@spartan Just a question about a thing with which I am bit unclear and requesting if you can answer.
DFS claims to be an airport aggregator with their tech driven platform, so do they manage these lounges? or what exactly is their role here, so one can understand simply.
As we step into the lounge, the card is accessed and entry is allowed. But does the entire provision of the service like food, wifi etc. provided by them or there is a lounge operator in between?
@ram1984 Dreamfolks does not manage these lounges. They have nothing to do with what happens inside the lounges like food,wifi etcā¦
Dreamfolks work is at the entrance of lounge where our credit card will be checked using their software platform and allow you inside if the card is eligible.
The point of sale device and the particular software is the only investment by dreamfolks. At most of the places reception staff who does the checking of card is not employed by dreamfolks (they are employee of lounge operators.)
Once passenger gets access ,dreamfolks invoice particular amount to the credit card companies, collects the money , keeps its share and rest is paid to lounge operator.
Thanks. So itās aggregation of customers at different lounges to banks. This job is highly improbable of being undertaken by lounge operators, as it is operated by different companies. Banks in my view may not try to squeeze DFS as saving here may not move a needle for them.
So in my view, as air travel numbers increase this should DFS should do well. Biggest risk for me is cc companies/banks reducing complimentary access, i used to get 3 a quarter which is reduced to 2. And next being, someone with better tech platform dislodging them.
Considering where India stands in terms of air travel and lounge access as a status symbol for lower middle class and middle classāthis segment will keep growing for a decade
Margins may come down, but volume growth will keep the company growing
Entry into railway lounges + Opening up of new lounges + expansion of existing lounges are good tailwinds
Any other company coming and dislodging needs big incentive which can be tackled by cutting prices by Dreamfolks, so that could be one deterrent to new company coming in
Moreover Space is big enough to accomodate 2-3 companies if we see this sector for a decade or so
Just my thoughts, Invested from lower levels, hence may be biased
But every visit to Airport and lounge gave me confidence that this sector is going to grow
Solid quarter on expected lines
https://www.bseindia.com/xml-data/corpfiling/AttachLive/11177e7c-c8e3-41e4-8132-07fd10b111b0.pdf
if you intend to joint to the concall can you ask a bit about considering their asset light model and banks and credit card companies as customers, how do they carry so much receivables in their books? if you see one of their concalls they claim to have negative working capital i.e. they pay their creditors much after they realise from their debtors. In that case, in my view their accounts payable balance cannot be less than accounts receivable. Jeevan Patwa had asked this and didnt find they gave a proper answer.
Coming to this FY 23, the PAT is 73 cr and CFO is 49 Cr (i.e. 55% conversion of profits to cash). This is not a concern in a asset heavy business but considering their asset light business and dealings are mainly with banks etc. why the conversion is not happening here? The problem here seems to be mainly with regard to receivables, which if one sees opening receivable, it was 90 crores and has gone up to 202 crores. So out of Rs.773 crores of revenue, 202 crores (i.e. 26% stuck in receivables)?
Last thing about their billing structure and accounts payable. Who are the accounts payables? are they outside service providers relating to their tech platform etc. who support their business? or includes lounge operators etc. also? To put it simply, do they raise a bill on banks/cc companies for their services and get paid (this is easy, clean accounting and most likely the scenario) or it also includes lounge operators cost and they pass through the cost after taking their share of revenue (this is not likely the scenario).
considering its the first case, when do they raise invoice on banks/CC companies (i.e.billing cycle)? monthly/ quarterly? and so what is the average payment cycle after a bill goes to bank for payment?
Marā22 Qtr sales was 99 cr. then cost of service was 81 cr (payment to lounge operator). The FY22 year end trade receivable was 90 cr. vs trade payable of 71.2 cr.
Now Marā23 Qtr sales are 237 cr.vs cost of service as 195 cr. The year end receivable is 201 cr. vs payable of 139 cr.
in Q3 call they mentioned receivable cycle was roughly 90-100 days.
So basically close to one/last quarter of sales is stuck in receivable and this is as per the business cycle explained by mgmt.
Most of their payable is to the lounge operators. Their tech platform is internally managed by their employees. The total of 64 employees, is including tech guys.
They raise a bill to the Bank/CC for the total cost of lounge service access by customer. Banks/CC pays DFS, they keep their cut and pass the agreed rates to lounge operators. This has been explained in the call and interviews.
They have different agreed cycle with different vendors.
Superb noās from dreamfolks. Nice to see the operating margins inching up to 14.7% for the quarter.
Investor presentation:
Dreamfolks Q4.pdf (1.8 MB)
Seeing new air traffic records being created each passing day.
Appointed chief business officer.
60% stake in vidsur golf and rebranded it to Golfklik.
Incorporation of wholly owned subsidiary in Singapore.
New and advanced premium lounges coming up with increase in no of passengers and willing to pay premium.
Disclosure: I have exited around 15% of my holding yesterday.
Went thrugh the DRHP, it mentions that their revenue stream comes from both the issuers and banks
given this data point, my hypothesis is this:
What point 1 might also imply and also explain their higher ARs and APs; they raise invoices to their partners on a monthly basis (mentioned by the management), the partner if its a bank, would process the payment say in a 30-60 days cycle [so total 90days], and when the txn happens through the networks, one can add another 30 days in the chain [so total 120 days]. This is a pure connecting the dots and might be wrong, request the member to correct/provide inputs if I am missing anything.
This also seems correct, in the Q2 concall, they had given their realizations by domestic and international transactions, which was ~840 domestic and ~1300 for international; given Priority Pass/Premium Plaza lounges dominates the international scene more, it is likely that at the premium end PP would be dominating the scene and DFS would be more domestic, which is also reflected by their 68% market share, though they mention that they have 90-95% marketshare in CCs which are 80-85% of the txn volume
Disclosure: No position, just trying to understand the business
Apologies if this turns out to be a noob question.
What does it mean when they say āConversion rateā?
Does it compare -
Or
PS: Tried looking up the DRHP / Concall transcripts / Presentations but couldnāt find anything.
This is correct. Perhaps not calculated on a daily basis, but more on quarter/annual basis.
seems its the entry level cards which have taken the reduction, in the premium its ranging from 4-8-unlimited visits
DREAMFOLKS Q4 FY23 Result Update:
Some of the new lounges which got operational during last few months:
New Airport MOPA at Goa by Encalm hospitality (from April month)
Chandigarh airport : primus lounge ( from May)- ?reopening of previous lounge.
Terminal 3 arrival lounge by Encalm hospitality ( from May)
Highest ever monthly domestic passenger 13.17 million was recorded during May 23 beating previous best of Dec-19.
Axis bank seems to have put restriction on airport lounge access like SBI and HDFC.
( above data is collected from various sources and may not be completely reliable. In case anyone is travelling through the above airports please check if Dreamfolks has any operation at these lounges. I will post the official air traffic data for Q1 once AAI publishes it after June month. )
My views on the business model and key drivers for the DFS business.
Disclosure: Very small tracking position, views may be biased.
Thereās a write up on TheKen site, citing the lost āpremiumā-ness of the Lounges due to all card companies providing freemium mode of access. This offering has turned the card issuers from card luring to liability effect. Based on the snippet that I could read for free on the site, thereās rethinking of providing this facility in the future. Investors would be well advised to re-assess the thesis in light of new evidence.
The Ken analytical piece talks about:
Lounge Access as the sole motive of the credit card users that fall in the mass category. This mass category is 60% of the credit card users in India. Banks may tighten the lounge access criteria for this cateogry.
The total product cost has gone up to 25 BPS from 10 BPS because of the free lounge access
In 2019, ICICI had evaluated free lounge access but it had to be dropped because of COVID-19.
No restrictions are expected on Premium category cards
Another interesting point is: āThough 30ā40% of a bankās credit-card portfolio is given free lounge access, interestingly, only 3ā5% of the cards see lounge usage, said a senior executive at a lounge provider.ā
If there is any iota of truth in what Ashneer is saying, that would worry DFS investors a lotā¦
Focus on premiumization of Indian Consumers. People are holding 2-3 cards. Also just see, the key airports. Donāt get distracted by 1-2 articles. In case business model is intact, and airport is full, things will move.
For me, I just started using lounge in my last visit to a city. Although using HDFC Regalia for last 6 yrs. Lounge Usage will pick up for sure.
Also it will be good if ā Freeā traffic in lounges come down , that way, the flow of genuine customers will increase also.
