Pathetic business model, no moat. Sorry to say.
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.
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 (India’s 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 tariff’s 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.