can someone help me to understand following 2 figures in cash flow statement of sept 24.
- loans to other parties - (26,377.03)
- Changes in Lease Liability - 26846.34
If you are interested in this space, please do watch the documentary on We work
One of the main reason of its earlier collapse was the huge asset liability mismatch and exponential but super aggressive growth on unsustainable lease terms.
Companies in this space working on Straight lease model with supernormal growth will suffer one day.
We work had big corporate governance problem as well, I am sure if somebody would do some google they would find , as to how promoter was building wealth form himself. +
They expanded to various unrelated industries like We live etc etc , on the other had we have EFC one of the most prudent spenders with the highest profitability in the industry. Not a fair comparison at all
EFC as on date is not into just coworking they do D&B and furniture as well do we have 3 verticals.
The most important part is they are the only company to get SM REIT approval of 500cr and in SM REIT I have to bring in income generating properties so EFC existing properties would be put in here. The real estate cycle right now is so strong that if we donât have a problem for the next 3yrs we donât know what the mix of EFC would be at that point
As per my understanding maximum would be bought in REIT, there I am replacing the landlord so where is the question asset liability mismatch?
The promoter also prudently wishes to use debt as explained in my earlier post.
This industry is not about SL model or MA model it is about balance sheet strength EFC has the best balance sheet in the industry today, I mean at least 5-10 coworking players equity we will have to add to reach EFC equity
The meaning of balance sheet strength is every body will die before me and I will be the last on to die, I think if they are smart in a crisis they significantly increase their market share as all small once would die no doubt.
All the above are just concepts and nobody know how this would pan out all boils down to promoter execution capability and how profitability you can build the business
The only thing I am sure of is EFC would be among the last ones to die
can be wrong, thnx
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I have sent an email to the company with similar queries and have also asked them about the total number of employees working with the company. I have received a response for the breakup of revenue and PAT numbers. The question on employee count was not answered (may be missed). Below is the response that I have received on their numbers.
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Will shareholders of EFC get equity allocation in SMREITs when it gets listed ?
No they wont, the SM REIT will raise funds separately.
The benefit to EFC will be that the properties purchased by SM REIT will be managed by EFC at similar margins, but no risk of landlords/property availability as the SM REIT becomes the landlord.
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- Did anyone notice that their cash flow from operations is wrongly calculated in financials statements (consol.), it should be 28 Cr instead of 150 Cr. Interestingly, it appears to be wrongly calculated for FY-24 on screener as well, it should be 16 Cr instead of 29 Cr
FY-24
- Anyways, receivables have turned positive I believe for the first time, which is a sign of good ROCE generating business and ideally, since they take rent upfront it should remain positive as they expand
Some concerns:
- They had given a target of 65-70k seats for FY25. Since they add under development seats too in their seating capacity numbers, letâs assume we would have 61k operational seats by end of FY25. This means that they need to add 2x the number of seats in H2. As per Q2 FY2025 concall, the management said that they have identified several sites with high seating capacity addition of 5-6k in one go so this shouldnât become a challenge
- They had given guidance of 2x revenue in FY25 which seems unlikely to happen. We should ask them if they would like to revisit their guidance. I estimate around 60-65% sales growth over FY24 which is still decent. They gave a non-committal answer in Q2 concall wrt this.
- As per their ppt, their rentals paid to received has increased from 40% to 45% but EBITDA has remained same at 25%. Interestingly, in rental division EBIT margins have increased from 22% in Q2FY24 and 24% in Q1FY25 to 39% in Q2. I am not sure what is the reason for this sudden jump in margins as rental prices have remained same at 6250, rentals paid has increased by 500 bps, employee costs have remained same YoY and improved by just 53 bps QoQ - @manhar if you can shine some light on this
- Rental revenue based on 90% occupancy on 46.8k seats should be 79 Cr but they have reported it at 89 Cr, either they had high occupancy earlier (seems unlikely as this number was 91% in Q1). Again, I might be missing something here
- Avg rent per seat seems to be constant for last 1.5 years. Why have they not even increased the prices by 7-10% to account for inflation? Do they lack pricing power this much?. As per Q2 concall, this rate is slowly increasing towards 6500
- Interior EBIT margin has also increased by 800 bps QoQ, what could be the potential reason for this? No straight answer I can get from Q2 concall.
Discl: Invested.
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EFC I LTD Report (BUY).pdf (1.3 MB)
I estimate a 70% upside based on 2027E earnings, open to feedback.
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Thanks Sagnik. Is this report written by you?
This report looks good and decent, but FY26e is too low, I mean less than 190 Crores PAT for FY26 but 140 Crores PAT in FY25 doesnât makes sense, cuz it will be less growth as Furniture unit with 40% margin will be coming at that time
I tried to compare AWFIS and EFC(I) : I could not understand below disparities -
EFC is doing good on operating profit but very bad on cash flow generation. Most of operating profit locked in working capital ? There is no capital work in progress. So where is the operating profit going? Is the profit real ?
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check out the cashlows in h1 numbers fy25. company reported very good cash flow from operations
Disc- Invested
Awfis is a loss making cash burning business. Itâs very easy to show growth in co-working business itâs a comodity business.
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AWFIS space has a 5year cash flow exceeding âš500 crore and operates as a net debt
free entity. It is not a cash burning company and has successfully grown its assets without significant equity dilution or taking on additional debt.
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Hi, sorry to bother you. Just seeking a clarification - in the accounting standard under use (Ind AS 116), AWFIS has to split rent under Depreciation and Interest costs (since it is treated as a Right of Use asset).
So when they add back full depreciation and interest cost to the operating cash flow statement, wouldnât that mean that their actual cash flow is significantly different from when that gets reported in accounting?
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I am not able to develop conviction on promoters -
Too many related party transaction, CCDs, QIP, all means of equity dilution. Now this is new, can anyone explain it - please!
People who are comparing with AWFIS, need to consider the corporate financial governance as wellâŚthat way, Awfis will always be at a premiumâŚif I am not wrong
You canât compare Awfis with EFC directly because office is more into flexible workspace and operates on a managed aggregation mode. Basically, it means that itâs customers are small startups, professionals who pay rent up front so it should have at an ideal stage, a negative working capital cycle.
Whereas main clients of EFC are enterprises which have bargaining power because they sign long contracts and donât pay upfront. Here, the benefit is that since these contracts are long, EFC has less risk of asset liability mismatch and since EFC signs straight leases without any profit share with building owners, their margins are higher (not including that they are backward integrated into furniture and design).
What I get from CCD disclosure if that EFC is issuing these CCDs to its parent company to pay off some debts at 0% interest rate. Doesnât change much because itâs a wholly owned subsidiary
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Hi,
EFC (I) i.e. EFC India raises cash & gives them to its subsidiaries to run their business,in this case EFC Ltd⌠As per the regulations, the company cannot just simply pay cash to its subsidiary so it is shown as a loan in the form of buying the subsidiaryâs debentures. This is common & nothing unusual. Hope this helps !
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