WeWork India was in the news for going public with an IPO worth INR 3,000 crore. However, all is not looking good for the company, and only two days remain before its listing. InGovern Research Services is cautioning with serious concerns about the company’s financial health, governance, and transparency. So, what are those concerns in detail? And what is next for WeWork India? For all that, learn more.
What Is the IPO Actually?
The company is raising INR 3,000 crore via an Offer for Sale (OFS). All the money will go to the investors (especially Embassy Buildcon LLP and WeWork Global, the US parent company) and not the company.
So, InGovern called it a “liquidity event” for its promoters, meaning a cash-out transaction rather than for business expansion.
How Are Regular Investors Reacting?
By Tuesday Afternoon, here’s how the subscription looked:
- Retail investors: 57%
- Non-institutional investors (HNIs): 21%
- Qualified institutional buyers (QIBs): 177%
- Employees: 177%
Therefore, only big institutions are interested in the stock. And the grey market responded with a flat price of INR 648, meaning no premium.
What InGovern Is Warning About?
Financial Concerns
According to InGovern, the profit of INR 128 crore in FY24–25 that the company registered is misleading. It stated that the profit is only due to a tax credit of ₹286 crore, without which WeWork India would be at a loss.
It has:
- Negative cash flow, meaning the company spends more than it earns.
- As of March 2024, the company’s negative net worth is ₹437.4 crore.
- High lease costs, with 43% of revenue going into rent.
- High finance costs, with 29% going into interest payments.
- So, the profits are an impossible situation.
Operational Issues
- The company’s occupancy rate is reportedly around 80.7%, which is lower than that of its competitors, ranging from 84% to 89%.
- The company’s most profitable business (70% of revenue) comes from Bengaluru and Mumbai, so it’s quite risky if the demand drops in these cities.
- Its lease model is cost-heavy, meaning that if the demand drops, the losses can skyrocket immediately.
Legal Troubles of Promoters
Some of the company’s promoters, especially Jitendra Virwani and Karan Virwani, have multiple criminal cases against them:
- CBI, ED, and EOW (Economic Offences Wing)
- Criminal conspiracy, cheating, breach of trust, and money laundering.
A petitioner, Vinay Bansal, has filed a case in the Bombay High Court stating that WeWork India’s IPO documents don’t disclose any of the information. It’s clearly a violation of SEBI’s disclosure rules.
So, the question looms: is the company even fit and proper” to run a listed company under SEBI rules?
Dependence on WeWork Global
- WeWork India operates under a 99-year exclusive brand license from WeWork Global. Interestingly, WeWork Global went bankrupt in 2023.
- Having said that, if anything were to happen to WeWork Global or the Indian promoters were to be convicted, the brand would lose its license altogether.
- Currently, WeWork India heavily relies on WeWork Global for all its tech, including booking systems, visitor management, and workflow software.
- So, it’s very twisted at the moment and doesn’t give a good outlook.
Audit and Governance Issues
Between FY21-22 and FY23-24, auditors raised concerns about certain weaknesses in WeWork India’s internal controls. These controls include vendor selection, procurement, and related-party transactions.
Several warnings were issued, although the company still failed to outline corrective steps in its IPO document. This also contravenes SEBI’s disclosure norms.
Pledged Shares Issue
- Just before the IPO, approximately 53% of the promoter shares were pledged, meaning they were used as collateral for loans, amounting to a whopping INR 2,065 crore.
- Although the pledge is temporarily lifted to meet SEBI rules, if the securities aren’t listed within 45 days, the promoters must re-pledge them.
- So, this will affect the share price.
Final Thoughts…
In the end, according to InGovern, the company is only attractive given that it has a global brand, but several red flags lie underneath:
- Weak financials
- No new capital for growth
- Legal risks with promoters
- Dependence on a bankrupt parent brand
- Poor governance and internal controls
Nitin Konde
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