Choice initiates Smartworks with 'Buy'; cites favourable leasing economics

Domestic brokerage Choice Institutional Equities has initiated coverage on Smartworks Coworking Spaces stock with a ‘buy’ rating, citing strong sectoral demand for flexible workspaces, scale-driven cost advantages, and a resilient, annuity-style business model.  The brokerage has set a target price of ₹630, implying a 31 per cent upside, valuing the company at a time-weighted 12-month forward EV/Adjusted Ebitda multiple of 15x.

 

Fenil Brahmbhatt and Aayush Saboo, analysts at Choice, said the base-case fair value stands at ₹630 per share, while the upside scenario (with a 10–20 per cent probability) values the stock at ₹720. The downside scenario (with a 5–10 per cent probability) pegs the fair value at ₹547.

Strong sectoral tailwinds underpin growth prospects

India’s flexible workspace market, analysts said, is projected to grow at a 13.7 per cent CAGR between CY25 and CY30, nearly twice the pace of the broader office market, expanding from 98 msf in CY25E to 186 msf by CY30E, according to Choice. The growth will be driven primarily by global capability centers (GCCs), BFSI, and IT services, supported by India’s substantial STEM talent pool, which accounts for 28 per cent of global supply.

 

The number of GCC units and their office space absorption are expected to rise at roughly a 7 per cent CAGR over the next five years, the brokerage added.  ALSO READ | GAIL outlook brightens as tariff hike, volume revival boost FY27 prospects

Scale and cost-efficiency support market leadership

Smartworks, according to Choice, has “pioneered India’s managed office segment,” delivering 6x growth in four years through an asset-light strategy focused on Grade-A properties across major cities. About 76 per cent of its portfolio is leased from non-institutional landlords—HNIs and family offices—enabling favorable commercial terms and operating efficiencies.

 

"By leasing entire buildings and campuses, Smartworks achieves economies of scale and REIT-like cash-flow predictability while scaling faster than its peers. Mature centers operate at 88 per cent occupancy, with payback achieved in around 36 months," the analysts wrote in a research note.

 

The analysts further pointed out that the company also enjoys one of the lowest capex profiles in the industry (₹1,350 per sq ft) and opex of ₹30–35 per sq ft, supporting earlier breakeven and higher returns. Its enterprise-driven model—serving clients such as Google, Groww, and EY—is anchored by larger mandates: clients with over 300 seats and over 1,000 seats contributed 65 per cent and 35 per cent, respectively, of H1FY26 revenue.  ALSO READ | Motilal Oswal initiates 'Buy on Privi Speciality Chemicals; sees 25% upside

Resilient, scalable model with diversified risk

According to Choice, Smartworks’ long-term agreements with landlords (around 15 years) and enterprise clients (around four years) reinforce revenue stability, supported by a 2.0x revenue-to-rent ratio. Client concentration remains low, with the top 10 clients contributing less than 20 per cent of total income. Roughly 30 per cent of revenue comes from multi-city tenants.

 

A well-balanced geographic presence across 19 clusters in nine Tier-1 cities, four Tier-2 cities, and Singapore, analysts believe, further limits concentration risk. They also noted that even during the COVID-19 disruption, the company’s mature centers maintained around 85 per cent occupancy.

Key risks

Choice warned that Smartworks’ dependence on GCCs and MNCs in IT and BFSI exposes it to sector-specific downturns. Broader economic weakness or muted start-up funding could weigh on demand. With around 94 per cent of revenue stemming from annuity rentals, the business remains sensitive to demand shocks. The brokerage also flagged liquidity risks, noting that the stock’s trading volumes are modest.  (Disclaimer: Target price and stock outlook has been suggested by Choice Intuitional Equities. Views expressed are their own.)