. The cost optimization by Furniture business, the growth potential from the REIT and reduced dependence on landlords and other entities makes it a good bet. The cost of 1250 per sqft is really impressive and I think that can be key to success here.The focus on managed offices reduces the possibility of set liability mismatch as well (although high concentration can be risky)

[goofymanager]

I have been struggling with 3 points. Please do help…

1. Low capex per seat: As Neeraj Marathe mentions from his experience of co-running a similar business wherein he talks if a co-working business operates at <Rs 6k sq ft, then it’s not viable.

If my math is correct, how is EFC working at Rs 1250 psft (Rs 50k capex per seat with avg of 40 sq ft per seat)? Is this since >75% of their clients are in “managed offices” not co-working (flex) which requires lesser capex than usual?

2. Why REIT right now? What’s the potential upside of venturing into the REIT space - I am specifically trying to work out the math from the EPS accretion point of view. any thoughts…

3. Distraction or Synergy from being full-stack - Getting into interior design + furniture mfg/trading (bringing it around 36% of FY24, while it seems to be revenue accretive (and maybe margin as well for now), can this be a distraction for the overall business which has and will become more cut-throat over time due to lower entry barriers?

Disclosure: no holding (here’s my latest portfolio). closely tracking to see if the evidence so far merits an action.

[avthakkar]

Before I answer your questions, I believe people in the thread such as Dhruv and Manhar have a lot more knowledge in this business and sector than me so they could answer it better, However I will still give it a try(correct me if wrong)

1. what he meant was the total area of the whole center should not be less than 6K. EFC has centers considerably bigger than this. and I suppose getting furniture for managed offices would be cheaper as its in bulk and uniform.

2. Check Smart sync’s video which analyses EFC. @Dhruv_Bajaj explains it really well

3. as you suggested its becoming cut throat, which is exactly why they need to differentiate if they want to stay here for Long term. Providing better cheaper services by spreading to the whole value chain is one way. Another thing, I don’t think it’s a distraction because these are extensions of their business model. they are experienced in these areas.

Hope that helps

[nil_71]

One thing- for sure-, EFC management is needed to give more disclosures in terms of presentation.

Just look at the kind of disclosures , given by AWFIS…

Whoever attending the next concal, must request it.

[Ashar_Mann]

Actions are more welcomed than disclosures,
AWIFS and EFCI see the durablity, probability of surviving after tailwinds, see the Capablity in terms of margins,

The issue with Indian Investors has always been to check fancy AR Or IP,

If you see their AR youll find pretty much everything required,

Infact you can reach out to Umesh sir on Linkedin too.

Disclosures are best in class by the company, investor just dont know how to decipher it

[Prathamesh_Adhikari]

Agree
Had they been a commodity business then the margins wont be higher than other players
The furniture and managed space lever gives them better opportunity

[sreejithc1989]

I am new to this industry ,made a rough comparison between EFC& AWFIS buiness ,Pleasse correct if i made any mistake

Parameter	EFC Limited	Awfis Space Limited
Cities Present	7	17
Sites Under Management	50	181
Total Seating Capacity	40,000	110,000
Average Lease Years	2 years	2 years
Average Rent Per Seat	₹6,750	Not Provided
3-Year Cash Flow	Negative	₹500 crore
Working Capital Days	Above 100	Negative
Return on Capital Employed (ROCE)	25%	45%
Market Capitalization (Market Cap)	₹2,757 crore	₹3,804 crore
Management Strategy	Diversified, high capital-intensive focusing on creating more verticals	Low capital-intensive model focusing on their core competitive business, highly focused
Client Concentration Risk	High	Relatively Low
EBITA -RENT	161	181

[hnk_so]

In my opinion, the greatest risk for this business is occupancy / leasing out rate of the completed offices. Their money outflow starts on the day when they make deal with landlord/ buy real estate. However, their income will start once they lease out the completed offices (after furnishing/renovation, etc.). The bigger the gape the more impact on bottom line. Considering slowdown in IT, BPO, start-ups, etc. this risk can not be ignored.
For investors - high valuation, more frequent equity dilution and diversification in the lower margin business initiatives are the real risks. Hence, we as retail investors should have enough margin of safety while investing in such company instead of carried away by seeing name of the well known investors in their shareholding !!
I normally remain cautious when there is rise in Finfluencer / youtubers advisor recommending any company and multiple articles on the company/business of the company…this is time when someone already bought at lower price and would like to offload by creating froth in company stock price.
Patience always good - wait for correction / right price and buy it !! Market always give an opportunity!!

[Sahil047]

Most players enter into a cool off period where payment to landlord starts only when the property is ready for leasing out, so this reduces the mismatch between the initiation period of rent received vs rent paid. Also deposit paid to landlord is set off with deposit received from the clients, so reduces the requirement for funds, thereby reduces risk of equity dilution. Though it needs to be monitored.

[hnk_so]

The way promoters doing private placement / QIP / promoters’ holding in other companies…looks little opaque, not investors friendly but more of greed of promoters!

[Naman_Gupta1]

I’ve a novice question regarding their furniture business. Is there re-usability of the furniture they make? For example, a customer contract get over, so do they retire the current set of furniture and deploy new one or they continue using the old ones (the former feels more like the answer).
With their furniture business, a lot of depreciation cost will come up if I’m not wrong. Do we have any estimate on what kind of life are they deciding for the furniture items?

[Akshada_Deo]

The pending scheme of merger raises some red flags for me. Wondering if anyone else has gone through it. These are my notes from the same:

Date	Particulars
June, 22	Amani trading and exports to be renamed and promoters to conduct a share swap for the new company EFC (I) ltd.
	Valuation for the swap arrived at 50 crs
July, 22	Warrants worth 24.5 crs also issued to new shareholders
	SEBI recorded a lapse in compliance regarding in-principal application for seeking shareholders approval done on June23, which shouldve been done on June-22
Aug,22	Listing in NSE was approved
Nov,22	Company decided to incorporate a subsidiary in which they hold 51% called Whitehills Interior
	EFC Ltd is also a wholly owned subsidiary of EFC (I)
Feb-23	Stared a co-working space in Ahmedabad with 995 seats
July-23	Scheme of arrangement between EFC (I) and Whitehills
	EFC owned 51% stake, and rest promoters are the same as EFC
	This resulted in total promoter stake in the main company to hike from 54.9% to 69.08%
	Valuation report gave whitehills a value of 545 crs!!!, at a turnover of 4 crs, and incorporated under a year ago by the same company
	EFC (I) consolidated rev was 100 crs with a value of 587 crs
	77 shares of EFC were given to 1 share of Whitehills, and the promoters bagged a cool 269 crs from this swap
	37,73,000 equity shares issued at price of 713
	https://www.bseindia.com/xml-data/corpfiling/AttachHis/e84adf22-1017-406d-b311-70b6b0149d1c.pdf
Aug-23	Stock split from face value of 10 to 2
Dec-23	The Board at their meeting held on 20/07/2023 proposed a scheme of Amalgamation of the Subsidiary Company M/s. Whitehills Interior Limited with the Holding Company M/s. EFC (I) Limited and accordingly under Regulation 28 & 37 of SEBI (LODR) Regulations, 2015 read with SEBI Master Circular No. SEBI/HO/CFD/POD-2/P/CIR/2023/93 dated June 20, 2023 and SEBI Circular dated March 10, 2017, bearing reference number CFD/DIL3/CIR/2017/21 filed an application for In-principle Approval for the proposed Scheme on 05/08/2023. Presently, the In-principle Approval of the Scheme is pending before the Stock exchange.
	The Board in the meantime approached few Investors for the purpose of immediate need of the Funds for the company for the working capital requirements and other general corporate purposes. Considering the proposed issue of up to 97,07,383 equity shares of face value of Rs 2/- each and their full subscription by way of Preferential allotment of Shares there will be impact on the pending scheme.

Disclosure: Not invested