EFC (I) Limited (512008) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to EFC (I) Limited Q2 and H1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. To discuss this quarter's performance, we have from the management, Mr. Umesh Sahay, Chairman and Managing Director; Mr. Nikhil Bhuta, Whole-Time Director; Mr. Uday Vora, Chief Financial Officer; and Mr. Aman Gupta, Company Secretary. Before we proceed with this call, I would like to mention that some of the statements made in today's call may be forward-looking in nature and may involve risks and uncertainties. For more details, kindly refer to the investor presentation and other filings that can be found on the company's website and stock exchanges. I now hand the conference over to Mr. Umesh Sahay for his opening remarks. Thank you, and over to you, Mr. Sahay.

Thank you. Thank you. Good morning, everyone. Thank you for joining us for EFC quarter 2 financial '27 earnings conference call. I would like to begin by thanking our shareholders, investor, customer and business partner for their continued trust and confidence in EFC. I'm pleased to share that we have continued to maintain encouraging business momentum during the second quarter, supported by our enterprise relationship execution capabilities and the growing strength of our integrated business model. Our 3 business verticals, Leasing, Design and Build, and Furniture Manufacturing continue to provide us with complementary growth opportunity, enabling EFC to participate across the commercial workspace value chain. Looking at the broader industry, the underlying market opportunity across all 3 verticals remain encouraging. India's office market recorded approximately 66 million square feet of absorption during the first 9 months of '26. In Design and Build, growing office demand expansion of GCC Global Capability Center and investment [Audio Gap] Same time, India furniture [Technical Difficulty] approximately $25 billion to $29 billion is expected to grow steadily with increased preference for organizing and quality-focused manufacturer. This trend reinforce our confidence in the long-term growth potential of our business. An important trend we are witnessing is that enterprise are increasingly prioritized flexible, efficient and speed of execution in their workspace decision. Business today want ability to expand, consolidate or reconfigure their office requirement without significant upfront capital commitment. This created a strong opportunity for professional managed workspace. EFC asset-light leasing model, which does not depend on ownership of the underlying real estate allow us to address this evolving requirement while maintaining a focus on scalability and capital efficiency. Our Design & Build capability further strengthened our ability to deliver high-quality commercial space efficiently, while Furniture Manufacturing expand our participation in the broader interior and furnishing market together. This business position EFC as an integrated workspace solution provider rather than merely a conventional office leasing company. During the quarter, we have also taken important steps including our proposal -- our proposed corporate restructuring and the acquisition of Ultrafresh. This initiative are aligned with our broader objective of building a more focused, integrated and scalable organization. Nikhil will elaborate on this development shortly. As we look ahead, our priorities remain clear, strengthening our enterprise relationship, maintaining execution excellence, improving capital efficiency and pursuing profitable, sustainable growth. Our ambition is not simply to build a larger EFC, but to build a stronger, more competitive and more valuable EFC, one that delivers consistent performance and create long-term value for all stakeholders. I remain confident in the opportunity ahead in our team's ability to execute our strategy. Thank you once again for your continued support. With that, I would now like to invite Mr. Nikhil Dilipbhai Bhuta to take you through our key business development and strategic initiatives. Thank you. Nikhilbhai?

Thank you, Umesh sir. Good morning to all our investors, analysts and stakeholders. Umesh sir has spoken about our performance during the quarter and the larger vision that [Audio Gap] I would like to take this forward and discuss 3 important aspects of our business. First, how our individual businesses are progressing and contributing to the overall platform; second, the strategic decisions we have taken, particularly the proposed corporate restructuring and acquisition of Ultrafresh. And third, how these initiatives are helping us build a stronger competitive position and create opportunities for sustainable growth. Business performance and operational progress can be briefed as under. Let me begin with our business performance. During Q2 FY '27, we continue to focus on strengthening our operation across Leasing, Design & Build and Furniture Manufacturing. Starting with our Leasing business. This remains the foundation of our platform and an important source of recurring revenue. We continue to benefit from our established presence across multiple cities and our relationship with the enterprise customers. What is encouraging is the changing nature of our customer demand. Large enterprises and GCCs are increasingly looking for partners who can offer not only quality office infrastructure, but also flexibility, consistent services and ability to support their expansion across locations. Our experience in operating managed workspace and understanding enterprise requirements puts us in a good position to address these opportunities. Our focus is not simply on adding more seats. It is on improving utilization, strengthening customer relationship and ensuring that every center contributes meaningfully to the overall business. Now coming to Design & Build turnkey contracting solutions segment. This business continues to be an important part of our growth strategy. Over the years, we have developed capabilities and commercial -- in commercial interior design, turnkey executions, project management, and MAP services. Today, these capabilities allow us to participate in the wider range of opportunities, including enterprise offices, institutional projects and multi-locational assignments. An important aspect of this business is that it is increasingly developing independently of our leasing operations. We are not relying [Audio Gap] with external customers and participating in larger executional opportunities. This is important because it allows us to address a much wider market while also strengthening the executional capabilities of our overall platform. Being a project-driven business, the timing of execution and project milestones can influence performance between the quarters, but our focus remains on maintaining a healthy pipeline and delivering projects on time and protecting execution quality. Now moving to Furniture Manufacturing vertical. This is a business where we see considerable long-term potential. Through design, we have been building our manufacturing capabilities, expanding our product portfolio and strengthening our presence in institutional and customized furniture solutions. Our strategy has been to develop this as an independent manufacturing business while also supporting the requirement of our Leasing and design [Audio Gap] scale, capacity utilization, procurement efficiency and product mix will also be an important drivers of profitability. We believe that the investments we are making in this vertical can help us create a stronger and more diversified manufacturing platform over time. Our CFO will cover the financial contribution and performance of each this vertical in a greater detail. Our integrated business strategy that I would like to little dwell upon. Now I would like to explain how we look at this business strategically. At EFC, we have always believed that the growth should come from building capabilities that strengthen each of it. Let me give you a simple example. A company may initially approach EFC for managed office space. As that company expands, it may require a larger office, a customized fit-out for furniture solutions. Because we have capabilities across these areas, we have an opportunity to serve that customer at multiple stages of its growth. Similarly, a customer who first engages with us for a Design & Build project may subsequently become a customer for our managed office or furniture business. This creates opportunity for cross-selling deeper customer relationships and a better utilization of our resources. And importantly, it allows to grow independently while benefiting from the capability of our larger group. That's the real advantage of our model. We are not dependent on a single business or a single source of growth. We are building multiple businesses that can create opportunities for one another. This integrated approach also helps us improve execution control, procurement efficiency and customer service. I'd like now to look at a little on the corporate restructuring that we have proposed through the demerger that is filed with the NCLT. Coming to one of our important strategic initiatives that is this proposed demerger and corporate restructuring. I'd like to explain the thinking behind this decision because we believe it is important for the investors to understand its long-term relevance. As our workspace business has grown, we have developed 2 distinct operating models. The first is our leased premise managed office business, where our focus is on managing workspaces, serving enterprise customers and generating recurring operating revenue. The second is our owned property business, where we identify suitable commercial properties, acquire or develop them, improve their utilization and operate them as an income-generating assets. Both businesses have attractive opportunities, but their capital requirement and return characteristics are different. Our view is that as these businesses become larger, they should have a structure that reflects their respective operating capital requirement. Under the proposed arrangement, the leased premises managed office operation will be housed within EFC (I) Limited, that is a stand-alone listed company, while the owned property operation will remain within EFC Limited, the wholly owned subsidiary of EFC (I) Limited. The objective is very straightforward, greater business focus, clearer capital allocation and improved accountability. We believe this will allow us to manage the asset-light operating business and the property ownership business with greater clarity. It also supports our longer-term approach towards asset management and real estate monetization. For example, when we identify a commercial property with stronger potential, but lower capital current utilization, our experience in managed workspace can help us reposition these assets, attract suitable enterprise customers and improve its income-generating potential. In such cases, we may be able to create value not through -- not only through workspace operation, but also through improvement in underlying property commercial value. The proposed restructuring is intended to provide a more suitable framework for pursuing these opportunities while maintaining financial discipline. We also believe that a clearer capital business structure will help investors better understand the economics, capital requirement and value drivers of our different activities. Of course, the proposed scheme remains subject to applicable approvals and implementation requirements, but we are very confident that the proposal will soon go through the NCLT -- receive the NCLT approvals. Ultrafresh acquisition, which is another important strategic milestone, which is strengthening our manufacturing platform. The second important strategic development, which is this acquisition of Ultrafresh Modular Solutions, I would particularly like to highlight why we see this acquisition as strategically important. When we started building our Furniture Manufacturing business through Ek Design, we were clear that we wanted to create a business much larger than simply supplying furniture to our managed offices. We wanted to build capabilities in institutional furniture, customized products, OEM manufacturing and other market opportunities. However, as we evaluated the next phase of growth, we recognize that manufacturing capacity alone is not sufficient. To build a successful manufacturing business at scale, you also need product capabilities, design expertise, distribution, customer relationships and market access. This is where Ultrafresh fits into our strategy. Ultrafresh brings an established presence in modular furniture solutions, particularly kitchens, wardrobes and other customized home furniture products. It also brings manufacturing infrastructure at [ Nalagarh ], at Himachal Pradesh and established brand design capabilities with an existing network of studios and customer touch points. For us, this acquisition is not merely about adding revenue. It is about acquiring capabilities, market access and established operating platform that would otherwise take considerable time to develop organically. We see these multiple opportunities from this combination. First, manufacturing optimization. We can evaluate how best to utilize the combined manufacturing infrastructure, improve production planning and strengthen procurement and supply chain efficiencies. Second, geographical expansion. Ultrafresh presence in North India complements our existing manufacturing footprint and create the opportunity to serve customers across the wider market. Third, product diversification, while Ek Design has been developing its institutional and commercial furniture business, Ultrafresh gives us access to modular home segment. And fourth market is the market access. Ultrafresh brings an established customer-facing network and brand presence, which can support our broader manufacturing ambitions. Our immediate focus would be on integrating the business effectively, identifying operational synergies and improving the efficiency of the combined platform. We are also conscious that an acquisition creates value only when it is integrated and managed properly. Therefore, we intend to approach this with discipline, preserving the strengths of the acquired business while using the larger EFC ecosystem to support its growth. We see Ultrafresh as an important step in building a more diversified furniture and modular solutions business. How our strategy strengthen our competition position. Now if you look at these developments together, there's a clear strategic direction. Our Leasing business provides long-term enterprise relationships and recurring revenue opportunities. Our Design & Build business expands our participation in commercial infrastructure and execution. Our Furniture Manufacturing business strengthens our supply chain while creating independent growth opportunities. And Ultrafresh acquisition expands our manufacturing capacity product portfolio and market. Our proposed corporate restructuring is intended to bring more efficiency, more focus and to our workspace operations and owned property activities. These are not separate or unrelated initiatives. Each one is intended to strengthen a different part of the overall EFC platform. We believe this approach can give us an important competitive advantage in the managed office workspace industry, company often compete on location, pricing and capacity. In commercial interiors, the competition is often around executional capabilities, time lines and project cost. And in Furniture Manufacturing, success depends on product quality, manufacturing efficiency and distribution and scale. At EFC, we are bringing capabilities from this different business vertical together. This allow us to offer customers a more comprehensive solutions, gives us opportunity to improve efficiency across the group. We believe this is one of the reasons our business model has been able to develop and grow across multiple verticals. However, we also recognize the competitive advantage is not something that can be established once and taken for granted. It has to be earned continuously through execution, customer satisfaction, operational efficiencies and responsible decision-making. That remains our focus. Execution priorities and outlook. Looking ahead, our priorities are clear. In Leasing, we will continue to focus on enterprise relationships, occupancy, customer retentions and asset productivity. In Design & Build, our emphasis will be on expanding external business opportunities, strengthening execution capabilities and maintaining project discipline. In Furniture Manufacturing, we believe focus on capacity utilization, product diversification, operational efficiency and integration of Ultrafresh. At the corporate level, we will continue progressing with the proposed restructuring and evaluating opportunities that can strengthen our business while maintaining discipline in capital allocation. We also recognize that as EFC grows, working capital management, project execution, cash flow generation and operating system will become increasingly important. Our objective is to ensure that the growth is supported by a stronger operational and financial foundation. I would like to conclude with one thought. Our strategy is not to grow by simply adding more businesses or making more acquisitions. It is to ensure that every business we build and every strategic decision we take makes the overall EFC platform stronger and stronger. We believe that this approach can help us sustain our growth, improve our competitive positions and create long-term value for our stakeholders. With that, I would like to invite our CFO, Mr. Uday Vora, to take you through the detailed financial performance for the quarter, including our segment-wise results, profitability and other key financial metrics. Thank you so much.

Thank you, Nikhil sir. A very good morning to all our investors, analysts and stakeholders joining us today. As Umesh sir and Nikhil sir have explained, EFC continues to make progress in building an integrated business platform across managed office Leasing, Design & Build and Furniture Manufacturing. I will now take you through our financial performance for the second quarter and first half of FY '27, highlight the contribution from our individual business verticals and share our key financial priorities as we move forward. Let me begin with our consolidated performance for the quarter ended September 30, 2026. I am pleased to share that we have delivered another quarter of healthy growth, both in terms of revenue and profitability. Our consolidated revenue from operations stood at INR 332 crores compared with approximately INR 255 crores in the corresponding quarter last year, representing a year-on-year growth of 30%. Our EBITDA stood at approximately INR 134 crores, registering a year-on-year growth of 21%, while our profit after tax increased to approximately INR 77 crores compared with INR 57 crores in the corresponding quarter last year, reflecting a growth of 36%. Our EBITDA margin for the quarter stood at approximately 40%, while our PAT margin was approximately 23%. What is important to highlight is that our revenue growth continues to be supported by contributions from all 3 business verticals while profitability reflects the operating strength of our integrated platform. Moving to our performance for the first half of the financial year. For H1 FY '27 we reported consolidated revenue of approximately INR 650 crores compared with INR 474 crores in the corresponding period last year, representing growth of approximately 30%. Our EBITDA increased from approximately INR 213 crores to INR 257 crores, while profit after tax increased from approximately INR 103 crores to INR 148 crores. This translates into PAT growth of approximately 43% for the first half. Our earnings per share for H1 FY '27 stood at approximately INR 10.11 compared to INR 7.09 in the corresponding period last year. These numbers demonstrate our ability to expand our business while maintaining healthy profitability. Let me now briefly discuss the performance of our 3 business verticals. Our Leasing business continues to be the largest contributor to consolidated revenue and an important driver of our recurring operating income. During Q2 FY '27, the Leasing segment reported revenue of approximately INR 168 crores compared with INR 129 crores in Q2 FY '26, representing growth of approximately 30%. For H1 FY '27, Leasing revenue stood at approximately INR 322 crores compared with INR 252 crores in corresponding period last year. This performance reflects the scale of our managed workspaces operations and the continued contribution from our enterprise customer relationships. From a financial perspective, our focus in this business remains on improving assets, productivity, optimizing operating costs and ensuring that incremental capacity translates into sustainable returns. Coming to my D&B segment. This segment reported revenue of approximately INR 129 crore during the quarter compared with INR 112 crore in the corresponding quarter last year, representing growth of approximately 16%. For the first half, revenue stood at approximately INR 230 crore compared with INR 196 crore in H1 FY '26. As explained, this business is expanding beyond the requirement of our internal workspace ecosystem and increasingly participating in external commercial and institutional projects. Being a project-driven business, quarterly performance can vary depending on execution, schedules and contractual milestones. From a financial management perspective, our emphasis remains on project level profitability, milestone-based billing, timely collections and disciplined working capital requirement. Our Furniture segment reported revenue of approximately INR 35 crores in quarter 2 FY '27 compared to INR 14 crores in the corresponding quarter last year, representing growth of approximately 149%. For H1 FY '27, revenue stood at approximately INR 63 crores compared with INR 27 crores in the corresponding period last year. This segment has demonstrated strong revenue growth from a relatively smaller base. Our focus going forward will be on improving capacity utilization, procurement efficiencies, inventory management and operating leverage as the business scales. The acquisition of Ultrafresh further expands our manufacturing platform, and we intend to pursue integration and operational synergies in a financially disciplined manner. Looking ahead, our financial priorities remain closely aligned with our broader business strategy. We continue to focus on profitable revenue growth, disciplined capital deployment and strengthening our balance sheet. With Leasing, our emphasis will remain on occupancy, asset productivity and returns from our operating portfolio. Within Design & Build, our priorities will be project execution, discipline, billing efficiency and working capital management. Within Furniture Manufacturing, we will focus on improving utilization, managing inventory and realizing operational efficiency as the business expands. At the consolidated level, our objective is to strengthen cash flow generation, maintain financial flexibility and ensure that our investments and strategic initiatives are supported by sound financial fundamentals. To conclude, our Q2 and H1 FY '27 performance demonstrates the progress we are making in scaling EFC's integrated business model. We have delivered healthy revenue growth, maintained strong profitability and continue to strengthen our presence across all 3 business verticals. While we remain optimistic about the opportunities ahead, our approach will continue to be guided by financial discipline, operational efficiency and responsible capital allocation. Our objective is not merely to achieve growth in reported numbers, but to ensure that this growth translates into sustainable earnings, stronger cash flows and long-term shareholder value. On behalf of the company, I would like to thank our shareholders, investors and analysts for their continued trust and support. With this, we would be happy to take your questions. Thank you.

[Operator Instructions] The first question comes from the line of [ Pramod Mohan ] with GG Family Office.

First of all, I would like to congratulate team EFC for the good performance in the last quarter. My first question is around your current portfolio occupancy. And how does it compare between mature and newly commissioned centers? Do we expect any improvement for the next 2 quarters?

Thank you so much, and thank you for wishing us well for the performance that we have posted. Yes, with regards to the occupancy level, as we have always maintained that we generally have more than 90% plus occupancy across. And the occupancy has always been stabilized and improving positively and maintain at 90% quarter-on-quarter and year-on-year. And we'll continue to achieve that. And there is no change, which is -- because the overall strategy is such that we kind of add those capacities where we believe and we strongly have committed businesses that can bring the occupancy at the optimal level. So yes, we continue to achieve that occupancy and believe that it will continue for even the future quarter on the similar lines, considering the strategies also that we keep on adopting for the same.

Okay. Okay. Follow-up question is, how sustainable it is for EFC to grow as a Design & Build and Furniture Manufacturing because now it has become a larger contributor? Consolidated margin remains at historical level or it will normalize in coming future with the changing mix?

No, I think -- listen, I mean, obviously, as we have always explained that the Design & Build vertical and the Furniture vertical are integral part of our overall business model. And we've also maintained that going forward, they will contribute substantially to the total top line because at the end of the day, the Design & Build vertical brings the growth and also the Furniture vertical helps us improve our profitability margins being the manufacturing arm once it kind of works at its optimal level, optimal capacity. So we -- and particularly now that we have come to a stage both in the Furniture Manufacturing and in the Design & Build vertical, where we have created such an expanded business model where we are not just restricted to a particular segment of businesses, where we have kind of captured across the commercial place, Design & Build and also supplying different types of furniture products, whether it is for residential purposes, commercial purposes, projects, exports and so on and so forth. So we strongly believe that this is completely sustainable, not just from the revenue growth point of view, but also from the margin perspective.

And what about the EBITDA margins you are looking at? Will it be normalizing?

So EBITDA margin would -- I mean, as we have always mentioned that on a consolidated level, we'll be able to maintain a margin of upwards of 20% plus. And at a different vertical level, we have always maintained that on a corporate level, with regards to the Leasing vertical, we'll be able to make at 25%, while at center level, we'll be able to make 30%, while on the Design & Build, we'll be able to make between 18% to 22%. And at Furniture Manufacturing at an optimal manufacturing capacity, again, around 24%, 25%. So those are the margins we'll continue to make and achieve those mixed project -- I mean, integrated platform level margins of 20%, 22%, which we will continue to achieve. And we believe that except for the quarters, which in a quarterly basis, it may kind of go up and down primarily because of there are differences in the project execution cycles, project expenses that has to be incurred and those timing differences may kind of bringing a bit of variations in the margins. But on an annualized basis, you will see that we will be able to achieve these numbers which we are talking about and which have been also been achieved over the years.

And Nikhilji I have just last question left. I was looking at the numbers and found a transaction related to Sanvritti Alpha Private Limited. Can you put a light on it, like what it is [Foreign Language]?

So basically, this is -- we've been very categorically mentioning about our strategy of asset ownership model that we are one of the few players in the market who really own the real estate, which are sort of put to the managed office operations also. So what we have done in this particular transaction that if you see in our investor presentation, we mentioned that we own roughly about 8% to 10% of our portfolio, Leasing portfolio under our ownership, not just under the leasehold rights. So one such property that we had acquired in about a year -- more than a year back was a property here in Pune, which was -- we kind of acquired the property, we developed the property in terms of then the fit-outs and furnishing-related work, and then identified the best long-term customers and then created value by selling that property, which is now not just redesigned and rebuilt, but also put to income-generating level. So hence, we could maximize the return that we could earn on that property when we acquired it, let's say, about a year back and when we kind of hived it off after leasing it out, and that, again, then when we hived off the property, it was an asset sale and leaseback model. So ultimately, we still remain the operating partner of that property, but the ownership we have transferred to the potential investor. And as a result, for the company, we generated around 39% to 40% on return on capital on these transactions. So this is a very important part of our strategy where we are monetizing an asset and also this would enable us to reduce our debt because when we acquire this property, we take these properties on LRD or LAP structure. And then when we create value, we are not able to just kind of get rid of that asset-backed debt, but also create this value, which we are able to do through the asset sale and leaseback of these properties that we acquire. That was a transaction that was carried out with the Sanvritti Alpha.

Next question comes from the line of [ Sahil Singh ] with [indiscernible] Capital.

Thank you EFC team for really explaining the Q2 results in detail and congratulation for wonderful results. So sir, we have 2 questions. One is related to the D&B business. I understand in the previous calls, the D&B business expected to grow during the year is 50% to 60%. But with the H1 result, we can see only 16% to 17% growth in the D&B business. But do you think this number is still achievable in next quarter -- next half of the year or do we see any kind of number shrinking from 50% to 60% growth to the current level?

No, no. Absolutely, we are on target to achieve the annual target that we have set for our Design & Build vertical. Yes, I mean, we have set a target of 50% to 60%, and that is a target that we all are geared up to achieve. The kind of order book that we already have in place right now really support that claim that we are making that we will certainly be able to achieve our targeted growth of 50% to 60% under the Design & Build vertical. Yes, quarter-on-quarter, as you have seen, the numbers may have not grown in the same ratio in which the annual target is set, but that is not the right indicator because obviously, there are multiple projects which are under execution and execution cycle also takes its own time. It's not necessary because the large projects that we execute need not to get completed within a period of like 2 to 3 months, which is the quarter that we are talking about. So we are absolutely confident on achieving the targets that have been set. And that is primarily because of the kind of order book that we already have, which is more than INR 300 crores plus. And I think that both the next quarters, that is quarter 3 and quarter 4 would be really promising for this particular vertical, and we will certainly be able to achieve targets.