Revenue beats, profit narrative fractures: the capex cycle crowns—but margins hold their ground

WeWork's Q2 delivered on the headline: ₹767.8 Cr revenue, up 33.6% YoY, solidly beating the 20%+ guidance. Occupancy climbed 357 basis points to 83.7%, members swelled 32.5% to 121.7k, and the locked-in backlog hit ₹3,843 Cr—a ₹480 Cr (14%) beat on prior guidance. But profit tells a different story. The call narrative describes H1 PAT of ₹119 Cr (8.1% NPM), yet Q2 reported PAT landed at just ₹20.4 Cr (2.6% NPM). That gap—roughly ₹6 ppt of margin—is almost entirely Ind AS 116 lease accounting: the call describes earnings before lease capitalisation, the reported number carries full depreciation and finance costs from the capex cycle. The CFO flagged the reconciliation, but the divergence is stark enough to confuse investors.

The structural story underneath is solid: operating profit (OPM 63.8%) implies ₹490 Cr in operating earnings on revenue of ₹768 Cr. The ~₹470 Cr gap to reported PAT traces to ₹175.8 Cr capex deployed in H1 (the largest cycle in the company's history), driving depreciation, and to ₹23.1 Cr net cash—meaning finance costs have receded but aren't zero. Strip out the accounting drag and you have a healthy core business expanding into new space.

Backlog jumped ₹480 Cr: The locked-in core revenue envelope now stands at ₹3,843 Cr (28-month average term), up from ₹3,363 Cr guidance. At 3x revenue-to-rent multiples, this translates to ₹3 Cr in contracted annualized rent per ₹1 Cr of locked revenue. A 14% beat on prior guidance. Capex cycle now complete: H1 deployment of ₹175.8 Cr—the largest in company history—marks the crown of the cycle. New supply in growth centres is being absorbed faster than prior cycles; occupancy in 12-month-old centres rose 1,340 bps to 64.8% YoY. ROCE has doubled to 34.5%. Customization revenue normalized: H1 saw ₹30 Cr customization (₹15 Cr/quarter run-rate), on target vs ₹10–15 Cr guidance. Large deals are being amortized over contract terms, smoothing revenue and improving flow-through to EBITDA as occupancy ramps. PAT margin guidance new and hedged: FY28 PAT margin now guided 20–23%, a material new datapoint. Management explicitly flagged wage inflation (+60% in Karnataka) and BESCOM energy tariffs as near-term drags. CBA churn disclosed: Commonwealth Bank of Australia—a 7-year customer, 1.2M sq ft—is moving a large campus portion to an internal Embassy-built facility in Manyata. Backfill from the waitlist is planned, but timing and scale create near-term PAT volatility.

The stock sits at ₹642, down 19% from its all-time high of ₹794.5 but holding above its 200-day SMA (₹607.92). RSI at 42.8 is neutral, not oversold; volume is increasing. FII ownership ticked down 0.73 percentage points to 19.64% in Q1 FY27 (most recent filed), while DII was steady (+0.29 pp to 25.90%), and promoters trimmed 1.13 pp to 48.29%. The steady DII + modest FII trim suggests institutions are content to hold but not aggressively add into strength—a *show-me* posture. The ₹152 Cr drawdown from ATH (₹794.5 → ₹642, ~19%) is meaningful but not panic-level; it reflects macro uncertainty and the margin hedge rather than fundamental doubt. The street consensus appears to be: a solid, high-growth equity, but one whose near-term earnings multiple is under pressure from depreciation, cost inflation, and the CBA churn. Price action will likely hinge on H2 CBA backfill execution and Q3 cost absorption.

EBITDA margin. Ignore reported PAT (it's hostage to depreciation for 3+ years). Focus on EBITDA margin trajectory as WeWork navigates wage inflation (+60%), energy tariffs, and the CBA churn. If EBITDA margin holds steady or improves into Q4 (call narrative: 19.8% Q1 → 21.2% Q2), the bear case weakens and the stock re-rates. If EBITDA margin dips below 19%, cost absorption is failing and the FY28 guidance becomes at risk.