Kontor Space coming with IPO to raise Rs 15.62 crore

Kontor Space

• Kontor Space is coming out with an initial public offering (IPO) of 16,80,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 93 per equity share.
• The issue will open for subscription on September 27, 2023 and will close on September 29, 2023.
• The shares will be listed on NSE Emerge Platform.
• The share is priced 9.30 times higher to its face value of Rs 10.
• Book running lead managers to the issue is Srujan alpha capital advisors.
• Compliance Officer for the issue is Anamika Talesara.

Profile of the company

The company provide “space-as-a-service” by renting and managing commercial spaces. With its technological expertise, it aims to foster a culture of collaboration and productivity by offering flexibility, convenience, and astounding quality at a significantly competitive price to its clients ranging from small-scale startups to large conglomerates. Being the trademark owners of ‘Kontor’, it has established a significant brand image and positioning in the co-working industry which has given it the opportunity to aggressively expand into newer markets by acquiring and managing more spaces in addition to its existing 4 in Thane, Pune, Fort and BKC (Mumbai).

The company purchases the property and / or take properties on rent, to sub-rent/sub-lease the same to single or multiple clients for their workspace requirements with or without furnishing the same as per their needs on per-seat basis. It further, invest in fit outs to customize the property to suit its business model and renovate, modernize the properties according to the working needs in terms of business requirements such as furniture, work-desks, open work area, cabins, meeting rooms, conference rooms, cafeteria, play area, reception, lockers, de-stress zones etc., and equip the same with peripherals like printers, scanners, attendance devices, telephones, hi-speed internet, airconditioners, water-coolers, smoking-zones, and other facilities.

Proceed is being used for:

• Making the payment of Rental Deposits of new co-working centers.
• Carrying out the Capital Expenditure for fit outs of new co-working centers.
• General Corporate Purpose.

Industry overview

Co-working is a space-as-a-service (SPAAS) arrangement in which people from different teams and companies come together to work in a single shared space. Co-working spaces typically offer amenities such as Wi-Fi, printers, meeting rooms, and coffee, and they often have a community-oriented atmosphere. The term 'co-working' was first coined in 1999 by Brad Neuberg, who founded the first co-working space, Hat Factory, in San Francisco. The concept of co-working quickly gained popularity, and today there are co-working spaces all over the world. According to India Co-working Office Spaces Market Size & Share Analysis – Growth Trends & Forecast (2023- 2028), by Mordor Intelligence, the size of Co-working Office Spaces market in India was $1.78 billion in 2022 and is anticipated to register a CAGR of over 7% during 2023-2028. The report also states that the first half of 2022 has seen a rebound in the co-working space industry, driven by the increased demand for flexible office space. As per statistics, demand for co-working spaces increased by a staggering 643% in H1 2022 compared to the same time five years ago.

India's Co-working Office Spaces Market is fragmented, with global and local players in the co-working spaces market. Some of the key players in the market include 91 Springboard, Awfis, WeWork, and Mumbai Co-working, among others. Also, many more are entering the need to fulfill the rapid demand for casual environment offices. The companies in India's Co-working Office Space Market are involved in several growth and expansion strategies, such as strategic partnerships, mergers, and acquisitions, to gain a competitive advantage.

Pros and strengths

Brand Image Backed by Service: The company possess an established and regarded brand with accreditation, renowned for delivering the highest quality services while meeting the needs of its clients. Through its extensive experience, it has developed a strong track record and expertise in providing a vibrant, economical, and collaborative work environment while also providing state-of-the-art technological support, infrastructure, and a comprehensive range of other related services. Its constant focus on providing a seamless client experience has earned it a stellar reputation and significant competitive advantages in a dynamic industry.

Asset-light model: The company’s business operates on an asset-light model to achieve better profitability. Considering the exuberant funds required to own a property, it prefers the asset-light model in a growing industry since it gives it the flexibility to keep up with the changing market while being cost-effective. Although the initial costs of upscaling and fitting out a leased property to match its high standards of quality and provide a seamless experience across all Kontor spaces may be considerable, they are still significantly lower than owning a property. Thus, to have better profitability and remain cost-effective, the company currently taken three properties on lease and owns one, and has plans to lease two more properties soon per its expansion targets.

Economical pricing: The company’s emphasis on providing “space-as-a-service” has allowed it to be cost-effective. To effectively manage costs, it plans on expanding into the managed space segment of its business since it is hassle-free, involves little to no CAPEX, and enables it to perform a quick turnaround on properties to make it a fully serviced option for its clients on a per-seat basis. At Kontor, it strives to remain competitive in the co-working landscape by offering various pricing options that align with the real estate rental costs. Currently, it offers highly competitive pricing at its co-working centers, viz. Thane, Pune, Fort$ and BKC at an average price per seat of Rs 8,500, Rs 4,500, Rs 13,333 and Rs 30,000 (proposed), respectively.

Risks and concerns

Business operations majorly concentrated in certain geographical regions: The company is one of the space-as-a-service (co-working) providers presently focused in the state of Maharashtra with four centers located at Thane, Pune, Fort and Bandra Kurla Complex (BKC) (to be operational by mid / late August, 2023). Additionally, its proposed new centers are also in the Maharashtra region. This concentration of its business in Maharashtra exposes it to various risks, including adverse developments related to competition, alterations in local governmental regulations, economic conditions, demographic trends, employment and income levels amongst others. Such factors have the potential to impact its business prospects, financial condition, and operational outcomes. Furthermore, localized social situations, natural disasters, or disruptions in services and utilities in and around Maharashtra could significantly and adversely affect its business, financial position, and operational results.

Face competition: The market for the company’s industry is competitive on account of both the organized and unorganized players. Players in this industry generally compete with each other on key attributes such as aesthetic appearance of the space, facilities and amenities provided by them, location and proximity as well as other services. Some of its competitors may have longer industry experience and greater financial, technical and other resources, which may enable them to react faster in changing market scenario and remain competitive. Moreover, the unorganized sector offers their services at highly competitive prices which may not be matched by it and consequently affect its growth prospects. Growing competition may result in a decline in its margins which may adversely affect its business operations and its financial condition.

Rely on independent third- party service providers: In order to provide a fully serviced office to the company’s clients, it further utilize services of certain third party providers like Security agencies, House Keeping agencies, White Goods maintenance and rental agencies, Human Resource agencies, Blue Collar service providers such as plumbers and more on a contractual basis mainly on work order basis. If a service provider or contractor fails to perform their obligations satisfactorily or within the prescribed time periods with regard to any property, or terminates its work order issued by it, it may be unable to maintain the said property with the intended quality, within the intended timeframe and at the pre-estimated cost. If this occurs, it may be required to incur additional cost or time to maintain or repair the property to match promised quality standards in a manner consistent with its development objective, which could result in reduced profits or, in some cases significant losses which it may not be able to recover from the relevant service provider or independent contractor.  

Outlook

Kontor Space provides space-as-a-service by renting and managing commercial spaces. The company purchases the property and/or takes properties on rent, to sub-rent/sub-lease the same to single or multiple clients for their workspace requirements with or without furnishing the same as per their needs on a per-seat basis. The company further, invest in fit-outs to customize the property to suit the business model and renovate, and modernize the properties according to the working needs in terms of business requirements such as furniture, work-desks, open work area, cabins, meeting rooms, conference rooms, and other facilities. The company operates its co-working space from 4 locations; one located in Thane West, Maharashtra; one located in Pune, Maharashtra and two in Mumbai (Fort$, and BKC), Maharashtra. These areas are well-connected with roads, rail, and air, which reduces transportation costs and facilitates easy conveyance for the working professional consumption regions.  On the concern side, as the company has not obtained any insurance coverage for its business locations, its business is exposed to potential damages resulting from fire, natural disasters, misappropriation/burglary, or other causes. These damages could lead to losses that may not be compensated.

The company is coming out with a IPO of 16,80,000 equity shares of Rs 10 each at a fixed price of Rs 93 per share to mobilize Rs 15.62 crore. On performance front, the company’s total revenue increased by Rs 514.09 lakh or 127.33% to Rs 917.84 lakh for the financial year 2022- 23 from Rs 403.75 lakh for the financial year 2021-22. Its profit after tax increased by 517.29% to Rs 187.88 lakh for the financial year 2022-23 from Rs 30.44 lakh for the financial year 2021-22, reflecting a net increase of Rs 157.45 lakh. Meanwhile, the company is committed to provide exceptional customer service and always strives to maintain good relationship with the clients. It prioritize delivering high-quality services which ensure that the customer expectations are met, ensuring their satisfaction and minimizing any potential concerns or complains. With the ongoing economic growth and expansion of its business segment, it is confident that its proactive efforts will result in successful expansion of its client base.