Kontor Space Ltd Management Discussions

<dhhead>MANAGEMENT?S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS </dhhead>

The following discussion and analysis of our financial condition and results of operations for the Financial Years ended on 2023, 2022 and 2021 is based on, and should be read in conjunction with, our Restated Financial Statements, including the schedules, notes and significant accounting policies thereto, included in the chapter titled "Restated Financial Statements" beginning on page 160 of this Draft Prospectus. Our Restated Financial Statements have been derived from our audited financial statements and restated in accordance with the SEBI ICDR Regulations and the ICAI Guidance Note. Our restated financial statements are prepared in accordance with applicable Accounting Standards.

You should read the following discussion of our financial condition and results of operations together with our restated financial statements included in this Draft Prospectus. You should also read the section titled "Risk Factors" beginning on page 23 of this Draft Prospectus, which discusses a number of factors, risks and contingencies that could affect our financial condition and results of operations. Our fiscal year ends on March 31 of each year, so all references to a particular fiscal year are to the twelve-month period ended March 31 of that year.

In this section, unless the context otherwise requires, any reference to "we", "us" or "our" refers to Kontor Space Limited, our Company. Unless otherwise indicated, financial information included herein are based on our "Restated Financial Statements" for the Financial Years ended on 2023, 2022 and 2021 included in this Draft Prospectus beginning on page 160 of this Draft Prospectus.

Note: Statement in the Management Discussion and Analysis Report describing our objectives, outlook, estimates, expectations or prediction may be "Forward Looking Statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to our operations include, among others, economic conditions affecting demand/supply and price conditions in domestic and overseas market in which we operate, changes in Government Regulations, Tax Laws and other Statutes and incidental factors.

BUSINESS OVERVIEW

Our Company was originally incorporated as a Private Company under the name "Kontor Space Private Limited" on January 17, 2018 under the provisions of the Companies Act, 2013 with the Registrar of Companies, Mumbai, Maharashtra. Subsequently, pursuant to Special Resolution passed by the Shareholders at the Extra-Ordinary General Meeting held on June 27, 2023 our Company converted into a Public Limited Company and consequently the name of our Company was changed from "Kontor Space Private Limited" to "Kontor Space Limited" vide a fresh certificate of incorporation dated July 19, 2023 and bearing CIN: U70109MH2018PLC304258

We provide "space-as-a-service" by renting and managing commercial spaces. With our allied business office services and technological expertise, we aim to foster a culture of collaboration and productivity by offering flexibility, convenience, and astounding quality at a significantly competitive price to our clients ranging from small-scale startups to large conglomerates.

For further details, please refer chapter titled "Our Business" on page 109 of this Draft Prospectus.

 

The following table set forth certain key performance indicators for the years indicated: Key Performance Indicators of our Company:

Key Financial	FY 2022-23	FY 2021-22	FY 2020-21
Performance
Revenue from operations (1)	917.40	400.70	390.24
EBITDA (2)	394.90	17.00	32.19
EBITDA Margin (3) %	43.05	4.24	8.25
PAT (4)	189.67	31.08	(48.06)
PAT Margin(5) %	20.68	7.76	(12.31)
Networth(6)	464.67	75.31	44.87
RoE %(7)	40.82	41.27	(107.10)
RoCE% (8)	31.19	20.48	(10.64)

 

Notes:

(1) Revenue from Operations means the Revenue from Operations as appearing in the Restated Financial Statements

(2) EBITDA is calculated Revenue from operations less employee benefit expenses and other expenses

(3) ‘EBITDA Margin? is calculated as EBITDA divided by Revenue from Operations

(4) PAT Margin is calculated as PAT for the period/year (adjusted for prior period items) divided by revenue from operations

(5) ‘PAT Margin? is calculated as PAT for the period/year (adjusted for prior period items) divided by revenue from operations. (6) Net worth means the aggregate value of the paid-up share capital and reserves and surplus of the company. (7) Return on Equity is ratio of Profit after Tax adjusted for prior period items divided by Net worth (8) Return on Capital Employed is calculated as EBIT divided by capital employed, which is defined as shareholders? equity plus long-term borrowings.

 

Explanation for KPI metrics

KPI	Explanations
Revenue from Operations	Revenue from Operations is used by our management to track the revenue profile of the business and in turn helps to assess the overall financial performance of our Company and volume of our business
EBITDA	EBITDA provides information regarding the operational efficiency of the business
EBITDA Margin (%)	EBITDA Margin (%) is an indicator of the operational profitability and financial performance of our business
PAT	Profit after tax provides information regarding the overall profitability of the business.
PAT Margin (%)	PAT Margin (%) is an indicator of the overall profitability and financial performance of our business.
RoE(%)	RoE provides how efficiently our Company generates profits from shareholders? funds.
RoCE (%)	RoCE provides how efficiently our Company generates earnings from the capital employed in the business.

 

SIGNIFICANT DEVELOPMENTS SUBSEQUENT TO THE LAST FINANCIAL YEAR

In the opinion of the Board of Directors of our Company, since the date of the last financial statements disclosed in this Draft Prospectus, there have not arisen any circumstance that materially or adversely affect or are likely to affect the profitability of our Company or the value of its assets or its ability to pay its material liabilities within the previous twelve months.

 

STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

For details in respect of Statement of Significant Accounting Policies, please refer to "Annexure IV of Restated Financial Statements" beginning on page 163 of this Draft Prospectus.

 

FACTORS AFFECTING OUR RESULTS OF OPERATIONS

Our business is subjected to various risks and uncertainties, including those discussed in the section titled "Risk Factors" beginning on page 23 of this Draft Prospectus. Our results of operations and financial conditions are affected by numerous factors including the following:

Our ability to successfully implement our growth strategy and expansion plans, and to successfully launch new centers;

Our ability to meet our further capital expenditure requirements;

Fluctuations in operating costs;

Failure to successfully upgrade our service portfolio, from time to time

General economic and business conditions in the markets in which we operate and in the local, regional, national and international economies;

General economic and market conditions in India and globally;

Changes in laws and regulations relating to the sectors/areas in which we operate;

Our ability to attract and retain qualified personnel and trainers;

Our inability to maintain or enhance our brand recognition;

Failure to anticipate or successfully adopt and incorporate new ideas and technologies in our offerings; and

The occurrence of natural disasters or calamities

 

OVERVIEW RESULT OF OPERATIONS

The following discussion on results of operations should be read in conjunction with the Audited Financial Results of our Company for the financial year ended on March 31, 2023, 2022 and 2021.

	For the period ended
Particulars	March 31, 2023	% of Total Income	March 31, 2022	% of Total Income	March 31, 2021	% of Total Income
I Revenue from operations	917.40	99.95%	400.70	99.24%	390.24	100.00%
II Other income	0.44	0.05%	3.06	0.76%	0.00	0.00%
III Total Income (I + II)	917.84	100.00%	403.75	100.00%	390.24	100.00%
IV Expenses:
Purchases of Stock-in- Trade	0.00	0.00%	0.00	0.00%	0.00	0.00%
Changes in the inventories of finished goods work-in- progress and Stock-in- Trade	0.00	0.00%	0.00	0.00%	0.00	0.00%
Employee benefits expense	38.90	4.24%	40.97	10.15%	61.42	15.74%
Finance costs	53.86	5.87%	13.28	3.29%	11.30	2.90%
Depreciation and amortization expense	79.80	8.69%	(40.83)	(10.11)%	72.35	18.54%
Other expenses	481.78	52.49%	345.12	85.48%	282.94	72.50%
Total expenses	654.34	71.29%	358.53	88.80%	428.00	109.68%
Profit before exceptional
V and extraordinary items and tax (III-IV)	263.50	28.71%	45.22	11.20%	(37.76)	(9.68)%
VI Exceptional items Profit before	1.79	0.20%	0.64	0.16%	13.69	3.51%
VII extraordinary items and tax (V - VI)	261.71	28.51%	44.58	11.04%	(51.45)	(13.18)%
VIII Extraordinary Items	0.00	0.00%	0.00	0.00%	0.00	0.00%
IX Profit before tax (VII- VIII)	261.71	28.51%	44.58	11.04%	(51.45)	(13.18) %
X Tax expense:	73.83	8.04%	14.15	3.50%	10.30	2.64%
(1) Current tax	48.09	5.24%	0.00	0.00%	0.00	0.00%
(2) Deferred tax	25.73	2.80%	14.15	3.50%	10.30	2.64%
Profit (Loss) for the XI period from continuing operations (VII-VIII)	187.88	20.47%	30.44	7.54%	(61.75)	(15.82)%

 

COMPONENTS OF INCOME AND EXPENDITURE

Total Revenue

Our total revenue is divided into revenue from operations and other income. Revenue from operations consists revenue generated from sale of our renting of premises. Our other income consists of interest income and other income.

 

Total Expenses

Our total expenses comprise of employee benefits expenses, finance costs, depreciation and amortization expenses, and other expenses.

 

Employee benefits expenses

Employee benefit expenses comprises of (i) salary expenses, (ii) staff welfare expenses, (iii) gratuity expenses, and (iv) Leave encashment.

 

Finance costs

Finance cost includes interest on borrowings, bank charges and interest on statutory dues.

 

Depreciation and Amortization Expenses

Depreciation and amortization expenses primarily include depreciation expenses on our tangible assets, in the nature of plant & machinery, building, leasehold improvements, office equipment, furniture & fixtures, Computer & Printers, and vehicles.

 

Other Expenses

Other expenses majorly comprise of rent expense, marketing expense, electricity charges, office expense, brokerage charges & commission, house-keeping charges, professional fees, repair & maintenance, etc.

Exceptional Items

Our Exceptional Items comprises of Prior period adjustments.

 

Provision for Tax

Income taxes are accounted for in accordance with Accounting Standard 22 on "Accounting for Taxes on Income" ("AS-22"), prescribed under the Companies (Accounting Standards) Rules, 2006. Our Company provides for current tax, as well as deferred tax, as applicable.

Provision for current taxes is made at the current tax rates after taking into consideration the benefits available to our Company under the provisions of the I. T. Act.

Deferred tax arises from the timing differences between book profits and taxable profits that originate in one period and are capable of reversal in one or more subsequent periods and is measured using the tax rates and laws applicable as of the date of the financial statements. Our Company provides for deferred tax asset / liability on such timing differences subject to prudent considerations in respect of deferred tax assets.

 

COMPARISON OF FY 2022-23 WITH FY2021-22

Income

Total Revenue

Our total revenue increased by 514.09 lakhs or 127.33% to 917.84 Lakh for the financial year 2022- 23 from 403.75 Lakh for the financial year 2021-22 due to the factors described below:

 

Revenue from operations

Our revenue from operations is 917.40 Lakhs for the financial year 2022-23 as compared to 400.70 Lakhs for the financial year 2021-22 representing an incline of 128.95% on account of increase in expansion of business.

Expenses

Our total expenses is 654.34 Lakhs for the financial year 2022- 23 as compared to 358.34 Lakhs for the financial year 2021-22 representing an increase of 82.51% due to the factors described below:

 

Employee benefits expenses

Our employee benefit expenses is 38.90 Lakhs for the financial year 2022-23 as compared to 40.97 Lakhs for the financial year 2021-22 representing an decrease of 5.04% due to decrease in Salaries, Wages & Bonus.

 

Finance costs

Our finance cost is 53.86 Lakhs for the financial year 2022-23 as compared to 13.28 Lakhs for the financial year 2021-22 representing an increase of 305.67% on account of increase in Bank Charges, Interest Cost and Loan Processing charges.

 

Depreciation and amortization expense

Our depreciation increased by 295.44% to 79.80 Lakhs for the financial year 2022-23 from -40.83 Lakhs for the financial year 2021-22 due to change in accounting policy in financial year 2021-22, i.e. reworking/recalculating the estimate life of Leasehold Improvements from 5 years to 15 years. The excess Depreciation of previous year are reversed in the accounts.

 

Other expenses

Our other expenses increased by 39.60% to 481.78 Lakhs for the financial year 2022-23 from 345.12 Lakhs for the financial year 2021-22, which is 52.49% and 85.48% of the total revenue of respective years. The increase was mainly due to increase in Rent Expense, Marketing Expense, ROC Fees, Office Expenses, Brokerage Charges and Commission, House Keeping Charges, Repair & Maintenance, and Professional Fees.

 

Exceptional Items

Exceptional Item of 1.79 Lakhs and 0.64 Lakhs in the financial year 2022-23 and 2021-22 respectively, was due to adjustment in Prior Period items.

 

Profit before tax

Our profit before tax increased by 487.01% to 261.71 Lakhs for the financial year 2022-23 from 44.58 Lakhs for the financial year 2021-22. The increase was mainly due to the factors described above.

 

Tax expenses

Our tax expenses for the financial year 2022-23 amounted to 73.83 Lakhs as against tax expenses of 14.15 Lakhs for the financial year 2021-22. The net increase of 59.68 is on account of increase in Current tax and Deferred Tax Liability.

 

Profit After Tax

Our profit after tax increased by 517.29% to 187.88 Lakhs for the financial year 2022-23 from 30.44 Lakhs for the financial year 2021-22, reflecting a net increase of 157.45 Lakhs due to aforementioned reasons.

 

COMPARISON OF FY 2021-22 WITH FY 2020-21

Income

 

Total Revenue

Our total revenue increased by 13.51 lakhs or 3.46% lakh to 403.75 Lakh for the financial year 2021- 22 from 390.24 Lakh for the financial year 2020-21 due to the factors described below:

 

Revenue from operations

Our revenue from operations is 400.70 Lakhs for the financial year 2021-22 as compared to 390.24 Lakhs for the financial year 2020-21 representing a growth of 2.68% on account of increase sale of Services.

 

Expenses

Our total expenses is 358.53 Lakhs for the financial year 2021-22 as compared to 428.00 Lakhs for the financial year 2020-21 representing an decrease of 16.23% due to the factors described below: -

 

Employee benefits expenses

Our employee benefit expenses is 40.97 Lakhs for the financial year 2021-22 as compared to 61.42 Lakhs for the financial year 2020-21 representing a decrease of 33.30% due to decrease in salaries, wages & bonus and leave encashment expense.

 

Finance costs

Our finance cost is 13.28 Lakhs for the financial year 2021-22 as compared to 11.30 Lakhs for the financial year 2020-21 representing an increase of 17.52 % on account of increase in Bank Charges and Interest Cost.

 

Depreciation and amortization expense

Our depreciation decreased by 156.43% to -40.83 Lakhs for the financial year 2021-22 from 72.35 Lakhs for the financial year 2020-21 due to change in accounting policy in financial year 2021-22, i.e. reworking/recalculating the estimate life of Leasehold Improvements from 5 years to 15 years. The excess Depreciation of previous year are reversed in the accounts.

 

Other expenses

Our other expenses increased by 21.98% to 345.12 Lakhs for the financial year 2021-22 from 282.94 Lakhs for the financial year 2020-21, which is 85.48% and 72.50% of the total revenue of respective years. The increase was mainly due to increase in rent expense, electricity charges, power & fuel, brokerage charges & commission, house-keeping charges, and repair & maintenance.

 

Exceptional Items

Exceptional Item of 0.64 Lakhs and 13.69 Lakhs in the financial year 2021-22 and 2020-21 respectively, was due to adjustment in Prior Period items.

 

Profit before tax

Our profit before tax increased by 186.64% to 44.58 Lakhs for the financial year 2021-22 from -51.45 Lakhs for the financial year 2020-21. The increase was mainly due to the factors described above.

 

Tax expenses

Our tax expenses for the financial year 2021-22 amounted to 14.15 Lakhs as against tax expenses of 10.30 Lakhs for the financial year 2020-21. The net increase of 3.85 Lakhs is on account of increase in Deferred Tax Liability.

 

Profit After Tax

Our profit after tax increased by 149.29% to 30.44 Lakhs for the financial year 2021-22 from -61.75 Lakhs for the financial year 2020-21, reflecting a net increase of 92.18 Lakhs due to aforementioned reasons.

 

OTHER KEY RATIOS

The table below summarizes key ratios in our Restated Financial Statements for the financial years ended March 31, 2023, 2022 and 2021:

	For the financial year ended on March 31,
Particulars	2023	2022	2021
Fixed Asset Turnover Ratio	0.95	0.93	1.36
Current Ratio	0.91	0.32	0.64
Debt Equity Ratio	1.19	2.79	4.54

 

Fixed Asset Turnover Ratio: This is defined as revenue from operations divided by total fixed assets based on Financial Statements as Restated.

 

Current Ratio: This is defined as current assets divided by current liabilities, based on Financial Statements as Restated.

 

Debt Equity Ratio: This is defined as total debt divided by total shareholder funds. Total debt is the sum of long-term borrowings, short-term borrowings and current maturities of long-term debt, based on Financial Statements as Restated.

 

CASH FLOWS

The table below summaries our cash flows from our Restated Financial Statements for the financial years 2023, 2022 and 2021:

	For the financial year ended on March 31,
Particulars	2023	2022	2021
Net cash (used in)/ generated from operating Activities	346.69	89.61	6.25
Net cash (used in)/ generated from investing Activities	-631.66	-102.32	25.56
Net cash (used in)/ generated from financing Activities	489.09	-6.67	-38.65
Net increase/ (decrease) in cash and cash Equivalents	204.12	-19.39	-6.84
Cash and Cash Equivalents at the beginning of the period	4.10	23.49	30.33
Cash and Cash Equivalents at the end of the Period	208.22	4.10	23.49

 

Cash Flows from Operating Activities

Financial year 2022-23

Our net cash used in operating activities was 346.69 Lakhs for the financial year ended on March 31, 2023. Our operating profit before working capital changes was 396.37 Lakhs for the financial year 2022-23 which was primarily adjusted against, decrease in trade receivables by 15.97 Lakhs, decrease in Other Current Assets by 18.29 Lakhs, decrease in trade payables by 84.52 Lakhs, decrease in other current liabilities by 7.37 Lakhs, increase in short term provision by 52.32 Lakhs which was further decreased by payment of Income Tax of 48.09 Lakhs.

 

Financial year 2021-22

Our net cash generated from operating activities was 89.61 Lakhs for the financial year ended on March 31, 2022. Our operating profit before working capital changes was 17.00 Lakhs for the financial year 2021-22 which

was primarily adjusted against decrease in trade receivables by 23.86 Lakhs, decrease in Other Current Assets by 40.77 Lakhs, decrease in trade payables by 30.12 Lakhs, increase in other current liabilities by 38.41 Lakhs, decrease in short term provision by 2.81 Lakhs and increase in long term provision by 2.49 Lakhs.

 

Financial year 2020-21

Our net cash generated in operating activities was 6.25 Lakhs for the financial year ended on March 31, 2021. Our operating profit before working capital changes was 32.19 Lakhs for the financial year 2020-21 which was primarily adjusted against decrease in trade receivables by 5.07 Lakhs, increase in Other Current Assets by 35.21 Lakhs, increase in trade payables by 85.88 Lakhs, decrease in other current liabilities by 85.16 Lakhs, increase in short term provision by 3.48 Lakhs.

 

Cash Flows from Investing Activities

 

Financial year 2022-23

Our net cash used from investing activities was - 631.66 Lakhs for the financial year 2022-23. These were on account of Purchase of Property, Plant & Equipment of 614.90 Lakhs, increase in Other Non-Current assets of 17.04 Lakhs and decrease in Short-Term Loans & Advances of 0.28 Lakhs

 

Financial year 2021-22

Our net cash used from investing activities was - 102.32 Lakhs for the financial year 2021-22. These were on account of Purchase of Property, Plant & Equipment of 103.10 Lakhs, decrease in Other Non-Current assets of 0.96 Lakhs and increase in Short-Term Loans & Advances of 0.18 Lakhs

 

Financial year 2020-21

Our net cash used from investing activities was 25.56 Lakhs for the financial year 2020-21. These were on account of Sale of Property, Plant & Equipment of 26.98 Lakhs, decrease in Other Non-Current assets of 1.06 Lakhs and increase in Short-Term Loans & Advances of 2.48 Lakhs

 

Cash Flows from Financing Activities

 

Financial year 2022-23

Net cash generated from financing activities for the financial year March 31, 2023 was 489.09 Lakhs which was primarily on account of increase in share capital 200 Lakhs, increase in long-term borrowings of 317.14 Lakhs, increase in short-term borrowings of 25.33 Lakhs and interest paid of 53.39 Lakhs

 

Financial year 2021-22

Net cash used from financing activities for the financial year March 31, 2022 was (6.67) Lakhs which was primarily on account of decrease in Long-Term Borrowings by 10.06 Lakhs, Interest paid of 13.24 Lakhs & Increase in Long Term Provision 16.63 lakhs.

 

Financial year 2020-21

Net cash used in financing activities for the financial year March 31, 2021 was (38.65) Lakhs which was primarily on account of decrease in Long-Term Borrowings by 27.35 Lakhs & Interest paid of 11.29 Lakhs

 

FINANCIAL INDEBTEDNESS

As on March 31, 2023, the total outstanding borrowings of our Company is 552.78 Lakhs. For further details, refer to the chapter titled "Statement of Financial Indebtedness" beginning on page 181 of this Draft Prospectus.

Particulars	As at March 31, 2023
Loans from Banks & Financial Institutions	552.78
Total	552.78

 

RELATED PARTY TRANSACTIONS

Related party transactions with certain of our promoters, directors and their entities and relatives primarily relate to remuneration, salary, commission and Offer of Equity Shares. For further details of related parties kindly refer chapter titled "Restated Financial Statements" beginning on page 160 of this Draft Prospectus.

 

OFF-BALANCE SHEET ITEMS

We do not have any other off-balance sheet arrangements, derivative instruments or other relationships with any entity that have been established for the purposes of facilitating off-balance sheet arrangements.

 

QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Financial Market Risks

Market risk is the risk of loss related to adverse changes in market prices, including interest rate risk. We are exposed to interest rate risk, inflation and credit risk in the normal course of our business.

 

Interest Rate Risk

Our financial results are subject to changes in interest rates, which may affect our debt service obligations in future and our access to funds.

 

Effect of Inflation

In line with changing inflation rates, we may rework our margins so as to absorb the inflationary impact.

 

Credit Risk

We are exposed to credit risk on monies owed to us by our customers. If our customers do not pay us promptly, or at all, we may have to make provisions for or write-off such amounts.

 

Reservations, Qualifications and Adverse Remarks

Except as disclosed in chapter titled "Restated Financial Statements" beginning on page 160 of this Draft Prospectus, there have been no reservations, qualifications and adverse remarks.

Details of Default, if any, including therein the Amount Involved, Duration of Default and Present Status, in Repayment of Statutory Dues or Repayment of Debentures or Repayment of Deposits or Repayment of Loans from any Bank or Financial Institution.

Except as disclosed in chapter titled "Restated Financial Statements" beginning on page 160 of this Draft Prospectus, there have been no defaults in payment of statutory dues or repayment of debentures and interest thereon or repayment of deposits and interest thereon or repayment of loans from any bank or financial institution and interest thereon by the Company.