Why WeWork India is not losing sleep over WeWork's bankruptcy

WeWork only gets a management fee, typically in the $2-4 million range, from WeWork India. There is no share in revenues.

A lot of stakeholders are losing sleep over WeWork Global's bankruptcy, but Karan Virwani, CEO of WeWork India, is certainly not one of them. To begin with, the Embassy Group owns a majority stake of 72.5% in WeWork India. The remaining 27.5% is owned by 1 Ariel Way Limited, a UK entity that is a subsidiary of WeWork Global.

Multiple reports said WeWork, the NYSE-listed flexible space provider, is preparing to file for bankruptcy as early as next week in what will be a reality check for the once high-flying company. The Adam Neumann-founded company, which was valued at $47 billion in 2019, has seen its share price tank from a peak of $520. On a year-to-date (YTD) basis, WeWork’s share price was down over 99 percent at the end of the day’s trading on November 1.

Virwani, however, remains undeterred from the meltdown. India was the first non-owned setup for WeWork. Established in 2017, the Embassy Group owned 100 percent of WeWork India, and the international interest came only in 2020, when WeWork put in $100 million in exchange for about 27.5 percent equity in the India franchise.

Since then, the global team has taken a page out of WeWork India’s playbook. “The global team needs continuous funding to grow their business. Ours is different, we are making money and do not need external capital. The global team looked at our model and how successful it was, then made it the benchmark for them to execute everywhere else in the world,” Virwani explained why his employees and building developers will escape unscathed.

Following the success in India, WeWork has followed a similar model in Israel, South Africa, Latin America and China, among others, he added.

WeWork Global’s move to replicate the India model elsewhere is understandable. It has about 90,000 desks in the country and boasts of an occupancy rate of over 80 percent, which is beyond comfortable because it achieves break even at an occupancy rate of 57-58 percent, per Virwani.

Even at a time when WeWork Global struggles to keep operations afloat, WeWork India said it clocked revenues of Rs 1,400 crore in FY23, had an EBITDA of Rs 250 crore and a profit after tax (PAT) of roughly Rs 60 crore.

EBITDA is earnings before interest, taxes, depreciation and amortisation.

To be sure, its FY23 numbers are still being audited. The company, however, is on track to grow 40 percent year-on-year (YoY) in the current fiscal year, too.

The optimism is largely because of WeWork India’s margins, which fall in the 20-25 percent range. The healthy margins help WeWork India reinvest profits into the business. The ploughing back was needed since the company’s capital expenditure is substantial. To ready a 1,00,000 square feet building, WeWork India spends around Rs 25 crore.

WeWork India’s business can be divided into four broad categories: on-demand (pay per use), all access (subscription-based), private office suite (fully ready; plug and play) and managed office spaces for long-term parties.

A chunk of the company’s revenues, 70-80 percent comes from the private office suite. WeWork India aims to focus on the top seven cities and does not want to spread itself too thin by entering non-metro cities just to increase its presence. Over the past years, it has been facing competition from WestBridge-backed Indiqube, Peak XV-backed Awfis, Smartworks and several others.

“We have certain competitors who are playing the low cost, value and volume game. There will be some who have as much square footage, or even more than us, but our revenue and bottom line is double the nearest competitor. That is purely because we're in a space which gives us a higher return on the money we invest,” Virwani said.

WeWork India remains bullish and aims to be adding 20,000 seats each year adding to the 6.5 million square feet of assets across 50 locations in New Delhi, Gurugram, Noida, Mumbai, Bengaluru, Pune, and Hyderabad. In December, it even secured Rs 550 crore from funds managed by a private credit platform, BPEA Credit to strengthen its reach.

“There is the misconception that we are a subsidiary. We aren’t. We are a fully independent Indian company that has full control here and not answerable to (the) global (team),” Virwani concluded.

WeWork India only pays a management fee to the global entity, which is in the $2-4 million range, as per disclosures made at the end of the June quarter. There is no share in revenues.