Kotak Institutional Equities has initiated coverage on Smartworks Coworking Spaces with a 'Buy' rating, signaling renewed confidence in India's flexible workspace sector as commercial real estate adapts to hybrid work models and cost-conscious occupiers.

Target Price and Valuation

The brokerage has assigned a Discounted Cash Flow (DCF)-based fair value of ₹600, implying meaningful upside from the current market price of around ₹506. Kotak frames Smartworks as a 'rebooted' commercial real estate play rather than a typical coworking operator.

Scale-Driven Growth Strategy

At the core of Kotak's investment thesis is scale expansion. Smartworks currently operates among India's largest flexible workspace operators, with 9.1 million sq ft of operational area and a leased footprint of over 10.3 million sq ft as of late 2025.

The brokerage expects operational area to expand to 14.5 million sq ft by FY28, driven by steady additions of 2-3 million sq ft annually. This expansion, combined with operating leverage, underpins Kotak's expectation of a 38% CAGR in adjusted EBITDA between FY25 and FY28.

Margin Improvement Outlook

Margins are projected to improve by 380 basis points, taking EBITDA margins to around 16% by FY28, as occupancy stabilizes and fixed costs get absorbed over a larger operational base. Kotak expects operating cash flows to exceed EBITDA over the medium term, aided by security deposits on new leases and improving unit economics as Smartworks achieves critical scale.

Market Dynamics Favor Flexible Workspaces

Flexible workspaces are emerging as key beneficiaries of changing office demand patterns. Kotak notes that flexible operators now account for nearly one-third of incremental leasing activity in India's commercial real estate market.

Hybrid work models, shorter lease tenures, and preference for managed offices are pushing enterprises—especially mid-to-large corporates, MNCs, and fast-growing startups—towards operators like Smartworks.

Valuation and Risk Assessment

On headline multiples, Smartworks trades at around 16x FY27E EV/adjusted EBITDA, rising to 19x on FY27 EBITDA according to Kotak's estimates. However, the brokerage argues these valuations are justified by strong growth visibility, improving cash flows, and increasing institutionalization of the coworking sector.

Key risks include inability to maintain current occupancy levels of around 83%, delays in sourcing new real estate, potential slowdown in office absorption, or slower adoption of flexible workspaces by large enterprises.

Smartworks Coworking Spaces Limited has announced the allotment of 7,650 equity shares under its Employee Stock Option Plan 2022, following a Board circular resolution passed on December 23, 2025. The shares were allotted pursuant to the exercise of vested options by employees under the company's ESOP scheme.

Share Capital Enhancement

The allotment has resulted in an increase in the company's issued and paid-up equity share capital. Following this allotment, the total share capital now stands at ₹1,14,26,20,760, divided into 11,42,62,076 equity shares with a face value of ₹10 each.

Regulatory Approvals

Smartworks Coworking Spaces had previously secured necessary regulatory approvals for the ESOP allotments. The company received in-principle approval from the National Stock Exchange of India Limited through letter number NSE/LIST/50227 dated August 28, 2025. Similarly, BSE Limited granted approval via letter number DCS/ESOP/IP/NB/3770/2025-26 dated August 29, 2025.

ESOP Scheme Details

The Employee Stock Option Plan 2022 serves as the framework under which these shares were issued. The shares were originally issued on December 20, 2022, and the recent allotment represents the exercise of vested options by eligible employees. The newly allotted shares are identical in all respects to existing equity shares, including dividend payment rights and other shareholder privileges.

Compliance and Disclosure

The company has fulfilled all disclosure requirements under Regulation 30 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, and SEBI's Master Circular dated November 11, 2024. Additionally, details required under Regulation 10(c) of SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, have been provided to both stock exchanges. The shares will be held in demat form, and no listing fees are applicable for this allotment.