OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion is intended to convey managements perspective on our financial condition and results of operations for the Fiscals 2021, 2022 and 2023 and for the three months ended June 30, 2023.You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our Restated Consolidated Financial Information as of and for Fiscals 2021, 2022 and 2023 and three months ended June 30, 2023, including the related annexures.
Unless otherwise indicated or context otherwise requires, the financial information for Fiscals 2021, 2022 and 2023 and three months ended June 30, 2023, included herein is derived from the Restated Consolidated Financial Information, included in this Draft Red Herring Prospectus. For further information, see "Restated Consolidated Financial Information" and "Summary Financial Information" on pages 266 and 75.
Our Fiscal year ends on March 31 of each year. Accordingly, all references to a particular Fiscal are to the 12-month period ended March 31 of that year. The financial information for the three months ended June 30, 2023, has not been annualized, unless otherwise specified. The financial information for the three months ended June 30, 2023 is not comparable with financial information for Fiscals 2021, 2022 and 2023.
This discussion contains forward-looking statements that involve risks and uncertainties and reflects our current view with respect to future events and financial performance. Actual results may differ from those anticipated in these forward-looking statements as a result of factors such as those set forth under "Forward Looking Statements" and "Risk Factors" on pages 27 and 40, respectively.
Overview
We are the largest flexible workspace solutions company in India as on June 30, 2023, based on total number of centers. (Source: CBRE Report) As on June 30, 2023, we are ranked 1st among the top 5 benchmarked players in the flexible workspace segment with presence in 16 cities in India. (Source: CBRE Report) Further, as on June 30, 2023, we are present in the maximum number of micro-markets in India. (Source: CBRE Report) As on June 30, 2023, we have 136 total centers1 across 16 total cities1 in India, with 81,433 total seats1 and total chargeable area1 of 4.12 million sq. ft., of which 15 centers and 11,191 seats are under fit- out1 with chargeable area aggregating to
0.53 million sq. ft. In addition, we have entered into signed letters of intent ("LOI") with space owners for 14 additional centers, with 10,886 seats aggregating to 0.55 million sq. ft. As on June 30, 2023, we have over 2,139 clients and have presence in 48 micro markets in India. For further details in relation to flexible workspace segment, see "Industry Overview" on page 135.
1
"Total centers" / "total seats" / "total chargeable area" / "total cities" are (i) operational centers / operational seats / operational chargeable area / operational cities; and (ii) centers / seats / chargeable area / cities under fit-outs. "Operational centers" / "operational seats" / " operational chargeable area" / "operational cities" refer to centers / seats / chargeable area / cities where (i) we have entered into leave and license agreements, lease deeds or operating agreements with our space owners ("Space Owner Agreements"); (ii) we have paid the security deposit to the space owners; and (iii) our clients can start availing our services at the centers. Centers / seats / chargeable area / cities under fit-outs are centers / seats / chargeable area / cities where (i) we have entered into binding lease or operating arrangements with our space owners; (ii) we have paid the security deposit to the space owners; and (iii) the fit-out works are under progress, but which are not yet ready for clients to start availing our services.We provide a wide spectrum of flexible workspace solutions ranging from individual flexible desk needs to customized office spaces for start-ups, small and medium enterprises ("SMEs") as well as for large corporates and multi-national corporations. Our flexible workspace solutions cater to varied seat cohorts ranging from a single seat to multiple seats, which can be contracted by our clients for a period ranging from one hour to several years. Over time, we have evolved from a co-working space to an integrated workspace solutions platform. While our core solution is co-working solutions which includes flex workspaces, customized office spaces and mobility solutions, we have built capabilities to design, build, maintain and manage a wide range of flexible workspace requirements such as Awfis Transform (our construction and fit-out services business segment) and Awfis Care (our facility management services business segment). We also provide allied services ranging from food and beverages, information technology support services and infrastructure services such as storage and customization to event hosting and meeting arrangements.
Our understanding of the modern workforce has helped us identify and anticipate evolving preferences and requirements, thereby enabling us to provide bespoke solutions to meet the varied and diverse needs of our clients across a diverse spectrum of demographics that we cater to. In addition, we have two distinctive formats for our workspaces with their own unique propositions, branding, audience, and purpose, namely, Awfis and Awfis Gold. For further details in relation to our suite of flexible workspace solutions and space formats, see "Our Business -Description of our Business and Operations Our Flexible Workspace Solutions" on page 206.
We adopted two differentiated models for sourcing and procuring workspaces, namely the straight lease ("SL") model and the managed aggregation ("MA") model. One of our key strategies for space procurement over time was to transition to an asset-light, low risk MA model from a SL model. Under the SL model, developers or space owners lease space to flexible workspace operators on traditional leases wherein typical market terms and conditions are applicable, including a fixed monthly rental, common area maintenance charges, security deposit, minimum lock-in period, lease tenure and escalations. (Source: CBRE Report) The capital expenditure for fitting out the property is entirely borne by us.
Under the MA model, the developers or space owners may typically incur capital expenditure on fit-out, in part or full, the remainder being borne by the operator (if any), depending on other terms of the MA model, often foregoing a fixed rental for a component of minimum guarantee on a case-to-case basis and may take up a share of the revenue/profit on pre-negotiated terms. (Source: CBRE Report) Most of our MA arrangements are structured on a profit or revenue sharing model with the space owner and provide a minimum guarantee ("MG")payable generally starting anywhere from the 5th to 13th month of operations, until the end of the term of the contract. As of June 30, 2023, the MG at our MA centers was on an average 46.82% of the micro-market rental. The split of the capital expenditure under the MA model between the space owner and us is determined upfront and the space owners share remains fixed for the term of the contract.
Significant Factors Affecting our Financial Condition and Results of Operations
Revenue drivers
Number of centers and seats
The expansion of our centers and seats is one of the important factors affecting our results of operations and financial condition. We have increased the total number of centers and seats over time from 58 operational centers and 30,253 operational seats as of March 31, 2021 to 121 operational centers and 70,242 operational seats as of June 30, 2023. Further, 15 centers and 11,191 seats were under fit-out, as of June 30, 2023, aggregating to 136 total centers with 81,433 total seats. The expansion of centers and seats is expected to provide economies of scale thereby resulting in an increase in our revenue.
As we add centers and seats to our portfolio, an initial ramp-up period is typically observed for the initial few months during which the operating expenses of the asset may exceed its revenue resulting in an operating loss.To offset this, we have adopted a demand-based build approach wherein we typically only build a small portion of the center with base amenities and a few seats after we identify a center. The rest of the center is built out as and when we enter arrangements with clients for the utilization of the space at the center. For further details, see "Our Business
Strengths Diverse space sourcing and demand strategies" on page 201.
Prior to expanding our centers and seats, we analyze the recent and current demand and supply dynamics along with absorption trends in the relevant micro-markets. In Fiscals 2021, 2022 and 2023 and three months ended June 30,
2023, we incurred 402.11 million, 510.17 million, 1,637.97 million and 175.99 million as capital expenditure towards opening new centers and increasing the total number of seats.
The expansion of seats and centers is subject to several factors such as the ability to identify suitable centers, consummate transactions on favorable terms and within anticipated timelines and achieve expected returns and other benefits.
Occupancy levels
Our results of operations are also driven by the levels of occupancy at our centers. In addition to increasing the number of centers and seats from March 31, 2021 to June 30, 2023, we have increased our occupancy percentage from 59.32% as of March 31, 2021 to 74.98% as of March 31, 2023 and to 77.28% as of June 30, 2023, thereby highlighting our ability to expand and grow our business operations at a healthy pace. The occupancy percentage is calculated as Occupied Seats, i.e., number of seats contracted by our clients at our centers in any given month, calculated pro-rated on a month-on-month basis, divided by the operational seats.
The following table sets forth our occupancy percentage for all our centers as of the dates indicated along with the occupancy for centers by vintage from the launch date of the centers:
Operational Center vintage |
As of March 31, 2021 | As of March 31, 2022 | As of March 31, 2023 | As of June 30, 2023 |
0-6 months from launch date |
21.69% | 42.77% | 30.27% | 41.62% |
6-9 months from launch date |
37.03% | 51.41% | 76.15% | 50.92% |
9-12 months from launch date |
- | 49.03% | 73.07% | 79.74% |
Over 12 months from launch date |
66.39% | 72.39% | 83.30% | 83.16% |
Occupancy percentage |
59.32% | 63.05% | 74.98% | 77.28% |
Occupancy levels depend on several factors such as demand for, and comparable supply of, flexible workspace solutions in the micro-markets in which we operate, rates in comparison with competing properties, attractiveness of our centers, the range of amenities available at our centers and the ability to provide space or enter into new arrangements without significant intervals of time or incurring significant costs.
Rental rates
Our results of operations are significantly driven by our rental income and consequently, the rental rates charged at our centers. Our rental income was 1,529.33 million, 1,843.87 million, 3,823.68 million and 1,241.87 million for Fiscals 2021, 2022 and 2023 and three months ended June 30, 2023, respectively, constituting 70.80%, 66.16%, 67.58% and 64.44% of our total income, respectively. The rental rates that we charge depend on various factors, including the demand for, and comparable supply of, flexible workspace solutions in the micro-markets in which we operate, rental rates of competing properties, attractiveness of our centers, the range of amenities available at our centers and the ability to enter into new agreements with clients ("Client Agreements") without significant intervals of time or incurring significant costs.
Other streams of revenue
Our ability to increase our revenues will depend, in part, on our ability to continue to offer innovative flexible workspace solutions. Due to the growth in our network of centers and clients, we have the ability to offer additional services at a larger scale and this will enable us to generate additional revenue through other streams. Our construction and fit-out services and facility management services and other services are relatively new offerings added to our platform. These adjacent businesses to our core offerings, i.e., co-working space solutions are high growth, and revenue from these relatively new offerings constituted 9.18%, 23.62%, 23.19% and 26.06% of our revenue from contract with customers in Fiscals 2021, 2022 and 2023 and three months ended June 30, 2023, respectively. Our construction and fit-out services are branded Awfis Transform and our facility management services are branded Awfis Care. We intend to increase the scale and operations of these businesses, by increasing our focus on our existing offerings and introducing new value-added services. The increase in the scale and operations of these businesses will help us to increase operating leverage and deliver increased efficiencies. For details in relation to our expansion plans, see "Our Business Our Strategies Enhance our product and service offerings" on page 206.
Our ability to acquire, retain and expand client relationships
Our business model relies on retaining business and growth from existing clients, acquiring new clients and expanding our client relationships. The average total tenure of our clients has increased from 19.84 months in March 2021 to 32.06 months in March 2023 and 32.63 months in June 2023. Further, in June 2023, 34.96% of the seats sold at our centers, i.e., additional seats sold between March 31, 2023 and June 30, 2023,were sold to the existing clients that expanded their portfolio with us.
We believe that our client-centric approach combined with our performance and quality of our flexible workspace solutions has positioned us well to grow long-term relationships with our existing clients and increase our client base through new relationships. Our ability to increase sales to existing clients depends on a number of factors, including clients level of satisfaction with our flexible workspace solutions, pricing, effectiveness of our quality control systems and standard operating procedures, skill and experience of our personnel, economic conditions and our clients overall budget and spending levels.Further, our average monthly net churn rate, calculated as the seats terminated or contracted by the clients less the seats expanded by the clients divided by the average monthly occupancy for the year/period, was high in Fiscal 2021 due to COVID-19 pandemic and it has decreased from 5.14% in Fiscal 2021 to 1.60% in Fiscal 2022 to 1.34% in Fiscal 2023. It further reduced to 1.18% in three months ended June 30, 2023.
In addition, in certain cases, our clients may terminate their Client Agreements with us at any time upon as little notice as one calendar month post the expiry of their lock-in tenure. Clients may terminate their Client Agreements for several reasons, including a perception that they do not make sufficient use of our solutions and services, that they need to reduce their expenses or that alternative work environments may provide better value or a better experience. Accordingly, our results of operations may be adversely affected by declines in demand for our flex workspace solutions. As a result, we are constantly required to identify and procure clients to occupy seats at our centers and we must continually add new clients both to replace departing clients and to expand our current client base.
Cost drivers
Sourcing and procuring space strategy
As of June 30, 2023, we have a diverse spectrum of space owners ranging from large real estate developers to high net worth individuals, family offices and funds. We have two well-differentiated models for sourcing and procuring office space from these space owners: SL model and MA model. As on June 30, 2023, 52 and 69 of our operational centers are under the SL and MA model, respectively.
Under the SL model, developers or space owners lease space to us on traditional leases wherein typical market terms and conditions are applicable, including a fixed monthly rental, common area maintenance charges, security deposit, minimum lock-in period, lease tenure and escalations. (Source: CBRE Report) We typically enter into SL arrangements for a period of five to nine years. The capital expenditure for fitting out the property is entirely borne by us. Our capital expenditure under SL model was 362.62 million, 363.81 million, 1,251.32 million and 108.80 million in Fiscals 2021, 2022 and 2023 and three months ended June 30, 2023, respectively.
Under the MA model, our space owners become a stakeholder in the center by co-investing in the fit-out infrastructure. The developers or space owners may typically incur capital expenditure on fit-out, in part or full, the remainder being borne by the operator, if any, depending on other terms of the MA model, often foregoing a fixed rental for a component of MG on a case to case basis and may take up a share of the revenue/profit on pre-negotiated terms. (Source: CBRE Report) Most of our MA arrangements are structured on a profit or revenue sharing model due to the risk of capital being largely borne by the space owner. We typically provide a MG to the space owner, payable starting generally anywhere between 5th to 13th month of operations, until the end of the term of the contract. As of June 30, 2023, the MG at our MA centers was on an average 46.82% of the micro-market rental. We also provide design and fit-out services, generate demand, provide technology enabled services and facility management services. The space owners profit share typically ranges from 50% to 80% and revenue share typically ranges from 30% to 75%.Under the MA model, we have paid 198.39 million, 293.21 million, 518.64 million and 160.57 million as MG in Fiscals 2021, 2022 and 2023 and three months ended June 30, 2023, respectively, constituting 9.18%, 10.52%, 9.17% and 8.33% of our total income, respectively. Further, our capital expenditure under the MA model was 39.49 million, 146.36 million, 386.65 million and 67.18 million in Fiscals 2021, 2022 and 2023 and three months ended June 30, 2023, respectively.
The MA model continues to be a key part of our supply strategy as the asset-light strategy has enabled us to rapidly scale our business and expand our footprint without being subjected to high capital investment costs and fixed lease rental payment obligations and resulting in a high return on capital employed ("ROCE"). Our ROCE decreased from 10.88% in Fiscal 2021 to 1.75% in Fiscal 2022 and subsequently increased to 25.26% in Fiscal 2023 and 41.53% in three months ended June 30, 2023 (on an annualized basis). Our ROCE decreased from Fiscal 2021 to Fiscal 2022 as as we hired additional employees, in line with the growth of our Company. This also resulted in an increase in our share-based payments to employees over the same period. In addition, due to the growth in our operations and also continuing disruption caused due to the COVID-19 pandemic, we incurred increased legal costs. Additionally, in Fiscal 2021, there were certain cost reversals related to COVID-19 pandemic. The subsequent increase in ROCE was due to the growth in our business and improved operational efficiencies by leveraging economies of scale. Our ROCE is calculated as Cash EBIT, i.e. EBITDA minus actual lease payments during the period, divided by capital employed i.e., sum of total equity and total borrowings less cash and cash equivalents and bank balance (including fixed deposits and mutual fund investments).
Fixed and variable expenses
Several expenses incurred in our operations such as a portion of our rent expenses, common area maintenance, security and housekeeping charges and parking expenses (collectively "Fixed Expenses"), are relatively fixed in nature. The portion of the rent expenses that is fixed include (i) rent for leases that have a remaining tenure of less than one year, and (ii) rent for leases of low value assets such as lease of office equipment. For Fiscals 2021, 2022 and 2023 and three months ended June 30, 2023, our Fixed Expenses were 184.37 million, 163.89 million, 291.36 million and 99.85 million, constituting 8.53%, 5.88%, 5.15% and 5.18% of our total income, respectively.
During periods when the demand for our centers decreases, the resulting decline in our revenues could have an adverse effect on our net cash flow, margins and profits. This effect can be more pronounced during periods of economic contraction, or slow economic growth. Similarly, when the demand for our centers increases, our profitability increases disproportionately to the increase in revenues as we can pass these costs to the space owners. A portion of the rent expenses, i.e., the profit or revenue share given to space owners under the MA model, is also variable in nature as it is dependent on the profit being generated at our MA centers. In addition, certain expenses such as electricity expenses and water charges are variable in nature and are dependent on the physical occupancy of the center. Further, another variable expense, sub-contracting cost, is dependent on the volume of the construction and fit-out projects. We introduced sub-contracting in Fiscal 2021 and our sub-contracting cost includes design fees and material cost associated with providing construction and fit out services under Awfis Transform, and it constitutes a significant portion of our cost structure. For Fiscals 2021, 2022 and 2023 and three months ended June 30, 2023, our sub-contracting costs were 96.35 million, 418.69 million, 904.72 million and 363.72 million, constituting 4.46%, 15.02%, 15.99% and 18.87% of our total income, respectively.
Further, employee benefit expenses, which includes salaries, wages and bonuses, contributions to provident and other funds and employee share-based payments, among others, also constitute a significant portion of our cost structure. For Fiscals 2021, 2022 and 2023, our employee benefit expenses were 318.37 million, 541.54 million, 957.97 million and 284.31 million, constituting 14.74%, 19.43%, 16.93% and 14.75% of our total income, respectively. We believe that we have sufficient human resources to sustain our current operations and planned growth.
We also offer various forms of incentives such as brokerage expenses to institutional real estate brokers to source clients. The brokerage structure typically ranges from 8.00% to 16.00% of the lock-in revenue or 12 months revenue, whichever is lower, depending on the deal structure and the lock-in period offered by the client. In Fiscals 2021,
2022 and 2023, and three months ended June 30, 2023, we offered brokerage expenses aggregating to 37.21 million, 46.82 million, 129.51 million and 37.57 million, respectively, constituting 1.72%, 1.68%, 2.29% and 1.95% of our total income, respectively.
Further, we may incur marketing and other expenses, such as advertisement and sales promotion expenses, to attract new clients. Advertising and sales promotion expenses includes digital marketing expenses, broker meetings, client get-togethers and allied costs incurred by us. In Fiscals 2021, 2022 and 2023, and three months ended June 30, 2023, we incurred advertisement and sales promotion expenses amounting to 10.85 million, 24.60 million, 26.28 million and 6.83 million, respectively, constituting 0.50%, 0.88%, 0.46% and 0.35% of our total income, respectively.
Critical accounting policies and significant judgments and estimates
The methods, assumptions, and estimates that we use in applying our accounting policies may require us to apply judgments regarding matters that are inherently uncertain. We consider an accounting policy to be a critical estimate if: (1) we must make assumptions that were uncertain when the judgment was made, and (2) changes in the estimate assumptions, or selection of a different estimate methodology, could have a significant impact on our financial position and the results that we report in our Restated Consolidated Financial Information. While we believe that our estimates, assumptions, and judgments are reasonable, they are based on information available when the estimate was made.
Further, our material accounting policies, are as follows:
A. Revenue recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to us and the revenue can be reliably measured.
Revenue from contracts with customers:
- Revenue is recognized on the basis of approved contracts regarding the transfer of goods or services to a customer for an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.
- Revenue is measured at the fair value of consideration received or receivable taking into account the amount of discounts, incentives, volume rebates, outgoing taxes on sales. Any amounts receivable from the customer are recognised as revenue after the control over the goods sold are transferred to the customer.
- Variable consideration - This includes incentives, volume rebates, discounts etc. It is estimated at contract inception considering the terms of various schemes with customers and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognised will not occur when the associated uncertainty with the variable consideration is subsequently resolved. It is reassessed at the end of each reporting period.
Satisfaction of performance obligations:
An entity shall recognise revenue when (or as) the entity satisfies a performance obligation by transferring a promised good or service (i.e. an asset) to a customer. An asset is transferred when (or as) the customer obtains control of that asset. For each performance obligation identified, an entity shall determine at contract inception whether it satisfies the performance obligation over time or satisfies the performance obligation at a point in time. If an entity does not satisfy a performance obligation over time, the performance obligation is satisfied at a point in time.
For performance obligations that an entity satisfies over time, an entity shall disclose both of the following:
(a) the methods used to recognise revenue (for example, a description of the output methods or input methods used and how those methods are applied); and (b) an explanation of why the methods used provide a faithful depiction of the transfer of goods or services.
For performance obligations satisfied at a point in time, an entity shall disclose the significant judgements made in evaluating when a customer obtains control of promised goods or services.
Rental income
Revenue is respect of rental services is recognized on an accrual basis, in accordance with the terms of the respective contract as and when we satisfy performance obligations by delivering the services as per contractual agreed terms.
Integrated facility management income (‘Facility management services)
Revenue from facility management services is recognized monthly, on accrual basis, in accordance with the terms of the respective agreement as and when services are rendered.
Enterprise workspace designing and building services (‘Construction and fit-out projects)
Construction and fit-out projects where we act as a contractor, revenue is recognized in accordance with the terms of the construction agreements. Under such contracts, assets created does not have an alternative use and we have an enforceable right to payment.
We use cost based input method for measuring progress for performance obligation satisfied over time. Under this method, we recognize revenue in proportion to the actual project cost incurred as against the total estimated project cost. The management reviews and revises its measure of progress periodically and are considered as change in estimates and accordingly, the effect of such changes in estimates is recognised prospectively in the period in which such changes are determined. However, when the total project cost is estimated to exceed total revenues from the project, the loss is recognized immediately.
As the outcome of the contracts cannot be measured reliably during the early stages of the project, contract revenue is recognized only to the extent of costs incurred in the restated consolidated summary statement of profit and loss.
Remote working and work from home solutions
Revenue from sale of furniture and work from home solutions is recognized when all the significant control of ownership of the goods have been passed to the buyer, usually on delivery of the goods.
Sale of food items
Revenue from sale of food items (goods) is recognised on transfer of control of ownership of goods to the buyer and when no significant uncertainty exists regarding the amount of consideration that will be derived
B. Property, plant and equipment
Property, plant and equipment are stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Capital work in progress is stated at cost net of impairment loss, if any. Such cost includes the cost of replacing part of the plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. When significant parts of plant and equipment are required to be replaced at intervals, the group depreciates them separately based on their specific useful lives. Likewise, when a major inspection is performed, its cost is recognized in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognized in statement of profit or loss as incurred.
Depreciation is recognized on a straight-line basis over the estimated useful lives of the respective assets as under:
Property, plant and equipment: |
Useful life as prescribed by Schedule II of the Companies Act, 2013 (in years) | Estimated useful life (in years) |
| 1 Computers | 3 | 3 |
2 Office equipment |
5 | 5 to 10 years depending upon the useful life of the components. |
| 3 Furniture and fixtures | 10 | 10 |
| 4 Vehicles | 8 | 8 |
5 Leasehold improvements |
On lease term | 5 to 10 years depending upon the useful life of the components. |
Useful life of assets different from prescribed in Schedule II of Companies Act, 2013 has been estimated by our management supported by technical assessment.
The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period and the effect of any changes in estimate is accounted for prospectively.
Effective April 1, 2022, we have reviewed the estimated economic useful lives of all components within the broad category of leasehold improvements as specified in the table above (2022: 5 years) based on the combination of evaluation conducted by an independent consultant identifying assets which are movable in nature and the management estimate.
We believe that these estimated useful lives are realistic and reflect fair approximation of the period over which the assets are likely to be used.
An item of property, plant and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit and loss when the asset is derecognized.
We have measured property, plant and equipment at carrying value as recognized in the Restated Consolidated Financial Information as on transition date i.e., April 1, 2020 which has become its deemed cost.
C. Leases
We assess at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
Where we are the lessee
We apply a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. We recognize lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.
a. Right of use-assets
We recognize right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the lease term.
If ownership of the leased asset transfers to us at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset.
The right-of-use assets are also subject to impairment.
b. Lease liabilities
At the commencement date of the lease, we recognize lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by us and payments of penalties for terminating the lease if the lease term reflects us exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognized as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, we use our incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.
c. Short-term leases and leases of low value assets
We apply the short-term lease recognition exemption to our short-term leases of machinery and equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). We also apply the lease of low-value assets recognition exemption to leases of office equipment that are considered to be low value. Lease payments on short-term leases and leases of low-value assets are recognized as expense on a straight-line basis over the lease term.
Where we are the lessor
Leases in which we transfer substantially all the risks and benefits of ownership of the asset are classified as finance leases. Assets given under finance lease are recognized as a receivable at an amount equal to the net investment in the lease. After initial recognition, we apportion lease rentals between the principal repayment and interest income so as to achieve a constant periodic rate of return on the net investment outstanding in respect of the finance lease. The interest income is recognized in the statement of profit and loss.
Leases in which we do not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Assets subject to operating leases are included in property, plant and equipment. We recognized lease income on an operating lease in the statement of profit and loss on a straight-line basis over the lease term on reasonable basis. Costs, including depreciation, are recognized as an expense in the statement of profit and loss. Contingent rents are recognized as revenue in the period in which they are earned.
D. Income taxes
The income tax expense comprises of current and deferred income tax. Income tax is recognised in the restated consolidated summary statement of profit and loss, except to the extent that it relates to items recognised in the other comprehensive income or directly in equity, in which case the related income tax is also recognised accordingly.
(i) Current tax
The current tax is calculated on the basis of the tax rates, laws and regulations, which have been enacted or substantively enacted as at the reporting date. The payment made in excess/(shortfall) of our income tax obligation for the period are recognised in the restated consolidated summary statement of assets and liabilities as current income tax assets/liabilities. Any interest, related to accrued liabilities for potential tax assessments are not included in income tax charge or (credit), but are rather recognised within finance costs.
Current income tax assets and liabilities are off-set against each other and the resultant net amount is presented in the restated consolidated summary statement of assets and liabilities, if and only when, (a) we currently have a legally enforceable right to set-off the current income tax assets and liabilities, and (b) when it relates to income tax levied by the same taxation authority and where there is an intention to settle the current income tax balances on net basis.
(ii) Deferred tax
Deferred tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying values in the Restated Consolidated Summary Statement. Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
The unrecognised deferred tax assets/carrying amount of deferred tax assets are reviewed at each reporting date for recoverability and adjusted appropriately. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Minimum alternate tax (MAT) paid in a year is charged to the restated consolidated summary statement of profit and loss as current tax. We recognize MAT credit available as an asset only to the extent that there is convincing evidence that we will pay normal income tax during the specified period, i.e., the period for which MAT credit is allowed to be carried forward. In the year in which we recognize MAT credit as an asset in accordance with the Guidance Note on Accounting for Credit Available in respect of Minimum Alternative Tax under the Income-tax Act, 1961, the said asset is created by way of credit to the restated consolidated summary statement of profit and loss and shown as "MAT Credit Entitlement". We review the "MAT credit entitlement" asset at each reporting date and writes down the asset to the extent we do not have convincing evidence that it will pay normal tax during the specified period.
Segment information
We have the following business segments, as per Ind AS 108:
(a) Providing co-working space on rent and allied services; (b) Facility management services; (c) Construction and fit-out projects; and (d) Other services.
Facility management services and other services have been clubbed together as ‘others as the revenue, segment result and segment assets are less than 10% of our total revenue, total result and total assets.
Three months ended June 30, 2023 |
2023 |
For Fiscal 2022 |
2021 |
|||||
Segment total income |
(in ) | (as % of revenue from contract with customers) | (in ) | (as % of revenue from contract with customers | (in ) | (as % of revenue from contract with customers | (in ) | (as % of revenue from contract with customers |
| ) | ) | ) | ||||||
Co-working space on rent and allied services |
1,387.93 | 73.94% | 4,188.49 | 76.81% | 1,963.38 | 76.38% | 1,619.84 | 90.82% |
Construction and fit-out projects |
430.85 | 22.95% | 1,050.18 | 19.26% | 487.30 | 18.96% | 114.86 | 6.44% |
| Others | 58.26 | 3.11% | 214.15 | 3.93% | 119.77 | 4.66% | 48.90 | 2.74% |
Revenue from contract with customers |
1,877.04 | 100.00% | 5,452.82 | 100.00% | 2,570.45 | 100.00% | 1,783.60 | 100.00% |
Information about revenue split by geographical area
There is no reportable geographical segment as our customers are located in India.
Key components of Income and Expenses
We report our income and expenditure in the following manner:
Total income
Our total income comprises our revenue from contract with customers and other income.
Revenue from contract with customers. Our revenue from contract with customers primarily comprises rental income, income from construction and fit-out projects, income from facility management services, sale of traded goods and other services. Sale of traded goods includes sale of furniture and work from home solutions and food items. Other services include income from sale of furniture and work from home solutions.
Other income. Other income primarily comprises interest income on fixed deposits, interest income on income tax refund, interest income on fair valuation of security deposits, interest income on loan to employees, gain on sale of mutual funds, liabilities no longer required written back, gain on sale of property, plant and equipment (net), fair value gain on financial instruments measured at FVTPL (net), rental income on fair value of security deposit, COVID-19 related rent concessions, profit on termination of lease, profit on modification of lease and miscellaneous income such as scrap sale and recovery of monies during the employee notice period.Due to the application of Ind AS adjustments:
any rent concessions granted to us during COVID-19 are recognized ‘other income;
any income generated on the fair value of the security deposit given by our customers is recognized as unwinding of fair value of security deposit from customer;
any reversal of lease liability is recognized as profit on termination of lease under ‘other income; and any adjustment to lease liability is recognized as profit on modification of lease under ‘other income.
For further details, see "-Critical accounting policies and significant judgments and estimates C. Leases" on page 356.
Expenses
Our total expenses comprise sub-contracting cost, purchase of traded goods, changes in inventories of traded goods, employee benefits expense, finance costs, depreciation and amortization expense and other expenses.
Sub-contracting cost. Sub-contracting cost includes design fees and material cost associated with providing construction and fit out services under Awfis Transform.
Purchase of traded goods. Purchase of traded goods primarily consists of food items and furniture which we eventually sell as traded goods. We sell the furniture to our clients for their own use at their offices or home.
Changes in inventories of stock-in-trade. Changes in inventories of stock-in-trade is the difference between our inventories at the start of the year and the end of the year.
Employee benefits expense. Our employee benefits expense primarily comprises salaries, wages and bonus, contribution to provident and other funds, gratuity expenses, share based payments and staff welfare expenses.
Finance costs. Our finance costs primarily comprise interest on term loan, interest on lease liabilities, interest on security deposit, other finance charges and interest on optionally convertible redeemable preference shares.
Depreciation and amortization expense. Depreciation and amortization expense include depreciation on property, plant and equipment, depreciation of right-of-use assets and amortization of intangible assets.
Other expenses. Our other expenses primarily comprises common area maintenance, electricity expenses, rent, water charges, security and housekeeping charges, parking expenses, communication expenses, legal and professional expenses, payment to auditors, brokerage expenses, business promotion expenses, advertising and sales promotion, repair and maintenance, travelling and conveyance expenses, equipment hiring charges, rates and taxes, insurance, recruitment and training expenses, printing and stationery expenses, charity and donation, provision for doubtful security deposits, assets written off, loss on disposal of property, plant and equipment, provision for doubtful debts, provision for doubtful advances, loss on sale of mutual funds and miscellaneous expenses such as couriers, purchasing books and periodicals. Business promotion expenses are primarily food and beverage costs incurred by us. For further details in relation to brokerage expenses and advertising and sales promotion expenses, see "Significant factors affecting our Financial Condition and results of operations Cost drivers Fixed and variable expenses" on page 353.
Other comprehensive income
Other comprehensive income / (loss) comprises re-measurement gain / (losses) on defined benefit plans.
Our results of operations
The following table sets forth select financial data derived from our restated consolidated statement of profit and loss for three months ended June 30, 2023 and Fiscals 2023, 2022 and 2021 and we have expressed the components of select financial data as a percentage of total income for such periods / years:
Three months ended June 30, 2023 |
2023 |
Fiscals 2022 |
2021 |
||||||
( in million) |
(% of total income) |
( in million) income) |
(% of total |
( in million) income) |
(% of total |
( in million) income) |
(% of total |
||
Income |
|||||||||
Revenue from contract with customers |
1,877.04 | 97.40 | 5,452.82 |
96.38 | 2,570.45 | 92.22 | 1,783.60 |
82.57 | |
| Other income | 50.11 | 2.60 | 205.05 | 3.62 | 216.71 | 7.78 | 376.60 |
17.43 | |
Total Income Expenses |
1,927.15 | 100.00 | 5,657.87 |
100.00 | 2,787.16 | 100.00 | 2,160.20 |
100.00 | |
Sub-contracting cost |
363.72 | 18.87 | 904.72 |
15.99 | 418.69 | 15.02 | 96.35 |
4.46 | |
Purchases of traded goods |
56.20 | 2.92 | 125.34 |
2.22 | 43.42 | 1.56 | 13.91 |
0.64 | |
Changes in inventories of traded goods |
0.64 | 0.03 | 1.41 |
0.02 | (3.31) | (0.12) | (0.51) |
(0.02) | |
Employee benefits expense |
284.31 | 14.75 | 957.97 |
16.93 | 541.54 | 19.43 | 318.37 |
14.74 | |
| Finance costs | 209.30 | 10.86 | 727.21 | 12.85 | 487.19 | 17.48 | 465.55 |
21.55 | |
Depreciation and amortization expense |
432.32 | 22.43 | 1,499.79 |
26.51 | 984.33 | 35.32 | 868.36 |
40.20 | |
| Other expenses | 663.72 | 34.44 | 1,907.80 | 33.72 | 886.86 | 31.82 | 824.59 |
38.17 | |
Total expenses |
2,010.21 | 104.31 | 6,124.24 |
108.24 | 3,358.72 | 120.51 | 2,586.62 |
119.74 | |
Restated (loss) before tax |
(83.06) | (4.31) | (466.37) |
(8.24) | (571.56) | (20.51) | (426.42) |
(19.74) | |
Tax expense |
- | - | - |
- | - | - |
|||
Restated (loss) for the year / period |
(83.06) | (4.31) | (466.37) |
(8.24) | (571.56) | (20.51) | (426.42) |
(19.74) | |
Restated total other comprehensive loss |
(2.59) | (0.13) | (0.30) |
(0.01) | (2.11) | (0.08) | (0.59) |
(0.03) | |
Restated comprehensive (loss) for the year |
(85.65) | (4.44) | (466.67) |
(8.25) | (573.67) | (20.58) | (427.01) |
(19.77) | |
| Three months ended June 30, 2023 | 2023 |
Fiscals 2022 | 2021 |
||||
(% of ( in total million) income) |
( in million) |
(% of total income) |
( in million) income) |
(% of total |
( in million) |
(% of total income) |
|
/ period |
Three months ended June 30, 2023
Total income
Our total income was 1,927.15 million for three months ended June 30, 2023. This was primarily attributable to our revenue from contracts with customers, which was primarily driven by rental income, income from construction and fit-out projects and other services. For further details, see "-Three Months ended June 30, 2023 total income
revenue from contract with customers" on page 361.
Revenue from contract with customers. Our revenue from contract with customers was 1,877.04 million for three months ended June 30, 2023, primarily due to:
our rental income of 1,241.87 million for three months ended June 30, 2023. We opened three additional operational centers and added 2,386 operational seats in the three months ended June 30, 2023;
our income from construction and fit-out projects of 430.84 million, primarily due to the delivery of 126,594 sq. ft. of construction and fit-out projects in three months ended June 30, 2023; and
our income from other services of 107.01 million primarily due to our clients opting for services such as alliances and in-center promotions and events, infrastructure and allied services including virtual office and meeting rooms, information technology services and day passes. For further details in relation to our product offerings, see "Our Business Description of our Business and Operations Our flexible workspace solutions" on page 206.
Other income. Our other income was 50.11 million for three months ended June 30, 2023, primarily due to the unwinding of fair value of security deposit from customer of 33.49 million for three months ended June 30, 2023. For further details in relation to adjustments due to Ind AS adjustments to other income, see "-Key components of income and expenses total income other income" on page 361.
Expenses
Sub-contracting cost. The sub-contracting cost was 363.72 million for three months ended June 30, 2023, primarily due to primarily due to our construction and fit-out projects. We delivered 126,594 sq. ft. of construction and fit-out projects in three months ended June 30, 2023.
Purchases of traded goods. The purchases of traded goods were 56.20 million for three months ended June 30,
2023, primarily due to purchase of food items. This was primarily attributable to our focus on allied services such as sale of food items and an increase in physical occupancy at our centers resulting in more clients purchasing food items at our centers.
Changes in inventories of stock-in-trade. The changes in inventories of stock-in-trade were 0.64 million for three months ended June 30, 2023, primarily attributable to a higher opening inventory of traded goods and components.
Employee benefits expense. Employee benefits expense was 284.31 million for three months ended June 30, 2023, primarily due to the salaries, wages, and bonus of 241.60 million payable to our employees.
Finance costs. Finance costs was 209.30 million for three months ended June 30, 2023, primarily due to the interest on lease liabilities. This was primarily attributable to the increase in lease liabilities due to the leases entered into for the additional operational centers in the three months ended June 30, 2023. For further details in relation to the adjustments to the interest on lease liabilities due to Ind AS, see "-Key components of income and expenses total income other income" on page 361.
Depreciation and amortization expense. Depreciation and amortization expense was 432.32 million for three months ended June 30, 2023, primarily due to the depreciation of right of use assets of 322.24 million and depreciation of property, plant and equipment of 109.11 million. This was primarily attributable to the total number of operational centers that we had as on June 30, 2023.
Other expenses. Our other expenses were 663.72 million for three months ended June 30, 2023, primarily due to:
rent was 186.74 million in three months ended June 30, 2023, primarily attributable to the rent payable towards our operational centers. For further details in relation to our rent expenses, see "-Significant Factors Affecting our Financial Condition and Results of Operations Fixed and variable expenses" on page 353;
electricity expenses were 123.94 million in three months ended June 30, 2023, primarily attributable to the utilization of electricity at our operational centers; and
common area maintenance was 75.33 million in three months ended June 30, 2023, primarily attributable to our operational centers.
Restated loss for the period
For the reasons discussed above, the restated loss for the period was 83.06 million for three months ended June 30,
2023.
Restated total other comprehensive loss for the period
Our restated total other comprehensive loss for the period was 2.59 million for three months ended June 30, 2023.
This was on account of remeasurements losses on the defined benefit plans.
Fiscal 2023 compared to Fiscal 2022
Total income
Our total income increased by 103.00% to 5,657.87 million for Fiscal 2023 from 2,787.16 million for Fiscal 2022. This increase was primarily due to an increase in revenue from contract with customers, which was primarily driven by an increase in rental income, income from construction and fit-out projects, sale of food items, and other services. For further details, see "-Fiscal 2023 compared to Fiscal 2022 Total income revenue from contract with customers" on page 362.
Revenue from contract with customers. Our revenue from contract with customers increased by 112.13% to
5,452.82 million for Fiscal 2023 from 2,570.45 million for Fiscal 2022. This was primarily attributable to:
an increase in rental income by 107.37% to 3,823.68 million for Fiscal 2023 from 1,843.87 million for Fiscal
2022, primarily due to (i) an increase in our total number of operational centers to 119 as of March 31, 2023 from 84 as of March 31, 2022, thereby leading to an increase in the total number of operational seats to 68,203 as of March 31, 2023 from 46,152 as of March 31, 2022; and (ii) an increase in our occupancy percentage to 74.98% in Fiscal 2023 from 63.05% in Fiscal 2022;
an increase in income from construction and fit-out projects by 115.51% to 1,050.18 million for Fiscal 2023 from 487.30 million for Fiscal 2022, primarily due to an increase in the construction and fit-out projects undertaken by us. We delivered 671,263 sq. ft. of construction and fit-out projects in Fiscal 2023 as compared to 297,143 sq. ft. in Fiscal 2022; and
an increase in sale of food items by 356.49% to 111.43 million for Fiscal 2023 from 24.41 million for Fiscal
2022, primarily due to our increased focus on allied services such as sale of food items and an increase in occupancy at our centers resulting in additional clients purchasing food items at our centers;
an increase in other services to 253.38 million for Fiscal 2023 from 95.10 million for Fiscal 2022, primarily due to an increase in our occupancy percentage to 74.98% in Fiscal 2023 from 63.05% in Fiscal 2022 resulting in an increase in clients opting for services such as alliances and in-center promotions and events, infrastructure and allied services including virtual office and meeting rooms, information technology services and day passes. For further details in relation to our product offerings, see "Our Business Description of our Business and Operations Our flexible workspace solutions" on page [?].
Other income. Our other income decreased by 5.38% to 205.05 million for Fiscal 2023 from 216.71 million for Fiscal 2022, primarily due to a decrease in the COVID-19 related rent concessions from 95.72 million for Fiscal
2022. We did not have any COVID-19 related rent concessions in Fiscal 2023 and were required to pay rent to the space owners in the ordinary course of business. For further details in relation to COVID-19 related rent concessions due to Ind AS adjustments, see "-Key components of income and expenses total income other income" on page 363. This decrease was partially offset by an increase in profit on termination of lease to 50.40 million for Fiscal 2023 from 2.77 million for Fiscal 2022 and an increase in the unwinding of fair value of security deposit from customer to 75.47 million for Fiscal 2023 from 43.46 million for Fiscal 2022. At the time of renewal, we decided not to renew one lease and that resulted in an increase in profit on termination of lease. Further, there was an increase in the total number of clients to 1,967 as of March 31, 2023 from 1,525 as of March 31, 2022, resulting in an increase in the security deposit from clients. For further details in relation to the Ind AS adjustments to profit on termination of lease and rental income on fair value of security deposit, see "-Key components of income and expenses total income other income" on page 363.
Expenses
Sub-contracting cost. The sub-contracting cost increased by 116.08% to 904.72 million for Fiscal 2023 from 418.69 million for Fiscal 2022, primarily due to an increase in our construction and fit-out projects. We delivered 671,263 sq. ft. of construction and fit-out projects in Fiscal 2023 as compared to 297,143 sq. ft. in Fiscal 2022.
Purchases of traded goods. The purchases of traded goods increased by 188.65% to 125.34 million for Fiscal 2023 from 43.42 million for Fiscal 2022, primarily due to an increase in purchase of food items to 124.48 million for Fiscal 2023 from 24.65 million for Fiscal 2022. This was primarily attributable to our increased focus on allied services such as sale of food items and an increase in physical occupancy at our centers resulting in more clients purchasing food items at our centers.
Changes in inventories of stock-in-trade. The changes in inventories of stock-in-trade were an increase of 1.41 million for Fiscal 2023 as compared to a reduction of 3.31 million for Fiscal 2022, primarily attributable to a higher opening inventory of traded goods and components as of March 31, 2023 compared to March 31, 2022.
Employee benefits expense. Employee benefits expense increased by 76.90% to 957.97 million for Fiscal 2023 from 541.54 million for Fiscal 2022, primarily due to an increase in salaries, wages, and incentives to 840.36 million for Fiscal 2023 from 492.01 million for Fiscal 2022 and an increase in share-based payments to 39.61 million for Fiscal 2023 from 11.17 million for Fiscal 2022. The increase in salaries, wages and bonus is primarily attributable to an increase in the number of employees to 2,581 as on March 31, 2023, from 1,755 as on March 31, 2022, and annual performance linked compensation increments given to employees. The increase in share-based payments is primarily attributable to an increase in the number of employee stock options under ESOP plan 2015 allocated to selected employees as part of the annual performance appraisal cycle.
Finance costs. Finance costs increased by 49.27% to 727.21 million for Fiscal 2023 from 487.19 million for
Fiscal 2022, primarily due to an increase in the interest on lease liabilities to 632.53 million for Fiscal 2023 from 427.77 million for Fiscal 2022 and an increase in the interest on security deposit to 65.29 million for Fiscal 2023 from 48.37 million for Fiscal 2022. The increase in the interest on lease liabilities and interest on security deposit was primarily attributable to an increase in operational centers to 119 as of March 31, 2023 from 84 as of March 31, 2022. For further details in relation to adjustments to interest on lease liabilities and interest on security deposit due to Ind AS, see "-Key components of income and expenses total income other income" on page 363.
Depreciation and amortization expense. Depreciation and amortization expense increased by 52.37% to 1,499.79 million for Fiscal 2023 from 984.33 million for Fiscal 2022, primarily due to an increase in the depreciation of right of use assets to 1,140.95 million for Fiscal 2023 from 715.21 million for Fiscal 2022 and an increase in depreciation of property, plant, and equipment to 355.91 million for Fiscal 2023 from 267.40 million for Fiscal
2022. The increase in depreciation of right of use assets and increase in depreciation of property, plant and equipment was primarily attributable to an increase in the number of our centers and the resultant increase in capital expenditure. For further details, see "-Critical accounting policies and significant judgments and estimates c.
Leases" on page 356.
Other expenses. Our other expenses increased by 115.12% to 1,907.80 million for Fiscal 2023 from 886.86 million for Fiscal 2022, primarily due to an increase in:
rent to 507.04 million in Fiscal 2023 from 200.88 million in Fiscal 2022, primarily attributable to an increase in the total number of operational centers to 119 as of March 31, 2023 from 84 as of March 31, 2022. For further details in relation to our rent expenses, see "-Significant Factors Affecting our Financial Condition and Results of Operations Fixed and variable expenses" on page 353;
electricity expenses to 390.65 million in Fiscal 2023 from 172.90 million in Fiscal 2022, primarily attributable to an increase in the number of centers and higher physical occupancy leading to a higher utilization of electricity;
common area maintenance to 242.33 million in Fiscal 2023 from 144.47 million in Fiscal 2022, primarily attributable to an increase in the number of centers; and
brokerage expenses to 129.51 million in Fiscal 2023 from 46.82 million in Fiscal 2022, primarily attributable to an increase in the number of our clients onboarded during the year.
Restated loss for the year
For the reasons discussed above, the restated loss for the year decreased by 18.40% to 466.37 million for Fiscal 2023 from 571.56 million for Fiscal 2022.
Restated total other comprehensive loss for the year
Our restated total other comprehensive loss for the year was 0.30 million for Fiscal 2023 as compared to
2.11million for Fiscal 2022. This was on account of remeasurements losses on the defined benefit plans.
Fiscal 2022 compared to Fiscal 2021
Total income
Our total income increased by 29.02% to 2,787.16 million for Fiscal 2022 from 2,160.20 million for Fiscal 2021. This increase was primarily due to an increase in revenue from contract with customers primarily driven by an increase in rental income, income from construction and fit-out projects and income from facility management services. For further details, see "-Fiscal 2022 compared to Fiscal 2021 Total income revenue from contract with customers" on page 364.
Revenue from contract with customers. Our revenue from contract with customers increased by 44.12% to 2,570.45 million for Fiscal 2022 from 1,783.60 million for Fiscal 2021. This was primarily attributable to:
an increase in rental income by 20.57% to 1,843.87 million for Fiscal 2022 from 1,529.33 million for Fiscal 2021, primarily due to (i) an increase in our total number of operational centers to 84 as of March 31, 2022 from 58 as of March 31, 2021, thereby leading to an increase in the total number of operational seats to 46,152 as of March 31, 2022 from 30,253 as of March 31, 2021; and (ii) an increase in our occupancy percentage to 63.05% in Fiscal 2022 from 59.32% in Fiscal 2021;
an increase in income from construction and fit-out projects by 324.26% to 487.30 million for Fiscal 2022 from 114.86 million for Fiscal 2021, primarily due to an increase in the construction and fit-out projects undertaken by us. We delivered 297,143 sq. ft. of construction and fit-out projects in Fiscal 2022 as compared to 38,183 sq. ft. in Fiscal 2021; and
an increase in income from facility management services by 139.58% to 96.31 million for Fiscal 2022 from 40.20 million for Fiscal 2021, primarily due to an increase in the total number of operational seats to 46,152 as of March 31, 2022 from 30,253 as of March 31, 2021 and an increase in our occupancy percentage to 63.05% in Fiscal 2022 from 59.32% in Fiscal 2021. This resulted in additional clients opting for our facility management services at our centers.
Other income. Our other income decreased by 42.46% to 216.71 million for Fiscal 2022 from 376.60 million for Fiscal 2021, primarily due to a decrease in liabilities no longer required written back to 3.76 million for Fiscal 2022 from 109.08 million for Fiscal 2021.
Expenses
Sub-contracting cost. The sub-contracting increased by 334.56% to 418.69 million for Fiscal 2022 from 96.35 million for Fiscal 2021, primarily due to an increase in our construction and fit-out projects. We delivered 297,143 sq. ft. of construction and fit-out projects in Fiscal 2022 as compared to 38,183 sq. ft. in Fiscal 2021.
Purchases of traded goods. The purchases of traded goods increased by 212.17% to 43.42 million for Fiscal 2022 from 13.91 million for Fiscal 2021, primarily due to an increase in purchase of food items to 24.65 million for Fiscal 2022 from 8.57 million for Fiscal 2021. This was primarily attributable to our increased focus on allied services such as sale of food items and an increase in physical occupancy at our centers resulting in more clients purchasing food items at our centers. Further, there was an increase in the purchase of furniture for sale to 18.77 million for Fiscal 2022 from 5.34 million for Fiscal 2021, primarily due to an increase in physical occupancy at our centers resulting in more clients utilizing our office space and placing orders for similar furniture available at our centers for their own use.
Changes in inventories of stock-in-trade. The changes in inventories of stock-in-trade were a reduction of 3.31 million for Fiscal 2022 as compared to a reduction of 0.51 million for Fiscal 2021, primarily attributable to a higher closing inventory of traded goods and components as of March 31, 2022 compared to March 31, 2021.
Employee benefits expense. Employee benefits expense increased by 70.10% to 541.54 million for Fiscal 2022 from 318.37 million for Fiscal 2021, primarily due to an increase in salaries, wages and incentives to 492.01 million for Fiscal 2022 from 288.20 million for Fiscal 2021. This is primarily attributable to an increase in the number of employees to 1,755 as on March 31, 2022, from 963 as on March 31, 2021, and annual performance linked compensation increments given to employees.
Finance costs. Finance costs increased by 4.65% to 487.19 million for Fiscal 2022 from 465.55 million for Fiscal
2021, primarily due to an increase in the interest on lease liabilities to 427.77 million for Fiscal 2022 from 403.08 million for Fiscal 2021. This was primarily attributable to an increase in operational centers to 84 as of March 31, 2022 from 58 as of March 31, 2021. For further details in relation to adjustments to interest on lease liabilities due to Ind AS, see "-Key components of income and expenses total income other income" on page 364.
Depreciation and amortization expense. Depreciation and amortization expense increased by 13.36% to 984.33 million for Fiscal 2022 from 868.36 million for Fiscal 2021, primarily due to an increase in depreciation of property, plant, and equipment to 267.40 million for Fiscal 2022 from 196.61 million for Fiscal 2021. The increase in depreciation of property, plant and equipment was primarily attributable to an increase in the number of our centers.
Other expenses. Our other expenses increased by 7.55% to 886.86 million for Fiscal 2022 from 824.59 million for Fiscal 2021, primarily due to an increase in:
rent to 200.87 million in Fiscal 2022 from 175.66 million in Fiscal 2021, primarily attributable to an increase in the number of operational centers to 84 as of March 31, 2022 from 58 as of March 31, 2021. For further details in relation to our rent expenses, see "-Significant Factors Affecting our Financial Condition and Results of Operations Fixed and variable expenses" on page 353;
electricity expenses to 172.90 million in Fiscal 2022 from 126.52 million in Fiscal 2021, primarily attributable to an increase in the number of centers leading to a higher utilization of electricity; and
common area maintenance to 144.47 million in Fiscal 2022 from 113.30 million in Fiscal 2021, primarily attributable to an increase in the number of centers.
Restated loss for the year
For the reasons discussed above, the restated loss for the year increased by 34.04% to 571.56 million for Fiscal 2022 from 426.42 million for Fiscal 2021.
Restated total other comprehensive loss for the year
Our restated total other comprehensive loss for the year was 2.11 million for Fiscal 2022 as compared to 0.59 million for Fiscal 2021. This was on account of remeasurements losses on the defined benefit plans.
Cash flows and cash and cash equivalents
The following table sets forth our cash flows and cash and cash equivalents for the period / years indicated:
| Three months ended June | Fiscals | |||
| 2023 | 2023 | 2022 | 2021 | |
Net cash flow from Operating Activities |
717.33 | 1,951.88 | 826.94 | 574.44 |
Net cash flow used in Investing Activities |
(494.75) | (1,701.07) | (72.16) | (377.39) |
Net cash flow used in Financing Activities |
(176.98) | (277.74) | (798.56) | (166.86) |
Net increase / (decrease) in cash and cash equivalents at the end of the period/year |
45.60 | (26.93) | (43.79) | 30.19 |
Cash and cash equivalents at the beginning of the period / year |
26.14 | 53.07 | 96.86 | 66.67 |
Cash and cash equivalents at the end of the period / year |
71.74 | 26.14 | 53.07 | 96.86 |
Operating activities
Net cash flows from operating activities aggregated to 717.33 million for three months ended June 30, 2023. Our restated loss before tax of 83.06 million, was adjusted primarily for depreciation and amortization expense of 432.32 million and interest paid on lease liabilities of 175.41 million. Our changes in working capital for three months ended June 30, 2023 primarily consisted of increase in other liabilities of 423.09 million, increase in trade payables 281.93 million and increase in other financial liabilities of 136.45 million. This was partially offset by an increase in trade receivables 347.69 million and increase in other assets 178.38 million.
Net cash flows from operating activities aggregated to 1,951.88 million for Fiscal 2023. Our restated loss before tax of 466.37 million, was adjusted primarily for depreciation and amortization expense of 1,499.78 million and interest paid on lease liabilities of 632.53 million. Our changes in working capital for Fiscal 2023 primarily consisted of increase in other financial liabilities of 533.90 million and increase in other liabilities of 215.92 million. This was partially offset by an increase in trade receivables of 182.11 million and increase in other financial assets of 117.83 million.
Net cash flows from operating activities aggregated to 826.94 million for Fiscal 2022. Our restated loss before tax of 571.56 million, was adjusted primarily for depreciation and amortization expense of 984.33 million and interest paid on lease liabilities of 427.77 million. Our changes in working capital for Fiscal 2022 primarily consisted of an increase in other financial liabilities of 282.47 million, an increase in trade payables of 173.66 million and an increase in other liabilities of 162.21 million. This was partially offset by an increase in other financial assets of
175.87 million, an increase in trade receivables of 156.42 million and an increase in other assets of 108.64 million.
Net cash flows from operating activities aggregated to 574.44 million for Fiscal 2021. Our restated loss before tax of 426.42 million, was adjusted primarily for depreciation and amortization expense of 868.35 million and interest paid on lease liabilities of 403.07 million. Our changes in working capital for Fiscal 2021 primarily consisted of an increase in trade payables of 145.23 million. This was partially offset by an increase in other assets of 296.85 million and an increase in trade receivables of 94.73 million.
Investing activities
Net cash flows used in investing activities aggregated to 494.75 million for three months ended June 30, 2023, primarily due to 328.83 million used for purchase of property, plant, and equipment (including movement in creditor for capital goods and capital advances) and 200 million used for investments in fixed deposits with bank.
This was partially offset by 62.54 million generated from redemption of fixed deposits with bank.
Net cash flows used in investing activities aggregated to 1,701.07 million for Fiscal 2023, primarily due to
1,446.91 million used for purchase of property, plant, and equipment (including movement in creditor for capital goods and capital advances) and 964.51 million used for investments in fixed deposits with bank. This was partially offset by 687.27 million generated from redemption of fixed deposits with bank and 162.96 million generated from redemption of mutual funds.
Net cash flows used in investing activities aggregated to 72.16 million for Fiscal 2022, primarily due to 635.58 million used for purchase of property, plant, and equipment (including movement in creditor for capital goods and capital advances) and 187.15 million used for investments in fixed deposits with bank. This was partially set off by 513.59 million generated from redemption of fixed deposits with bank, 273.26 million generated from redemption of mutual funds.
Net cash flows used in investing activities aggregated to 377.39 million for Fiscal 2021, primarily due 700.00 million used for investments in fixed deposits with bank and 378.40 million used for purchase of property, plant, and equipment (including movement in creditor for capital goods and capital advances). This was partially set off by 420.36 million generated from redemption of fixed deposits with bank and 374.50 million generated from redemption of mutual funds.
Financing activities
Net cash flows used in financing activities aggregated to 176.98 million for three months ended June 30, 2023, primarily due to payment of 2,177.31 million upon extinguishment of equity shares, payment of 322.66 million upon extinguishment of preference shares, payment of principal portion of lease liability of 235.64 million and payment of interest portion of lease liability of 175.41 million. This cash outflow was partially met by proceeds from issue of preference shares including securities premium of 2,499.99 million and proceeds from borrowings of 245.66 million.
Net cash flows used in financing activities aggregated to 277.74 million for Fiscal 2023, primarily due to payment of principal portion of lease liability of 766.57 million and interest paid on lease liability of 632.53 million. This cash outflow was partially met by proceeds from issue of preference shares including securities premium of
1,173.49 million.
Net cash flows used in financing activities aggregated to 798.56 million for Fiscal 2022, primarily due to payment of principal portion of lease liability of 457.97 million and interest paid on lease liability of 427.77 million. This cash outflow was partially met by proceeds from borrowings of 130.00 million.
Net cash flows used in financing activities aggregated to 166.86 million for Fiscal 2021, primarily due to payment of principal portion of lease liability of 433.26 million, interest paid on lease liability of 403.07 million and repayment of borrowings of 101.75 million. This cash outflow was partially met by equity component of compulsory convertible debentures and preference shares of 781.58 million.
Indebtedness
| The following table sets forth our financial indebtedness as of June 30, 2023: | |
(in million unless otherwise stated) |
|
Particulars |
As of June 30, 2023 |
Non-current borrowings |
|
| Secured term loans from financial institutions | 201.65 |
Sub-total (A) |
201.65 |
Current borrowings |
|
| Secured term loans from financial institutions | 44.01 |
| Unsecured term loans from other parties | 72.26 |
Sub-total (B) |
116.27 |
Total (A+B) |
317.92 |
For further details of financial indebtedness as on November 30, 2023, see "Financial Indebtedness" on page 372.
Liquidity and capital resources
We believe we have sufficient sources of funding to meet our business requirements for the next 12 months. Cash generated from operations, supplemented by equity contributions by our shareholders and committed credit lines has been our primary source of liquidity for funding our business requirements. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth under "Risk Factors" on page
40. For the three months ended June 30, 2023, our cash and cash equivalents and bank balances (including fixed deposits and mutual fund investment) at the end of the period was 524.68 million.
Our short-term requirements include our working capital requirements. Our long-term requirements include our capital expenditure requirements and providing security deposit to the space owners in relation to new centers.For further details in relation to the objects pertaining to (i) funding capital expenditure and security deposit costs towards establishment of new centers; and (ii) funding our working capital requirements, see "Objects of the Offer" on page 112. As of June 30, 2023, our estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) was 225.55 million. We may have additional obligations as part of our ordinary course of business, beyond those committed for capital expenditures and other purchase obligations and commitments for purchases of goods and services The expected timing of payments of our obligations is estimated based on current information. Timing of payments and actual amounts paid may be different, depending on the timing of receipt of goods or services, or changes to agreed-upon amounts for some obligations. In addition, some of our purchasing requirements are not current obligations and are therefore not included in the amounts above. For example, some of these requirements are not handled through binding contracts or are fulfilled by vendors on a purchase order basis within short time horizons.
We monitor rolling forecasts of our liquidity position comprising cash and cash equivalents on the basis of expected cash flows. Our liquidity management policy involves projecting cash flows and considering the level of liquid assets necessary to meet these, monitoring balance sheet liquidity ratios against internal and external requirements and maintaining debt financing plans. We have cash and cash equivalents and bank balances (including fixed deposits and mutual fund investment) of 882.90 million, 255.26 million, 371.49 million and 524.68 million as of March 31, 2021, March 31, 2022, March 31, 2023, and June 30, 2023.
Capital expenditure
Capital expenditure primarily relates to addition of property, plant and equipment for purchase of furniture and fixtures, office equipment, leasehold improvement, computers and vehicles. The capital expenditure is primarily funded through cash generated from operations, supplemented by equity contributions by our shareholders and committed credit lines.
In three months ended June 30, 2023, Fiscals 2023, 2022 and 2021, we incurred capital expenditure for addition to property, plant and equipment of 175.99 million, 1637.97 million, 510.17 million and 402.11 million, primarily for purchase of furniture and fixtures, office equipment, leasehold improvement, computers and vehicles.
Contingent liabilities
We have no contingent liabilities as per Ind AS 37 as of June 30, 2023.
Off-balance sheet commitments and arrangements
We do not have any off-balance sheet arrangements, derivative instruments, swap transactions or relationships with affiliates or other unconsolidated entities or financial partnerships that would have been established for the purpose of facilitating off-balance sheet arrangements.
Quantitative and Qualitative Analysis of Market Risks
We are exposed to various types of market risks during the normal course of business. For further details, see "Risk Factors" beginning on page 40:
Credit risk
Credit risk refers to the risk of financial loss to our Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from our receivables from customers and loans. We have no significant concentration of credit risk with any counterparty. Our customer credit risk is managed by the relevant department subject to our established policy, procedures and control relating to customer credit risk management. The credit quality of a customer is assessed based on individual credit limits as defined by us. Outstanding customer receivables are regularly monitored. As of March 31, 2021, March 31, 2022, March 31, 2023 and June 30, 2023, the top 10 account receivables accounted for 73%, 53%, 57% and 29%, respectively, of all outstanding receivables. Further, we have a provision of 5.16 million, 8.29 million, 12.77 million and 30.49 million in Fiscals 2021, 2022 and 2023 and three months ended June 30, 2023, respectively, for trade receivables.
Liquidity risk
Liquidity risk refers to the risk that we will encounter difficulty in meeting the obligations associated with our financial liabilities that are settled by delivering cash or other financial asset. Our approach to managing liquidity is to ensure, as far as possible, that we will have sufficient liquidity to meet our liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to our reputation. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of committed credit facilities to meet obligations when due and to close out market positions.
Market risk
Market risk refers to the risk that changes in market prices such as foreign exchange rates and interest rates will affect our income or value of our holdings of financial instruments. The objective of the market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return. We do not use derivatives to manage market risks.
Currency risk
The currency risk refers to the exchange rate risk, arising from the change in price of one currency in relation to another. We are not exposed to foreign currency transactions, hence there is no associated currency risk.
Interest rate risk
The interest rate risk refers to the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Our exposure to the risk of changes in the market interest rates relates primarily to our long-term debt obligations with floating interest rates. We have fixed and floating interest rate borrowings, and accordingly our profit before tax is affected through the impact of floating rate borrowings in the following manner:
Particulars |
As at March 31, 2021 | As at March 31, 2022 | As at March 31, 2023 | As at June 30, 2023 |
| Variable rate borrowings | - | - | - | 245.66 |
Total |
- | - | - | 245.66 |
Auditor qualifications and emphasis of matter
There are no auditor qualifications which have not been given effect to in the Restated Consolidated Financial Information.
The following sets forth the emphasis of matter included in the audit reports of our Statutory Auditors on our special purpose Ind AS consolidated financial statements as at and for the year ended March 31, 2021:
"The auditors drew attention to a note to the special purpose Ind AS consolidated financial statements, which described the basis of preparation of the special purpose Ind AS consolidated financial statements which stated that ‘the special purpose Ind AS consolidated financial statements have been prepared to comply with e-mail dated October 30, 2023 received from BRLMs, which confirms that the Company should prepare these financial statements in accordance with Indian Accounting Standards (Ind AS) and that these are required based on email dated October 28, 2021 from Securities and Exchange Board of India ("SEBI") to Association of Investment Bankers of India ("SEBI Letter"). Accordingly, the special purpose Ind AS consolidated financial statements may not be suitable for any other purpose and this report should not be used, referred to or distributed for any other purpose. The auditors opinion is not modified in respect of this matter."
Unusual or infrequent events or transactions
There have been no unusual or infrequent events or transactions that have in the past or may in the future affect our business operations or future financial performance.
Known trends or uncertainties
Our business has been subject to significant economic changes arising from the trends identified above in " -
Significant Factors Affecting our Financial Conditions and Results of Operations" above and the uncertainties described in "Risk Factors" on page 40.
Future relationship between cost and revenue
Other than as described in "Risk Factors" and this section, there are no known factors that might affect the future relationship between cost and revenue.
Related party transactions
We have engaged in the past, and may engage in the future, in transactions with related parties. For details of our related party transactions, see "Other Financial Information Related Party Transactions" on page 347.
Competitive conditions
We operate in a competitive environment. Please refer to "Risk Factors", "Industry Overview" and "Our Business" on pages 40, 135 and 187, respectively, for further information on our industry and competition.
Seasonality and cyclicality of business
Our business is not subject to seasonality.
Extent to which material increases in net sales or revenue are due to increased sales volume, introduction of new products or services or increased sales prices
Changes in revenue in the last three Fiscals and three months ended June 30, 2023, are as described in " Three months ended June 30, 2023", " Fiscal 2023 compared to Fiscal 2022" and " Fiscal 2022 compared to Fiscal 2021" above on pages 361, 362 and 364, respectively.
Significant dependence on single or few customers
We do not derive revenues from any customers which amount to 10% or more of our revenue in Fiscals 2021, 2022 and 2021 and three months ended June 30, 2023.
New products or business segments
Except as disclosed in "Our Business" on page 187, and products that we announce in the ordinary course of business, we have not announced any new products or business segments.
Significant developments occurring after June 30, 2023
Except as set out in this Draft Red Herring Prospectus, to our knowledge, no circumstances have arisen since the date of the last financial statements as disclosed in this Draft Red Herring Prospectus which materially or adversely affect or are likely to affect, our operations or profitability, or the value of our assets or our ability to pay our material liabilities within the next 12 months:
On August 5, 2023, our Company had outstanding loans from Cigam Developers Private Limited and Divis
Properties Private Limited. Based on the mutual agreement, the loan agreement was foreclosed, and our Company repaid the loan amount with interest. Pursuant to the right to subscribe agreement, on August 16,
2023, our Board approved and allotted 944,287 Equity Shares at a premium of 134.27 per share on a private placement basis;
On August 24, 2023, our Company allotted 48,500 Equity Shares to its employees pursuant to exercise of stock option held by them under the 2015 ESOP Plan;
On September 20, 2023, our Company converted 346,575 Series F cumulative compulsory convertible preference shares having face value of 100 per share at a premium of 44.27 per share into the same number of Equity Shares at a premium of 134.27 per share;
On September 27, 2023, our Company allotted 289,963 Series C2 cumulative compulsorily convertible preference shares having face value of 100 per share at a premium of 53.13 per share, on a private placement basis;
On September 27, 2023, our Company allotted 150,000 sweat equity shares to Amit Ramani (one of our Promoters) having face value of 10 per share at a premium of 134.27 per share for non-cash consideration;
On October 27, 2023, our Company allotted 2,620,366 Equity Shares at a premium of 263.10 per Equity Share to existing investors through a rights issue which was approved by our Board pursuant to a resolution dated October 27, 2023;
On December 5, 2023, our Company received necessary approvals from the Registrar of Companies and Regional Director, Delhi and accordingly, converted from a private limited company to a public limited company.
Recent accounting pronouncements
As on the date of this Draft Red Herring Prospectus, there are no recent accounting pronouncements, which, we believe, would have a material effect on our financial condition or results of operations.
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