Pathetic business model, no moat. Sorry to say.
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One more risk i can see is that as footfall drops, lounge operators may hike their charges/ visit which will dimmish the GM% of the DFS going forward and banks may not agree to take the price hike. DFS has to absorb the impact completely.
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I think the main stakeholder who would be hurt the most will be the lounge companies, they must have invested a lot on fixed costs to service all of that peak demand. For example, I noticed at Hyderabad airport that Encalm (Indiaās biggest lounge operating company) shift to a much bigger place than what they used to have all these years, just to accomodate such a high footfall. Do you think they will sit back and see all this demand evaporate?
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Yeah management has acknowledged the pain that might come from credit card/banks reducing the benefit criteria for free airport lounge access so the 25% growth number over next 4 years is at risk. But i feel of all the problems that DFS has, the credit card companies reducing the benefits would probably not be too much of a concern eventually. Its like all telecom companies raising tariffās together but eventually you know they wont go forever and will again start fighting for space/customers and i would think the same would apply for credit card companies. Credit card growth and penetration is abysmally low and we also need to understand that this will also grow significantly over time. The total freebie era might be over but it will probably stabilize with benefits over some spending which 2-3 years down the line might start looking very basic as the economy/spending power increases. So i would still look at the company with a long term view and say 20% down from these level would be very interesting. Things to look out for from risk side would be any major change in the whole credit card/lounge ecosystem which further impacts their margins or major competitors coming along. Would like to see if they are able to get traction on other areas that they have ventured and what the growth rates, margins are offered there. There was stress on getting right talent and company paying very high to get that so would be interested to see if that gets translated into innovation, efficiencies etc which should start reflecting in the numbers soon. Very interesting to see how the story unfolds.
Disc: Optimistically invested.
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Just mentioning that I had exited in the start of the year due to lost patience & negligible profit growth.
Would not recommend even in top 200 stocks list.
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The share price collapsed 11% today to below 300 levels. Any rationale as to why?
Have been pointing out the risks for long time !!
Results seem to be a drag again with margin going down further but did not seem to be a howler kind of numbers. Its been a significant fall ~25% and its coincided with markets falling in general so not sure if its result, sentiment, combination of both or something else cooking inside? FIIās, DIIās and promoter have reduced stake. Does it indicate that a more structural issue is brewing with the model which participants are not being made aware of?
Any views or knowledge of what could be leading to such a big fall for something which was already down significantly?
Iām invested in this. Though Iām not 100% bullish on this, Iām not as bearish as the market says. I think this company would still be a long-term wealth builder.
Yes, margins went down, which was mostly because of card companies reducing the benefits given to its customers. Apart from that company is also adding more workforce.
Having said these, my thought is, the value of this company would go higher as more parties are added to their network. Simply said, network effect(think netflix, ola/uber etc) will come into play. This is exactly what the company has been doing. Today, they are a monopoly business only in India. While they are working to go beyond India, they are also working to entrench it firmly in India, by offering related services.
Quote from their Q3FY25 Investor presentation:
āThe company has expanded its service offerings with new services like Baggage Wrapping, Coffee at Malls, addition of 9 F&B outlets, and 2 airport lounges in India. We have welcomed multiple enterprise and banking clients, with some transitioning from competitors. Our global expansion includes 16 new global lounges, 18 F&B outlets and extended M&A services across 380+ airport terminals.ā
Some related notes from the book āZero to Oneā:
- Prioritize four aspects of your business over a hyper-focus on growth: proprietary technology, network effects, economies of scale, and branding.
- Rather than initially painting a grandiose vision of global market dominance, the best way to build a monopoly is to start small. Capture a small, specific market with the tentacles to easily branch to related markets over time.
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I feel correction is because of some more selling after results commentary.
Card issuers are keep on increasing the eligible spending criteria amount every time to get the free lounge access.
This will impact the number of cards in circulation also, earlier people used to maintain as many card as they want to have more number free lounge accesses. Now its not about maintaining more cards, its all about spending more on cards.
This will ultimately results in some foot fall drop in the lounges, now company stopped reporting the number of pax availed lounge access.
Management is also very tricky and they donāt give any straight forward answers. In this Quarter call, they ended the call in 45 min even people are in queue for asking questions, they unnecessarily wasting 30 min time in opening remarks by 4 people ( content would be same from all 4 people).
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Your observation about the handling of the concall is spot on, for the companies when they have nothing to show as performance. Management will come on call and will spend more than 50% of the time talking about all thingsā¦ except what went wrong during the quarter and then they cut short the concall due to paucity of timeā¦
Now a days , thatās a clear red flag for me and if thing dont improve in quarter or two, its time to exit for me. I could have saved lot of pain for myself if I would have known this earlier
Disclosure - not invested, not interested
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It seems the credit card companies are controlling their business. The harder the pain for card companies more fall we will see from this level too.
I agree also their operating profit to cashflow conversion is not so good as compared to other platform companies. With high receivables days & thin margins it seems they donāt have that kind of bargaining power with its buyers.
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With all these negative points price is getting corrected and now available at 20 PE multiples of FY25 and looks very attractive with anticipation of 20% growth going forward.
If they can crack any international deal then it would be must buy signal
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Yes its 20 PE Stock now with 35 plus ROE and growing decently and they are launching more services for premium customers in India. If Promoters are not Fraud this stock looks to be very attracting at this priceā¦
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Company depends on two parameters for growth i.e Air traffic and Credit Card consumption
Expected Air traffic growth for FY26 as per analyst is ~10% while Credit Card/loans at ~13%
In the past company has outperformed the growth in these two segements, hence Revenue in the range of ~15-20% is expected, and with company current multiples of 20 looks a decent buy, if not for very long term but for a year or so.
Also note, all EBITA is translated into PAT due to hardly any expenses, hence, PAT can grow at a very fast pace.
Note- Not holding, but planning to add. Not a SEBI registed advisor
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This is only the trick here, as we have seen in 2023 Margins fell from 13% to 8% due to change in airport rentals.
Even though DFS doesnāt have any direct exposure with the airport rentals, they need to take hit on their margins to protect the lounge operators as there is no power in the business. They are unable to protect their margins, this can happen in the future also.
I am much happy if PAT growth at the same rate like top line without any further dip in the margins
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With the ongoing modernization and upgradation of railway stations in India, along with the increasing number of railway lounges, does anyone have an idea of what percentage of revenues currently comes from the railway lounge service business? Additionally, considering these developments, how much revenue can a company operating in this space potentially earn in the next 5-6 years?
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Railway lounge contribution is very less, infact management never shared any number. Adding railway lounges may not make much impact as per pax cost of railway lounge is 1/4th or 1/5th of the airport lounge per pax cost.
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