What you must know about Kontor Space IPO?

Kontor Space Ltd was incorporated in 2018, which offers renting and management of commercial spaces. It operates on the space as a service (SAAS) model. Kontor Space Ltd either purchases the property or takes it on lease and then sub-leases the property to either a single client or to multiple clients. It offers workspaces for various sizes and needs and offers with and without furnishing. Most of the invoicing is done on per-seat basis. Its co-working spaces are operated across 4 locations. While 2 are located at Fort and BKC in Mumbai, the other two are located at Thane and in Pune. It typically offers spaces that are well connected and offer the right environment for work, meetings, conferences etc. Kontor Space Ltd has optimum capacity of over 1,200 seats across its 4 centres.

Key terms of the Kontor Space IPO (SME)

Here are some of the highlights of the Kontor Space IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 27th September 2023 and closes for subscription on 29th September 2023; both days inclusive.
   
• The company has a face value of ₹10 per share and it is a fixed price issue. The issue price has been fixed at ₹93 per share. Since it is a fixed price issue, there will be no price discovery required in this case.
   
• The IPO of Kontor Space Ltd has only a fresh issue component and no offer for sale (OFS) component in the IPO. It must be remembered that the fresh issue portion is EPS dilutive and equity dilutive, but OFS is just a transfer of ownership and  hence it is not EPS or equity dilutive.
   
• As part of the fresh issue portion of the IPO, Kontor Space Ltd will issue a total of 16,80,000 shares (16.80 lakh shares). At the fixed price of the IPO price of ₹93 per share, the total value of the fresh issue portion aggregates to ₹15.62 crore.
   
• Since there is no offer for sale portion, the fresh issue will also be the total size of the issue. As a result, the total issue size of Kontor Space Ltd will also entail the issue and sale of 16,80,000 shares (16.80 lakh shares). At the fixed IPO price of ₹93 per share, the total size of the IPO of Kontor Space Ltd will be₹15.62 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 86,400 shares. The market maker for the issue will be Rikhav Securities Ltd and they will provide two-way quotes to ensure liquidity on the counter post listing and low basis costs.
   
• The company has been promoted by Kanak Mangal and Neha Mittal. The promoter holding in the company currently stands at 98.20%. However, post the fresh issue of shares, the promoter equity holding share will get diluted to 71.50%.
   
• The fresh issue funds will be used by the company for rental deposits of new co-working spaces, capex for fit-outs at the new co-working centres and also partially for general corporate purposes.
   
• While Srujan Alpha Capital Advisors LLP will be the lead manager to the issue, Cameo Corporate Services Ltd will be the registrar to the issue. The market maker for the issue will be Rikhav Securities Ltd.

IPO allocation and minimum lot size for investment

Out of the total shares on offer, the company has allocated 86,400 shares for the market maker for providing liquidity post listing and reducing basis risk. The net offer (net of market maker allocation) will be distributed between the retail investors and the HNI / NII investors. The table below captures the gist of the IPO allocation to various categories.

The minimum lot size for the IPO investment will be 1,200 shares. Thus, retail investors can invest a minimum of ₹1,11,600 (1,200 x ₹93 per share) in the IPO. That is also the maximum that the retail investors can invest in the IPO. HNI / NII investors can invest a minimum of 2 lots comprising of 2,400 shares and having a minimum lot value of ₹2,23,200. There is no upper limit on what the QIBs as well as what the HNI / NII investors can apply for. The table below captures the break-up of lot sizes for different categories.

Key dates to be aware of in the Kontor Space IPO (SME)

Kontor Space IPO opens on Wednesday, September 27th, 2023 and closes on Friday, September 29th, 2023. The Kontor Space Ltd IPO bid date is from September 27th, 2023 10.00 AM to September 29th, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is September 29th, 2023.

It must be noted that in ASBA applications, there is no refund concept. The total application amount is blocked under the ASBA (applications supported by blocked amounts) system. Once the allotment is finalized, only the amount is debited to the extent of the allotment made and the lien on the balance amount is automatically released in the bank account.

Financial highlights of Kontor Space Ltd

The table below captures the key financials of Kontor Space Ltd for the last 3 completed financial years.

Data Source: Company DRHP filed with SEBI

One thing is that most of the growth has come in the last one year. The company has reported net margins of 20.5% in the current year, but that could be more due to the low base and as sales grows, these margins will taper. The growth of sales has been quite frenetic in the latest year, largely on the back of major contracts for event management. However, the ROE is consistently attractive and the economics should improve further if the company is able to sweat its assets at a consistently good rate as it is likely to be able to do once the sales momentum picks up.

The traditional P/E model becomes difficult to apply in the case of Kontor Space Ltd as the company has delivered a relatively better performance only in the latest year. Also, the P/E equations change drastically. If you consider the latest earnings, then the indicative P/E ratio of around 22, is likely to get more attractive as the profit story builds up. Co-working is the emerging frontier and its current portfolio is small but robust. With the business of co-working taking off in a big way in the next few years, investors in the IPO can look at it from a 1 year perspective.