Dreamfolks Services - IPO - Dream of Folks at Lounge; Unique Business Commands Premium

By Mr. Arafat Saiyed - Senior Research Analyst at Reliance Securities.

About the Company

DreamFolks is the largest airport service aggregator platform in India, which provides services to majority of the card networks operating in India including Visa, MasterCard and RuPay among others, and many of India's major card issuers including ICICI Bank, Axis Bank, Kotak Mahindra Bank, SBI Cards and HDFC Bank Ltd with its card lounge program. The company is coming with OFS of ~17.2mn shares (Rs5.6bn at top end of price band). The price band is fixed at Rs308-326, market cap post IPO is seen at ~Rs17bn at higher band.

Asset-Light Model and Strong Network

Bolstered by its unique, asset-light, capital efficient business model and strong platform, the company enables its clients like card network providers, banks, airline operators and hotels, to offer a diverse portfolio of services to their end customers, as part of their customer engagement and loyalty management programs. Its services include assisting customers from door-step to the airport, within the airport and again from the airport to the door-step at the destination, including unique lounges, food & beverage, spa, 'meet and assist', airport transfer, transit hotels/nap rooms, and baggage transfer.

Undisputed Leadership; Nearly Monopoly

According to the F&S Report, DreamFolks is dominating the market with a share of over 95% in FY22 of all India-issued card-based access to domestic lounges. The company boasts 50 clients including card networks and major card issuers and ~9.8mn end customers availed its services, since FY20. It is also a strong player in the industry with a share of over 80% in the domestic lounge access market in India.

Wider Presence across Countries

DreamFolks has a global reach supported by 1,416 touch-points in 121 countries across the world of which, 244 Touch-points are exist in India and 1,172 touch-points are in overseas, as of Mar'22. DreamFolks' network facilitated access to lounges to 4.9mn pax (65.1% market share) out of total 7.5mn pax accessing lounges in India during the pre-pandemic era of FY20. However, due to pandemic, in FY22, 3.5mn pax out of a total 5.2mn pax (67.9% market share), accessed the lounges through DreamFolks' network. DreamFolks has tied up with various entities to facilitate access to around 57 restaurants / F&B outlets at 18 airports across India, as of Mar'22.

Financials in Brief

The company's financials were impacted in last two years due to pandemic led restriction on air travel, although it recovered in FY22 to some extent, particularly in 2HFY22. It is likely to record healthy growth over the next 3-5 years on the back of increasing air passenger traffic, increasing usage of airport lounges with better awareness and chunk of new card issuance. It reported revenue of Rs2.8bn in FY22, up 2.7x YoY after 71% YoY decline in FY21, while EBITDA increased to Rs225mn in FY22 from an EBITDA loss of Rs4mn in FY21 and EBITDA of Rs451mn in FY20. PAT for FY22 stood at Rs163mn, as against net loss of Rs15mn in FY21 and PAT of Rs317mn in FY20. RoE for FY22 was at 19.8% as against 48% in FY20. Company would record strong revenue growth in FY23E and FY24E with strong recovery in domestic travel coupled with resumption of international air travel. Its margins would surpass previous peak with better operating leverage, as it has sizable fixed cost component.

Our View

On FY22 financials, the IPO is valued at 75x EV/EBITDA, 6x EV/sales and 105x P/E. However, on FY22 adjusted financials (annualised based on 2HFY22 during post Covid normalised period), its valued at 56x P/E. The company is a dominant player in the industry with its unique business model and strong platform. The company has become a multi-faceted entity with its strengths in being an airport lounge access aggregator while also providing end-to-end technology solutions for designing and delivering services that enhance the airport experience. It has asset-light, capital efficient business model and strong platform. The company has strong moat and increased the client base from 14 in FY18 to 50 in FY22. The number of outstanding credit cards increased from 33mn in Sep'17 to 65mn in Sep'21 while the number of outstanding debit cards issued increased from 819mn to 920mn. It has a strong business revenue potential over next decade on the back of a) Healthy air traffic growth, b) Increasing issuance of credit cards and c) Better awareness of usage of cards for lounges and higher penetration from current low level of ~5%. In view of strong business moat, healthy recovery in Air Passenger traffic, increase Lounge services, multi-fold revenue growth potential, unique asset light and efficient business model, we recommend SUBSCRIBE to the issue.

Source : Equity Bulls

Keywords

DreamfolksServices IPOReview RelianceSecurities