CAMs costs are not one off , these are continuous cost escalations which will happen every year, and DF wont be able to pass it on to their clients entirely, they lied in their presentation when they stated that the costs are “one off” , the lounges are squeezed by the airport owners , asking the lounges to share the revenue (not profits) and inturn the lounges are cutting the DFs margins
Last year they got a one time consultation fees due to which their margins increased by 2.5 to 3% and this is a “one off” , which they didn’t disclose then , now they are caught with their pants down
Did I hear 6 crores yearly ESOPS charges , where Operating profits are at 18 crores?
Their business is great no doubt but they are not truthful abt many things
As far as lounging in golf course is concerned, they wont get even 0.1% footfall of that of airport, very niche and very small
Railway lounges is a great channel, but with govt controlling them I don’t know if lounges could ever make any money atall.
I totally agree with you. The charges by the airport operator to the lounge operator will be monthly/ quarterly - but recurring- NOT ONETIME. Further, the airport operator will also increase the charges every year to compensate for inflation. So the lounge operator passes a portion of this increase to DF, which will negotiate with the card issuers to compensate for this increase, who will only compensate partially. So the OPM will get squeezed to 11-13%.
60% projected grow in top line may come for this year buy such high growth is certainly not sustainable.
I didn’t like DF passing recurrent expense as one time- so I sold off all my holding ( which was quite large) so that I can live in peace with some other stocks where I can have more trust in the promoters.
For me, trust in promoters comes first - then the quality/sustainability/ longevity of business and lastly the financials.
In all fairness, it’s us the investors who try to squeeze the promoters to do crystal gazing and tell us what’s going to happen in next 12-36 months. They have the option of telling us , not do any forward projection, but mcap + being in limelight etc is such a heady cocktail, they fall for the trap. If I were to ask anyone one of us, how is our next 12 months going to be. I am sure an equal proportion of us will fail this test against what we will tell about our future. That doesn’t make us untrustworthy, it’s just the difficulty of crystal gazing. Time changed, mgmt. had to respond to the situation, we as investors are also free to respond to the situation (with some pain of losing 30 odd percent from top). Life goes on. I still have huge respect for what this mgmt. has created. Could not have been easy challenging & dethroning 2 established world class players with years of reputation in a huge market like India. The business may still be a long term compounder with reasonable growth rate and margins. IMHO, it won’t be fair to call the mgmt as untrustworthy based on what happened in this qtr.
As DF is getting ~60-70% business to lounge owners thru free Credit Card access, if that stop lounge owners wont be able to even break even… so I think Pricing power is with DF than Lounge operators and this lounge access might be very small % cost for credit card companies, as I see most cards which hs lounge access are not free anymore, so if you get 4 lounge access say worth 4000 Rs you might be paying ~5000 as annual fees,I feel as they are growing they dont want to flex their muscles, but I am sure they will do in future and I see here value DF bring in to both lounge operator and Banks immense and as DF command more than 90% market share, so Only Risk I see a competition to come and disrupt DF… if they keep 90% plus mkt share they can manage the margin by passing the cost to banks in next hike…
Disc: Invested and bought more in recent correction…
DF has no pricing power.It is middle man between lounge operators and other service operators(spa,meet&greet etc) and card issuing companies(banks,network etc…) They do not own the services nor the customers
Hence, they will have to settle with whatever margin bank provides to them.
If there comes a competition who is ready to work with lower margin banks will go with them.
Do note its not very tough business to replicate.
Only play is the huge growth and hoping the margin does not erode much.
I don’t believe a bank will want to integrate their Credit Card systems with a new player just to save a few bps (especially when the absolute amount is not significant). Lets assume DF insist on increasing charges to Rs 1000 instead of Rs 900. What does a bank do ? Walk away and risk losing their CC customers to competition ? The key risk is competition and till such time a credible competitor emerges, the business is safe. If anything the declining margins may actually discourage potential new competitors.
The Airport Operators having seen a surge in footfalls would have sensed an additional revenue potential and hence more CAM charges. And they have the strongest bargaining position. However while Airport Operator, Lounge Operator, DF and Bank fight on the distribution of the pie, doubt whether anyone would want to disrupt the overall footfalls since then the overall revenue pie shrinks. As long as footfalls increase, everyone makes money. If it falls, everyone loses, even with the best bargaining power.
Agreed bank may not immediately tie up with a new player but what about existing players like priority pass.
Do note that banks,card network providers, airport service providers already has integration with them.Not everything is via dreamfolks.
So if competition lowers the fee its possible dreamfolks will loose their market share.
And yes it all depends on growth, growth of air passengers as well services on existing airports and new airports.
Yes, I feel only threat to business I see if any creditable competition come and disrupt the market. also DF has doen tie yo with Plaza premium for their all 340 lounges, that is big positive and promoter madam was from lounge business so she has good know how of this business…So top line keep growing and this margin issue market will forget in max 2 quarters … also somebody mentioned that what stops infy or TCS to come to this market & disrupt the DF business, so hoe many businesses Infy & TCS disrupted in India till date?? I dont see they were able to disrupt any… and DF has build business when both Priority Pass and DragonPass present in market… Biggest Risk I see for their business is if govt put a cap MDR charges for banks…lets wait & watch this stock seems to be very interesting stock to track…
The PAT and EPS of Q1FY24 is very similar to the previous Y-O-Y. Interesting to see the CMP came down to exactly where it was in June’22. Market is the boss
Need to consider the fact that mgt commentary has been all over the place.
At the time of IPO, the commentary was gross margins are very stable and business will only compound.
Then the second quarter post listing, margins start to increase and mgt maintains it will be able to maintain these increased margins.
It was Mgt responsibility to point out seasonality in margins in earlier calls itself. Cant be that only in 1Q24 have they realised that there is timing difference as to when lounge operators raise their prices and Dreamfolk will take 2 quarters to pass it on.
The commentary in this call has broken the thesis that Lounge Operators will be price takers and hence Dreamfolks can continue to keep a higher share of the amount paid by Banks.
If there was one-time charges in a quarter, why were they not quantified in that very quarter itself.
Also, when Plaza Premium lounges in Hyderabad, Delhi and Bangalore were shut in November last year (for almost a month), which impacted a significant part of their business, mgt did not inform exchanges. Rather, it was vaguely pointed in earnings call that the quarter was impacted by lounge operator transition.
Valid points…needs to convey to management…hope they improvise…they have created a great enterprise but they lack proper communication to the exchange…eventually, market forces will determine where margin settles but you should be transparent enough…ROE 60.2% n ROCE 76.9% has no meaning unless you are clean on the floor…must have learned the lesson after seeing the carnage on the exchange…we can hope only…
Abosultely agreed. I could not put this thread down. Just like a movie, there are many ups and downs in the business narrative and numbers. There is mystery about whether there are corporate governance issues, whether margins will sustain, etc. All credit to Valuepickr and the members for bringing out such variety of well thought arguments.
Due to all the moving parts and multiple possible outcomes, this business is a perfect example of a quote from Mr. Buffett: “a business is should be viewed as an unfolding movie, not a still photograph”!
Promoters selling their stake to raise money, If this business has so much potential then why do promoters sell their holdings?
Corporate Governance, why a registered office is a flat and shared by many companies.
Priority and Dragon being the largest player with pricing power have a total top line of 10K crores. Less than 2 billion dollars. Actual realisation is much lower than that, it is more like a trading business.
Technology also doesnt seem to be a major play here
Railway lounge will not command that kind of premium
Basis my analysis, I don’t find anything wrong in the business fundamentals of this company. This business is certainly a volume game - higher the sales higher is the accrual to the bottom line.
If one considers the three main stakeholders of the business/ecosystem, it is the lounge operators who incur the maximum expenditure in terms of capex. For this ecosystem to survive and make meaningful gains for all parties, some amount of flexibility/cooperation shown by the player with the least capex is actually good in the long run. The current price level gives good opportunity to make an entry.
P.S. This is not a buy/sell recommendation but my opinion on the company/business.
thats the beauty of stock market
