Awfis Space Solutions Limited ($AWFIS)

Ladies and gentlemen, good day, and welcome to the Awfis Space Solutions Limited Q4 FY '26 Earnings Conference Call hosted by Asian Market Securities. [Operator Instructions]. Please note that this conference is being recorded. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. I now hand the conference over to Mr. Vikrant Kashyap from Asian Market Securities. Thank you, and over to you, Mr. Kashyap.

Thank you. Good evening, everyone. On behalf of HCL Market Securities, we welcome you to the Q4 FY '26 Earnings Conference Call of Awfis Space Solutions. Today, we have from the management team, Mr. Amit Ramani, Chairman and MD; Mr. Sumit Lakhani, CEO; and Mr. Sumit Rochlani, CFO. I now hand over the call to Mr. Amit Ramani for his opening remarks. Thank you, and over to you, sir.

Thank you, Vikrant. Thank you, and good evening, everyone. A very warm welcome to all of you joining us on the call today. I'm joined by Mr. Sumit Lakhani, our CEO; Mr. Sumit Rochlani, our Chief Financial Officer; and our Investor Relations adviser from SGA. Our Q4 and FY '26 results presentation has been uploaded on the stock exchanges, and I hope you have had a chance to review it. FY '26 has been a defining year for office. It was a year marked by strong execution, deeper enterprise adoption, sharper premiumization of the network and disciplined capital deployment. More importantly, it has been a year where the office platform has demonstrated that scale, profitability and industry-leading returns on capital can all be delivered together consistently and at pace. Before I get into our performance, I want to spend a moment on the broader landscape because the structural backdrop today is exceptionally supportive of what we have been building. India commercial real estate market is one of the strongest phases. TY 2025 saw record office leasing of 82.6 million square feet. The third consecutive record year with new Grade A supply completions also reaching a peak of 58.9 million square feet. The momentum has carried into CY 2026 with Q1 recording to 21.9 million square feet of gross leasing, a 13% increase year-on-year despite a noisy global environment. GCC continues to lead the chart now according to -- accounting for over 40% of total CRE leasing, while flexible workspace operators contributed nearly 23% of the leasing activity. Demand from premium grade A assets is strengthening across the top micro markets. The Flex segment itself has grown eightfold over the past 8 years with penetration rising from 5% to 21% and expect it to reach 25% by 2027 per leading industry estimates. Flexible workspace stock has grown roughly 3.5x since 2020 and continues to grow at a rapid way. The shift from real estate as a cost line to workplace as a managed business outcome is no longer a thesis. It is now visible in the numbers. Two forces are amplifying this further. Their AI wave is reshaping how global enterprises view India as a true innovation and product development hub rather than just a cost destination driving GCC mandates that are larger, longer and more premium. India's GCC ecosystem has now crossed 2,100 GCCs, generating nearly $100 million in revenue with over 500 new GCCs and 1,000 new units established in the last 5 years alone. More than 1,200 of these GCCs now have active AI and ML capabilities and India ranked #1 globally in AI hiring intensity across CCT markets. What is particularly significant is the pace of maturation, 48% of India's GCC now operate at portfolio or transformation of maturity, up from 42% just a few years ago and 2% of new DC are reaching portfolio stage within 5 years, a journey that has historically took a decade. At the same time, Indian IT services companies are returning with larger workspace mandates as cost parity narrows and AI-led delivery model scale up. Both forces play directly to our strengths across GCC's managed office and even the coworking segment, where AI rate start-up and distributed teams are driving incremental demand. Again, this backdrop office delivered a strong Q4 and are defining full year performance. For FY '26, revenue from operations grew 24% year-on-year to INR 1,493 crores with our coworking and Allied Services segment growing 35% to INR 1,237 crores, a meaningful acceleration over the previous year. To put that in context, this segment alone added INR 321 crores of incremental revenue during the year. Operating EBITDA grew 37% year-on-year to INR 550 crores with margins expanding to 36.8%. This expansion is a cumulative outcome of several things working in our favor at one. deeper enterprise demand, operating leverage as the network matures, the premiumization mix shift and the rising contribution of mature centers flowing through at full economics. PAT before exceptional items grew 66% to INR 71 crores reflecting the underlying earning quality of the platform. We continue to operate at industry-leading capital efficiency with ROCE sustaining at 60% plus and maintained a net flat position through the year. Let me now turn to strategic themes that defined FY '26 and that will continue to shape FY '27 and beyond. We see 5 engines driving the next phase of our growth, and I will walk you through each of them. The first one is engine is premiumization at scale. Premiumization has now become defined office, not a strategy overlay. Every new center signed during the year was in a Grade A, A+ asset at top demand micromarkets that standard now and is a nonnegotiable. Nearly 60% of our new supply signed during the year was with institutional landlords, a significant step-up in our partnership with India's marquee developer ecosystem. These institutional assets are increasingly the natural home for Gold and Elite formats, which continue to see disproportionate traction from enterprise and GCC clients. We closed FY '26 with 35 Gold and Elite centers across key GCC's enterprise hubs in India and the premium footprint continues to scale. The average size of a center signed across FY '25 and '26, if approximately 20% larger than our legacy portfolio, reflecting our deliberate shift towards enterprise-ready format, which are better aligned with GCC and managed office mandates. We also became the first co-working brand in India to achieve 3 belt certifications, simultaneously across health and safety, equity and co-working trading, a meaningful differentiator as GCC and large enterprising increasing the value to Workspace partners on wellness and compliance credential. Premiumization is now fitting into structurally...

Sorry to interrupt sir, but you are not audible at this moment, if you are speaking. Ladies and gentlemen, the lines of the management team seems disconnected. Please stay with us as reconnect with the management. Ladies and gentlemen, we thank you for your patience. We have reconnected with the management. Over to you, sir.

Sorry, we got disconnected because of some technology glitch. I will just repeat a few 5 seconds. I believe that we might have locked. We closed FY '26 with 35 Gold and Elite centers across key GCCs and enterprise hubs in India. -- and the premium footprint continues to face. The average size of our centers across FY '25 and '26 is 20% larger than our legacy portfolio, reflecting our deliberate shift towards enterprise ready formats, better aligned with and managed office mandate. We also began the first cohort in India to achieve 3 wealth certifications segment sickly across health and safety, equity and co-working rating, a meaningful differentiator at GCC and large enterprises increasingly evaluate work partners on wellness and compliance credentials. Premiumization is translating infrastructure better realization, stronger pricing power, longer client tenure and a meaningfully higher quality of revenue. The full financial benefit of this shift is still ahead of us and an FY '26 cohort of premium centers mature into steady state economics that are designed to deliver. The second engine is multi-format supply. Our supply strategy today operates across 4 distinct pillars, and I want to walk you through each briefly. The first is a revamped managed aggregation engine. We are increasingly using forward leasing as a strategic tool locking in grade AA plus assets in high-demand micro markets well before they are ready for it. We have already pre-committed over 4 lakh square feet under our MA model through Q2 FY '28. We are forward leasing, securing day as supply and with capital-light assets in advance. The next evolution of this is developer partnership model. We are in advanced discussions with 2 marquee institutional developers for structured partnership built around share CapEx, premium Grade A plus assets and office managing the end-to-end operations. For us, this means premium supply at materially lower net capital intensity and sharper ROCE compounding. We expect these partnerships to become a meaningful supply pillar in FY '27 and '28. The second is the next wave of enterprise supply anchored by 2 formats: Partial managed offer and demand side innovation where Awfis signed the new property, where only 40% to 70% of the seats are already anchored by enterprise or GPC client at the time of signing. The silence phase is first coworking, giving us anchor economics from day 1 and yield upside of flat inventory at centers. We have already a few partial MO centers started to go live soon with marquee anchor clients secured across Pune, Mumbai, Bangalore at the time of signing itself. Alongside this, premium managed office mandates from Fortune 500 GCC clients are driving large long tenured, high realization requirements that had clear visibility to our pipeline. The third is disciplined risk mitigated supply acquisition. Our supply portfolio is built to perform across cycles. Every deal goes through an asset liability mismatch validation before signing and we are locking in flagship under construction assets, only where we have prevalidated demand and a return signals. We are also increasing the signing supply with a forward view, securing the best assets early in building a pipeline that is resilient regardless of where the CRE cycle moves. And the fourth is premium by design, 100% of new is in grade 8 assets. We now have 35 gold angled centers growing with a deepening business in Market pass an over 60% of new leasing time with institutional landlords. The premium filter is nonnegotiable and is what drives the realization trajectory we are building towards. The third engine is GCC structural demand engine. GCC demand in India is no longer a cyclical team. It is structural multiyear tailwind, and it is accelerating. India continues to add 20 to 30 first-time GCCs every quarter and the mid-market segment, which is our primary export area. -- remains the fast-growing and most underpenetrated GCC category in India today.

Pardon me, sir, this is the operator. We are not able to hear you at the moment. Ladies and gentlemen, please stay with us, the management line seems to have disconnected. Ladies and gentlemen, thank you for your patience. We have now reconnected with the management. Over to you, sir.

Thank you. And apologies, again, there's some technology glitch happening. I'll just continue from here. The fourth engine for our organic growth, which is often underappreciated is conversations about our business, but is of the most powerful compounding levers we have. Our existing network itself is the growth engine. Renewals and seat expansion within existing clients are deepening every quarter, and the multicenter client base, which today accounts for 48% of our total clients. This continues to grow as enterprises consolidated their pan-India workspace requirements with office. To give you a sense of demand velocity, we sold over 58,000 seats across the platform in FY '26. What makes the compounding particularly powerful is the better live effect within our client base. A client entering through co-working often expand into managed office and then into full design and build mandate through office transform. This is not a sales motion. It is a natural progression that plays out every quarter. The fifth engine is the value beyond Flex, the set of adjacencies that compound of our core platform. Let me start with Awfis transform design and build business. FY '26 was a softer year on overall DNB revenue driven by project timing and lower count of managed aggregation deals, but the structural shift in the business is the real story. Third-party revenue, our external client work outside of office centers grew from INR 95 crores in FY '25 to INR 152 crores in FY '26, a 27% CAGR over 2 years. Third-party share has moved from 47% to 59%, and the average ticket size has nearly doubled. We closed 5 orders about INR 10 crores in FY '26 compared to just 1 in FY '24 and '25 and 17 orders above INR 5 crores in FY '26 versus 11 in prior 2 years combined. Transform is now delivering across sectors as diverse as BFSI pharmaceuticals, telecom, industrial, consulting and aviation, and we expect executed projects over across 20-plus cities in FY '26 alone. The pipeline going into FY '27 is materially stronger with INR 130 crores of mandates already won in delivery across the next 6 to 7 months. This is no longer a support function. It is a stand-alone business with its own client relationships. Its own capability stack and its own compounding pipeline. The cross-sell flywheel is one of the most powerful aspects of this business. 80% of our external D&B revenue comes from our flex lines. And it works the other way too. Transform clients are now anchoring future flex and managed office demand back into the office network. We have also been building frame by office furniture business over the last few quarters. The approach is deliberately CapEx-light rather than building own manufacturing infrastructure. We have assembled a contract manufacturing setup across 5 plus partners covering all major furniture categories, giving us quality control and scalability without the capital commitment. The majority of our new co-working centers will have frame furniture deployed by H1, making it the default for our own sector rollouts. Beyond that 30% to 40% of our D&B deployments are now integrating frame through our existing transform pipeline. And by H2, we expect to have 2, 3 large external mandates closed with corporate clients where we are not engaged in Flex or DNB relationship, which is the first proof point of frame as a stand-alone revenue channel. FY '17 will be a year of building this vertical with quality, discipline and right unit commits before we accelerate further. Allied services across IT, F&B, transport, business support, continue to scale rapidly with attach with rates increasing at our enterprise and GCC mix deepens. Each of this is a high-margin layer on top of our core seat economics and a meaningful differentiator after compound wallet shares per client over time. Taken together, these 5 engines, premiumization, multi-format GCC demand, organic growth and adjacencies are not separate initiatives. They reinforce each other. A premium center attracts a GCC client a GCC client multicenters into our network and absorbs the allied services a managed office mandate, converts into transform engagement, and each of these makes the new partial Mo or develop a partnership what sign. This is the compounding flywheel we have been building towards in FY '26 is the year it has visibly started turning. Before I close, a word on FY '26 guidance, our coworking and Allied Services segment comfortably met both revenue and EBITDA guidance for the year. Consolidated revenue growth was slightly impacted by softness in Design Build segment, where EBITDA held up strongly, which speaks to the operating leverage and the earnings quality of the Pro platform. To summarize FY '26 has been a defining year for Awfis. We have scaled the premium portfolio meaningfully deepened our GCC enterprise base, built our new adjacencies in Transform and frame, delivered industry-leading returns on capital and stated net cash through it all. The 5 wings I walked you through are not a plan for tomorrow. They're already in motion, each 1 reinforcing the other and each 1 positioned to compound through FY '27 and beyond. The business is in the strongest position yet. FY '27 is not about building for the future. It's about compounding on every strong present. With that, I would now like to hand over the call to Sumit Lakhani, our CEO, to walk you through the operational highlights in greater detail. Over to you, Sumit.

Thank you, Amit, and good evening, everyone. Let me walk you through the operational highlights for Q4 and FY '26. And then let me also pick up on a few items on the reference. During FY '26, we added nearly 30,000 seats across the network on a gross basis across 41 new centers with 100% of new supply in Grade A, A+ assets. As of March 2026, our total supplies to 250 centers and approximately 167,000 seats across 18 cities, while sales supply expanded to 266 centers and approximately 184,000 seats. Operational capacity today stands at 156,000 seats. We were highly selective on supply this year, focusing only on Grade A, A+ buildings prime micro markets and centers with store and to demand. More broadly, our supply additions are now increasingly optimized for revenue per seat rather than headline seat count. So while the headline number looks a bit smaller, the underlying economics are materially stronger. Our supply pipeline going into FY '27 is robust with a meaningful share already secured through signed LOIs and centers under Patton. All occupancy next centers defined as those operating for more than 12 months sustained at approximately 4% while the blended occupancy stood at 76%. To put that trajectory in context, over the last 4 quarters, we have moved blended occupancy up by 300 basis points on an average seat base of over 145,000 as, which is a meaningful lift at this scale. We are also increasingly anchoring new client additions on pre-committed demand, either through full or partial managed office arrangements before setting up a center. What that means is new centers are coming online with a higher starting occupancy than has historically been the case, which structurally reduces the drag from new additions on blended numbers. Demand quality has continued to deepen meaningfully. Enterprise and M&C clients account for 64% of our client base. As this client tenure has tenant to 37 months with lock-in tenure at 26 months, both of which reinforce the durability and predictability of our revenue base. The 500-plus seat cohort, which is the most premium and stickier segment of our portfolio now represents 37% of our overall portfolio mix. Multicenter client penetration is one of the strongest signals of platform value in our business. Today, 48% of our client base operates across multiple office centers and debt there is accelerating. Price operating in 3 more centers now account for 31% of our seats up 300 basis points quarter-on-quarter. Those in 5 or more centers account for 18%, also up 300 basis points and the share of clients operating across 10 or more centers has risen by 600 basis points quarter-on-quarter. When a client expands from one center to multiple centers across cities, they are not just renewing a contract we are choosing office as the national operating partner. What is also worth highlighting is the highlight is the density we have built within the key micro markets. We have a strong and deep presence across the most important micro markets in every major Tier 1 city with multiple format types co-located in the same catchment serving start-ups, corporates and GCCs submutaneously. Like, for example, outdoor Ring Road in Bangalore alone houses 12 of our centers, offering the full format stack from value Gold Elite to Awfis 6.0 and managed office within a single micro market. BTC in Mumbai houses 5 serving BFSI, GCC and start-ups in India's most premium address. This cluster creates network effects that are very difficult to replicate. Each new center strengthens the network, we can see risk drops as the catchment deepens, wallet per client increases. We continue to serve across enterprise clients let users each through differentiated formats and solutions. This bid gives us occupancy velocity at the [indiscernible] enter stability at the patent and the funnel of clients who scale from one to another over time. Our GCC business has continued to scale meaningfully. Before I get into the Awfis aspect metrics, it is worth noting the broader landscape. India's DCC ecosystem has now crossed 2,100 DCCs, operating across 3,700-plus units with the mid-market segment, which is our primary focus area remaining the most underpenetrated relative to its corporate base. Over 100 new GCCs were established in India in FY '26 and on further test industry data. and the tailwind from air adoption is driving both new entrants and the expansion of existing GCCs at a pace we have not seen before. 2/3 of new GCCs continue to choose Bangalore and Hyderabad as their prime location, but emerging hubs are also gaining traction. And our city presence across Tier 1 and Tier 2 markets is the network to serve these clients wherever they choose to set up. Within this landscape, Office now serves 100-plus unique GCC clients across 9 cities contributing approximately 23% of our rental revenues. We closed 14 major GCC mandates in FY 2026, which 6 already committed for FY '27 and another 7 in advanced stages of discussion. The momentum here is real and visible. Our strategic focus, as Amit mentioned, is the mid-market DCC clients typically entering 25 to 200 seats and scaling rapidly across multiple cities. The GCC client life cycle within office follows a very predictable pattern. Client typically enters at 25 to 50 seats in our working on board formats, expanding to 100 to 200 seats as operations mature and increasingly take up managed office mandates over time. This creates long-term revenue visibility, deep stickiness and rising allied services rates as the relationship grows. Each new GCC cohort is materially larger and stickier than the previous one, deepening the compounding effect we see across the client base. On the premium portfolio, we closed FY '26 with 35 gold and LA centers comprising 27 gold and 8 Elite, and this segment continues to grow as a share of new supply. Our premium footprint now covers 8 key GCC hubs including all 7 Tier 1 cities, giving us the right presence in the market where premium demand actually sits. Premium centers are increasingly the front door for enterprise conversions, large managed office mandates and higher a light services attached. They also command structurally higher realization. And as this cohort matures further through FY '27, the realization and margin contribution will continue to flow through. A quick word on the 3 adjacencies Amit referenced earlier. On Awfis transform, Amit walks you through the structural shift in the business, the third-party revenue trajectory and FY '27 pipeline. From an operation standpoint, I would add that transform is increasingly becoming a national multisector platform. The flywheel between our Flex business and transform continues to strengthen, and we see this as a meaningful driver of client revenue going forward. On frame by Awfis, we have built the foundations through FY '26. The team is in place, the contract manufacturing setup is operationally across 5 plus partners and FY '27 will be a deliberate build for this vertical. Allied services across IT, F&B, transport and business support continue to scale steadily as a higher-margin layer over our core techonomics. Before I close, one important point on our co-working business, coworking is sometimes overshadowed in conversations about enterprise and GCC growth, but it remains one of our deepest structural advantages. Awfis is the only scaled flex operator in India with a genuinely deep and diversified presence across the small and midsize cohort of co-working segments from single seat users to 100-plus seat clients. What is particularly interesting is that around half of our sub-100-seat clients are large enterprises or M&C clients. Even at entry point scale, we are adapting blue chip demand, not just filling seats. This is a highly operation intensive business and with meaningful entry barriers built over more than a decade of execution, technology integration, operation depth and network scale. It is also the segment that creates the follow for everything else where the network effect begins and the moat that is very difficult to replicate. Overall, what we are seeing across the operational metrics is a network that is maturing well a client base that is deepening rapidly and a platform that is set up to compound. With that, I hand over to Sumit Rochlani for the financial update.

Thank you, Sumit, and good evening, everyone. Let me walk you through the financial performance for Q4 and FY '26 in detail. Starting with the fourth quarter, consolidated revenue from operations for Q4 FY '26 stood at INR 410 crores, growing 21% year-on-year. Within this, our coworking and Allied Services segment grew 27% year-on-year to INR 342 crores. continuing the strong momentum we have seen through the year. On a sequential basis, this segment also grew 6% quarter-on-quarter, reinforcing the consistent compounding trajectory. Operating EBITDA for the quarter stood at INR 152 crores, a 31% increase year-on-year with EBITDA margins expanding to 37%. Profit before tax and exceptional items grew 97% to INR 24 crores, and PAT for the quarter came in at INR 23 crores, compared to INR 11 crores in Q4 25, a growth of 107%. Moving on to the full year. Consolidated revenue from operations for FY '26 stood at INR 1,493 crores, a 24% increase year-on-year. Our co-working and allied services segment grew 35% to INR 1,237 crores adding INR 321 crores of incremental revenue in a single year. To put this in context, INR 321 crores of incremental CW net revenue in 1 year. Operating EBITDA grew 37% to INR 550 crores, with EBITDA margins expanding by approximately 350 basis points to 36.8%. PAT before exceptional items grew 66% year-on-year to INR 71 crores. As a reminder, the exceptional gain in FY '25 related to our exit from office care business and there are no exceptional items in FY '26. On a normalized basis, adjusted for [indiscernible] AS 116 and other accounting items, normalized EBITDA for FY '26 stood at INR 213 crores a 27% increase year-on-year, with normalized EBITDA margins at 14.3%. Our balance sheet remains in excellent shape. We maintained a net cash position throughout the year. With net debt to equity at negative 0.20 and gross debt to equity at 0.09, reinforcing the financial discipline that underpins our group. PAT generated from operations for FY '26 stood at INR 655 crores. After tax payments, net cash from operating activities came in at INR 616 crores as per Indian financials. On a normalized basis, adjusted for lease liability outflows, normalized cash flow from operations was at INR 216 crores, reflecting strong cash conversion with operating cash flows to EBITDA of 1.01x. On returns, ROCE sustained at 50% and annualized ROE stood at 17%. Just as importantly, our revenue to gross fixed assets ratio came in at 1.5x, which is best in the industry, reflecting the asset productivity advantage of our capital-light managed aggregation model. On CapEx, total CapEx deployed towards CapEx during FY '26 stood at approximately INR 208 crores on primarily directed towards our Gate A+ centers in premium micro markets. With that, we conclude our opening remarks and would like to open the floor for questions and answers.

[Operator Instructions]. Our first question is from the line of [ Murtaza Arsiwalla ] with Kotak Securities.

Just 2 or 3 questions. One is that when you refer to your occupancy -- is the base on operational capacity or on the total supply of 167,000 seats. So that's first one. Second, what's the margin profile on the D&B business or roughly INR 50 crores of external revenues? And the third one was on -- I don't seem to see revenue to rent kind of a ratio, which is a lot of your PS sort of reports. So if you could give us some indication on that.

I'll start answering your question, this is Sumit Select. So with respect to the occupancy, we look at the occupancy carpeted on the total operational seats. -- so which in this case would be around 157,000 seats. With respect to your second question around on design and build revenue design and build margin. I'll request Sumit rochlani to answer that.

The design and build margins are close to 7% to 8%, and this is the net margins that I'm referring to. And the last question you had was on rent to revenue ratio, is it?

Yes.

Yes. Yes. So the revenue-to-rent ratio for us comes around 2.3%.

Our next question is from the line of Yashas Gilganchi with BOB Capital Markets Limited.

Would you be able to share what is the operational chargeable area as of 4Q 26? And also the centers assigned to the partial managed office. Are the center also likely to be bigger than the typical office center -- or is it right to assume that from now on, the average office center is likely to be bigger across all offerings.

So the operational chargeable area, we are looking at every seat as 50 square feet. So across males metrics of seeds, which we have given you could directly just multiply by 50% for the area. -- that's the standard metrics we have been following over the last couple of years. In terms of your question around partial managed office centers, the primary goal for us is to set up centers in the range of about 30,000 to 50,000 square feet. However, in partial managed office centers, we are a bit agile in terms of the size of the center increases. -- there are certain discussions where we would be looking at signing closer to about 65,000 to 70,000 square feet centers where the client demand is -- ranges from about 40% to 50% day 1.

Okay. Understood. And what is the highest sustainable level blend occupancies can be treated in your portfolio? And what would drive that improvement.

So primarily, the overall -- if you look at the headline blended number, over the last 4 quarters, as I mentioned, it has gone up by 300 basis points at an average seat base of about 145,000. The blended figure of 76%, it's essentially a function of the large cohort of new centers added during FY '26 still being in the run phase. So as long as we are growing at this pace, there is always going to be some drag on blended occupancy, right? On our mature cohort, the centers, which are operating for more than 12 months, we are at 84%. This is healthy, but this is also where we believe there is a room to do better. In FY '27. So primarily 3 actionable levers over here from our side, more deeper GCCs and enterprise penetration across these centers. Second, what we are aiming for is longer tenured into these centers. And a straightforward actionable for us has more active renewal and churn management across the portfolio. Broadly in this kind of a cohort, we would prefer that at least we have a couple of 100 basis point increase over the next couple of quarters.

Understood. And if I could just squeeze in another question. With the meaningful improvement of growth in your D&B business and a higher proportion of net gold centers, do you expect EBITDA margins to trend over the next few years?

Sorry, can you repeat that question?

Sure. With the meaningful growth in your D&B business and a higher proportion of the Align gold centers, how do you expect EBITDA margins to trend over the next 3 years?

So see, fundamentally, if you look at a broad view of next 2 to 3 years, we think that all the integrations, which we are making right now with respect to moving into the whole premiumization strategy. We think we will move into a serious kind of uptake around on EBITDA margins going forward. and D&B business with a good portion of the MP business coming from third party over the course of next 2 to 3 years will help contribute further in improving the EBITDA margins.

[Operator Instructions]. Our next question is from the line of Shamit Ashar with Ambit Capital.

So I just wanted to know what would you see addition for FY '27 be? And what kind of CapEx number are you looking for in FY '27, given that we'll be adding more of gold and elite centers or some elevated CapEx in '27, still the way of what we have done in FY '26. So we had -- the FY '26 seat addition is reflecting more of a deliberate choice of quality over quantity. If you looked at, we were very highly selective on supply this year, focusing only on grade and A+ building. So we would look at following a similar kind of a trend around on FY '27 as well. Because the supply additions, the way we are looking at is now increasingly optimized for revenue per seat rather than the head count. And what we expect to do is probably around 20,000 to 25,000 gross seats translating closer to 1.25 million square feet. We have a decent kind of a pipeline and already a significant kind of visibility around on achieving these seats. In terms of the overall CapEx, the way we are projecting and seeing is it would be almost on similar lines of FY '26 across the these seats.

Our next question comes from the line of Aditya Sharma with [ Sikra ] Investments.

Just trying to understand what happened in this quarter. As in last quarter, we reduced our guidance from 40,000 to 32,000 seats -- and I think what we have done is 26,000. So if you could just help us understand what has led to this reduction in terms of what we had guided.

So on the co-working light piece segment, we obviously, confidently, we met both revenue and EBITDA guidance, right? So 35% revenue growth and 3% EBITDA growth. Obviously, Vessel. On the -- basically, the seat addition itself, obviously, you sort of deliberate choice of quality over quantity. We were highly selective on our suppliers this year. We focused on only Grade A plus buildings, priming micro markets centers with strong enter demand. and a larger share of elite and managed office center, which carry obviously longer fit-out time line also shape the whole phasing. More broadly, as supply additions are now increasingly optimized for revenue per seat rather than the headline seat count. The underlying economics per seat are still materially strong. So just one more point on way. The total -- the gross addition for FY '26 has been around 30,000 seats and not 26,000 seats.

Can you help in terms of clarifying that because when you put in the presentation first half was 14,000 and then we did it and then we did 4. So my math is it's 26. So I didn't understand how did you put 30,000 plus seats added because if we just go back in previous presentations, it 2 vs 14 last quarter was 8. This quarter was 4.

So the seat addition still is 30,000. It's because of some of the closures that have happened. So the gross addition there are a few centers that have been closed and hence, because of that number, again, there is some mismatch in what you're saying and what we are seeing.

Okay. So the number, the 26,000 is the net addition and 30,000 is the gross solution. That's how we should look at it?

So about roughly 22,000 is the net addition and 30,000 is the gross addition.

Okay. Okay. And then where does this number come in 26. So the one that we keep guiding like 4,000 that highlighted in this quarter. If we add that is '26, so what does that number mean?

Sorry, you would have to give us, again, some context around 26,000 number.

I'll repeat yes.

So Last year basically, last year, we ended the year at approximately about 15,000 seats. And right now, we have 157,000 seats that are operational. So that's the 22,000 net addition. And overall, we added 30,000. And hence, obviously, we closed 8,000. So hence, the net add is 22%.

Got it. Got it. Okay. And second question is, so some of the players with similar size are talking about higher growth in terms of space addition -- so if this choosing premium offering, is it a onetime exercise or if we're going to continue this and this is going to impact our growth expectation for the medium term as well. Is that how we should look at it?

So I think, obviously, the premiumization has now obviously become defaulted office. So it's not a onetime deal for 27. It's an overall strategy overlay. And obviously, every new center that we are going to sign now is going to be in Grade A and gas assets, obviously, in top demand micro markets. So there's not -- it's a nonnegotiable and it's a fundamental shift that we are doing. In terms of -- as we said earlier, we have given guidance on the number of seats that we would add this year would be between 22,000 to 25,000 seats that we would add. Now -- from our standpoint, the headline number of seed is not critical for us. I think what that per seat realizes for us is more critical. So at the end of the day, growth is a factor of number of seats. -- multiplied by the realization from the sea. So obviously, if my realization is higher from lower seat addition, I can achieve the growth that we have projected out there. We are currently seeing that, obviously, our growth is essentially going to be overall somewhere in the 25% range, where co-working will translate to about 25% to 27%, and the design and build business will be about 22% to 25%.

Got it. Got it. Just final question. Like with the increase in supply -- incremental supply from enterprise developers, will we see reduction in share of our managed aggregation format?

Managed aggregation for us continues to remain a core strategy. I think as we explained in our mean the points that we highlighted, clearly, I think from our standpoint, this is fundamentally, we are doing 2, 3 things here, right? One obviously, we are looking at managed aggregation, but a better quality of supply and managed aggregation and that is happening through the developer partnerships that we spoke about. I think we are in advanced stages of closing these 2 large developers, where they would essentially be a partnership and essentially, the investment will go in and office will manage and run the show just like our managed aggregation model. So I think that clearly drives that for us. And then as we are obviously moving into some of these micro markets, where we have done partial MO where we are doing MO, it gives us credibility in those markets to continue to expand those relationships with our developers. And currently, we anticipate that this will -- the managed aggregation continues to remain a core strategy for us. And I think going forward, we will continue to maintain the ratio in the 60-40 kind of a range, which we have done over the last few quarters as well.

The next question is from the line of Vikrant Kashyap from Asian Market Securities.

Two questions. One, you mentioned Paris new format. Could you walk us through what it is and why it matters for Awfis going forward? And the second question is been on developer partnership that was just talking about -- there has been talk about your developer partners you slim what these deals motive and how they're fitting in your strategy going ahead?

Sure. So see, partial MO is something where office signs a new property and day 1 did almost about 42, let's say, 60-odd percent of the seats are already anchored by an enterprise or a GCC client at the time of signing. So the balance is filled through co-working. So this gives us best of the both for us. So it gives us anchor economics from day 1 and the add upside of flexible inventory as just interfaces. So we have been following it up since last couple of quarters, and now this is becoming more important part of our strategy. In terms of our developer partnerships, as Amit has mentioned, this is a variant of our managed aggregation model only. Here, we are looking to have more portfolio level relationship with developers driving co-working and flex centers within their tech parks. -- where we would run -- will have put us in the game in terms of putting a portion of capital from our side, giving a portion of MG and but going more deeper and more larger kind of relationship with those partners. The only difference here would be -- most of our managed aggregation so far has been hedged around all noninstitutional space owners. And now we are seeing an opportunity that we can get more to build these partnerships with larger developers.

Okay. So in terms of the occupancy and mitigation, how these 2 strategies put together will help you out in terms of getting higher Awfis since parcel will be decentered by your forwarding and with this lower strategy of sourcing, how would you monetize this.

See, both are primarily anchored around on risk aversion and risk mitigation. As you see, most of the part all the partial managed office centers or partial MO centers are going to be straight leases. So we are starting these straight lease centers with a kind of an anchor demand so that the complete rental or a portion of the fixed rental is covered day 1. So it helps us reduce the occupancy buildup losses. In terms of [ Wellpark ] partnerships, in any case, it's going to be risk averse because the risk will get shared between us and the developer, both in terms of occupancy across the tenure. Second, it also helps us drive a more drive a capital-efficient model and give a way to manage. Drive more managed aggregation transactions. Why this is specifically, we are calling it out because the MA transactions, what we are doing, we want to highlight that we are doing the MA transactions and attempting to do these emit transactions more grade A and A+ building now.

In your presentation, you also mentioned about 2.0 and office you are going to build more of the premium version. So in terms of CapEx per se from a CapEx feet, how would you differ from your base submergence of Elite and gold, and these 2 formats will have more of the incremental second centers going than '27, '28.

So I mean, if you really look at it, 6.0 from a spend standpoint is not going to be very different than 5.0. It's a complete refresh on the design, but as far as the capital towards those centers go, the 6.0 centers, it would not be very different than what was being spent in. This 6.0 also will continue to be a majority of the overall seat count that we will add, right? Obviously, we currently, as we had mentioned earlier, out of the 250-odd centers, 35-plus are in gold and elite. So we'll continue to maintain the ratio. And hence, I don't think the capital spend would be very different than what we have done for FY '26.

Our next question comes from the line of Fenil Brahmbhatt with Choice Institutional Equities.

So my first question is on the segment side. So what is the management guidance on the revenue from construction and fit-out projects any Y-o-Y growth we are expecting for next FY '27, '28? And if -- and from where we are expecting this growth. The second, we have not reported any other income like revenue from others. -- versus 132 million -- around INR 132 million in FY '25, so it would be great if you throw some color like we are going to expect anything on this side? Or there will be 0 for next coming years?

Sure. So I'll answer the first part of the question, and then I'll request Sumit Rochlani, our CFO, to answer the second part. So let me walk you through the FY '27 outlook across the key parameters. So starting with revenue, our coworking and Allied segment is expected to grow in the range of 25% to 28% in FY '27. Awfis transform is expected to grow in the range of 20% to 23% over FY '26 levels. Together, this total will constitute a revenue also approximately 25% to 27% for the full year. Our confidence is obviously coming currently from specific drivers, committed GC sign-ups that we have done, both on megascale increasing in micro and nano GC segment. Obviously, the MO and the partial MO that we've spoken about where conversion is already visible and the premiumization and mix that shift that is driving obviously structurally better realizations across the total portfolio. In terms of the second part of the question, I will just ask Sumit Rochlani to address that, please.

The line item, we see others in the mental results that you are referring to represents revenue and results from the facility management services business that we had sold last year in September 24, sorry.

Okay. So now we are not expecting anything on our side. Got it. Got it. And the second question is on the payment of principal portion of lease liability, which has increased significantly for FY '26. So can you throw some light over there and what we can expect for upcoming quarters or on this?

So we have also added supply in a meaningful way this year alone, we have added 30,000 seats. So that alone contributes to the increase in the payment of lease liabilities. Also some of the centers that we have added towards the fourth quarter of last year, we initially had some inventory period. once that rent-free period is over, with cover and this year, there was a rent outflow on those leases as well. And then since we have been in business for a decade there have been properties which have come up for renewal. So there were escalations on that as well. So -- these are the contributing factors. But the primary factor is the seed addition that we have done this year and towards the end of last year and the last quarter.

So just want to understand what was the escalation percentage, if you can share the average escalation percentage or something, which would be helpful for us.

So I would not have that handy in terms of the average escalation. But typically, the way the leases work is that for the first 3 years is fixed, that's a 15% escalation -- and typically, depending on the fifth year, if you are renewing again, then there could be escalation at that stage, but I don't have that number handy on the overall portfolio level.

Okay. Okay. And if you can allow...

We request you to please rejoin the queue if you have any further questions, please. Our next question is from the line of Jitendra Pradhan with Maximal Capital.

I hope I'm audible. The first question is just a clarification on the addition. So 22 to 25,000 is our net additional guidance, right?

Gross addition guidance.

Okay. And sir, is this additional 50, 40 percentage that you mentioned, that would be coworker versus the...

No, just to clarify, we were talking about the managed aggregation ratio which is currently at 60% as managed aggregation, about 40% is straight lease. -- and this has trended in the last few quarters at the same level. So this is not a mix of co-working versus managed Awfis. This is a mix of managed aggregation versus trade lease.

Okay. So on this, sir, the incremental additions this ratio would be broadly maintained or will be working more towards.

Yes.

Our next question comes from the line of Sanjana Mittal with MS Capital.

I have 2 questions. First if FY '26, we saw 30,000 feet broad addition and net addition being 23,000. So that means approximately 5% was the closure rate if I take last year's base. So is this a level of churn that you would characterize as omni course of business? Or was there some specific element of some portfolio readjustment which happened this year?

So Sanjana, you're right. So FY '26 was a year of portfolio rebalancing for us. as we were revising the network towards grade A and A+ asset. So we thought there are certain centers which we should exit. So out of the broadly 8,000 seats, which we closed one specific instance was there were 3,000 seats, which were from a short-term space setup. -- specifically for a single client, which we exited because this was more of a time on arrangement and not a permanent addition. The remaining closures primarily fell into 2 categories, 1 at the time of lease renewal, we evaluated each center against the return thresholds, the micro market outlook and asset quality. So wherever the terms did not justify renewal or where the buildings no longer met our [indiscernible] bar we exited. So in a couple of these cases, we consolidated demand from older centers into newer centers in the same micro market. So we did not lose all the customers on the revenue. We upgraded the experience for a significant portion of the customers. So broadly, we don't expect this percentage of seed closure across every year.

Understood -- so -- that's helpful. So -- but going forward, you would say that this 5% is not the kind of churn that we're looking for, maybe some on the low side.

Yes. 5% is not the kind of a churn which we would look at.

Understood. Sir, my second question is a bookkeeping question. So if I look at the adjusted rent number, which is reported in the normalized that stands about INR 350-odd crores for FY '20. But the cash flow rent number is 4 million growth, which is a gap of about INR 60-odd crores. And in H1, this gap was about INR 20-odd crores, and it was explained at that time that there is some cash flow accrual timing mismatches and lease payments and IT products because of which this gap exists. But the understanding then was that this gap would not widen in absolute terms, but it appears to have -- so could you help me understand that what is the reason for the increase in this gap in absolute terms?

Yes. So the reconciling items that we had shared earlier, more or less, those reconciling items are still there as far as items like operating lease and as far as operating lease is concerned, of course, that with the passage of time as a higher number. We do have a reconciliation and we can connect on this one-on-one, and we can walk you through this calculation.

Thank you. Ladies and gentlemen, due to time constraints, we will take that as a last question for today. I would now like to hand the conference over to Mr. Sumit Lakhani for closing comments. Over to you, sir.

Thank you, everyone, for joining us today. We hope we have been able to give you a detailed overview of our business and answer your queries. Should you have any further questions or required clarifications, please feel free to reach out to SGA, our investment relation advisers. Thank you once again, and have a great evening.

On behalf of Office Space Solutions Limited and Asian Market Securities, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.