Dreamfolks services limited( DFS)

Stock Opportunities
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The key to growth would be as you pointed out and too think is :

  • Air Passenger Growth ( likely with growth in discretionary spending by Indians, observe that there is no growth in Marico, however leisure spending and travel has increased. )

  • Credit Card Growth - still lot of room to play.

  • Company focusing on playing the corporate benefits card, which many MNC and top Indian companies can on-board.

  • Company to increase the circumference of offerings across leisure and travel.

  • Company to expand internationally organically or with tie-ups ā€¦

With more airports across Indian cities, infra and travel increasing ā€¦ a long term play for alteast next 3-5 yearsā€¦ the margin pressure is real though and hence the sales growth canā€™t fizzle out !!

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Will Dreamfolks Services become a Multibagger?

April 06, 2024

The most affected sector during Covid-19 was the Travel Sector. This sector was the most undervalued during the time. But it was known that it will revive once Covid is over. The problem is when it will revive. The patience to let the sector revive was the key. So keeping this sector in focus, I saw that a company called Dreamfolks Services is coming out with an IPO in August, 2022. The price for the IPO was Rs. 308-326 per share.

DreamFolks Services Ltd is Indiaā€™s largest airport service aggregator platform facilitating an enhanced airport experience to passengers leveraging a technology-driven platform. Dreamfolks facilitates customers of Clientsā€™ access to the following airport-related services (i) lounges, (ii) food and beverage (iii) spa, (iv) meet and assist, (v), airport transfer (vi) transit hotels /nap room access, and (vii) baggage transfer. They facilitate access to 100% of the 54 lounges currently operational in India. The business is an asset light model.

The one issue that I could see in the company was their revenue concentration during that time. They are heavily reliant on a few clients and derives a significant part of its revenue from lounge access-related services from select Clients.

The Q1FY24 results were not as good as the Q4FY23 results as shown below.

The reasons stated for such a bad result was that revenue in Q4FY23 included the impact of a one-off project up fees received during the quarter. One-off abnormal increase in Common Area Maintenance charges has led to increase in lounge cost. The escalation used to be 7-8% but this time it was 15%. Time lag between contract renewals on both supply and demand side has impacted the Gross margins. EBITDA decline in Q1FY24 is partly associated with ESOP charges.

Q2FY24 & Q3FY24 results were quite well as shown below.

Fundamentally, they have started diversifying their business into the following services.

They are also strengthening its global presence through partnership with Grey Wall ā€“ one of Russiaā€™s leading lounge operator. They have also entered in to the Malaysian Market. They have on-boarded one of the key players in the airport lounge space in Malaysia, by offering thier technology w.r.t. card-based lounge benefit management. This is a different model where the lounge operator, in addition to being a service provider, also acts as a client for us to provide such lounge benefit management platform. They have also collaborated with Plaza Premium Group.

In order to increase their client base, they have on boarded new age fintech companies like FI Money and also added an e-commerce company to their roster of clients. They are also expanding their presence in railway lounges by partnering with new railway lounges in Chennai and Old Delhi. They continue to maintain 100% coverage in railway lounges across India as well. They are also adding new services like Pathology testing across India, through a strategic partnership with Healthians & Gifting services, through collaboration with My Flower Tree, allowing customers to send flowers, cakes, planters and more to friends and family. They have also partnered with Eco-Mobility, a car rental service provider. They will now extend its fleet of luxury chauffeur-driven vehicles to DreamFolks customers under the newly launched DreamFolks Club memberships. They have also collaborated with a premium Salon chain named Looks Salon which shows their diversification efforts beyond travel. They have also diversified by providing E-Sim Solutions for International Travellers & have already on boarded one of the largest network providers to offer the solution.

These fundamental changes should definitely help them achieve diversified revenue streams but again patience is key in these cases.

Until recently, the stock was not covered by any big brokerages. In February, 2024, Motilal Oswal initiated coverage on the stock and sees an upside of 34% in the stock.

The company listed at a price of 550 and then corrected back to Rs. 350 in Dec, 2022. When the company declared Q4FY23 results, they had seen a very huge YOY growth in FY23 vs FY22 results which took the price to make a high of almost Rs. 850 in July, 2023. The price then corrected and made a low of Rs. 450 in Sept, 2023 after the Q1FY24 results were declared. The price has also been very range bound between Rs. 450 & Rs. 600 during Q2 & Q3 results. I have accumulated this stock with an average price of Rs. 515 hoping that the companies changing fundamentals will discount in the price and it will go back to the levels of Rs. 850.

Seeing the fundamental changes in the company, I think this stock should become a Multibagger in the coming future but need to wait for the story to pan out. Patience in holding this stock is key to generating returns.

Let me know what you think in the comments section!

Happy Investing!!!

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I strongly believe that the competitive intensity will increase going ahead as the Indian air travel market is growing players like Priority pass have higher incentive to enter the market. DFS claims 95% share in credit card-based lounge usage so it would be very sensible for these players to pitch lower rates to credit card companies. All these things the company is doing seems that they want to transform from the aggregator model to a full service model which will stretch the working capital cycle as well and the negative working cycle is unsustainable.

Any contra view here?

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The companyā€™s business model involves negotiating with airport lounge owners and credit card companies, offering a software platform to facilitate transactions between them.

Revenue is generated from credit card companies on a per-passenger basis, with payments made to lounge owners through the software.

However, the flaw in this model is that the company transitions from a technology provider to a bulk B2B booking business, resulting in low CFO and high receivables. Despite the thriving nature of the business
due to increased passenger traffic, temporary issues such as credit card restrictions and lounge availability arise.

However, the fundamental flaw in the business model makes it difficult for me to consider investing.

Please share your opinion.

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As long as they are limited to indian market then there will not be any exponential growth revenues, growth from increase in air traffic and lounge foot fall only drive the business.

Deals with the lounges in foreign countries only add some minimal contribution because these deals will allow indian card holders to utilize the lounge access in those countries, but what i am looking since listing is winning a single deal to offer lounge services to banks/card network providers of foreign countries in their homeland and abroad for their customers. This is not happening since listing, management keep on saying that this kind of deals will take time to close.

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Recently, there has been a devaluation of credit card incentives. Credit cards and banks provide significant revenue to DFS.
To access lounges, banks are asking its customers to spend a certain amount. Like customers will have to spend a minimum of 10k/month to access the quarterly lounge benefit.
These have been on most issued entry level cards which i think will have a short term impact on dreamfolks revenue. I intend to quiz the management about it in the next concall.

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Agreed. But they are also diversifying their revenues. Railway Lounges (which is an even bigger market than airport lounges plus Govt plans to make Railways better) and Golf Services, Salon Services etc etc as mentioned in my Blog Post.

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Recently i visited lounge at Hyderabad airport, still there are long ques to enter the lounge and lounge is full of pax, i think there may not be any impact on this lounge access business model changes on the dreamfolks, indeed i am expecting good number in Q4. if it is the case then again re rating is possible

All these other services contributing very less amount to the revenue (<5%).
Not much margin & Per pax revenue in the railway lounge services, its yet to emerge as there are only few limited number of lounges in the railway stations.

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Agreed. But eventually it will grow and it makes sense to stay invested for the long term. The price is also showing some breakout signs so lets see.

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Potential is huge in terms of generating topline.
But their business model has a problem that they wonā€™t be able to generate healthy bottom-line %.

The moment they start generating good ROI, AIRPORT authorities will increase their tariff.

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Does anyone know the reason behind the surge in cost?
Revenue growth looks promising, but why canā€™t they convert that to bottom line growth?

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Earlier, i have heard management confident about, 11-13% OPM, but still not sure why it has not achieved yet.

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Its not OPM, they are talking about Gross margins and they are achieving this target.

There was hit on Gross margins few quarters ago so the bottom line dropped significantly. Now they are targeting 11-13% GM

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These results gives us a sense of negligible margin power that Dreamfolks has. With 100% penetration, it makes you question why they cannot increase there margins.

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Itā€™s happening, airport lounge visits are reducing in India. - Live from a Lounge.

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I disagree with the article writer view.
Pax numbers may be down by some 0.1 M on QoQ but it will be normalized in 2-3 quarters as people get used to this spend based lounge access as its not a big task.

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What will be ESOP expenses in FY25 and FY26

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Good Q1 results. Sales increased by 20% and company has given guidance of 20% for the year. Margins are stableā€¦ hope margins increase once the new business increase volumes.
This seems to be the steady state growth and in case they are able to expand globally it will be a huge jump.

FIIs have been decreasing holding and DII increasing for past 1 year - I think the price stagnation was due to this change in hands. hopefully it will move up now.

Disclosure - invested recently and biased.

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While results have been good, not sure how to read the future.

  • Non-lounge services needs to grow which are supposedly high margins.

  • With banks shifting to spend based, a good number of ā€œfreeā€ seekers having multiple cards most likely will go away. Counter argument can be with growing income and spending power, there are many who will still spend and use the benefits.

  • Moreover its low margin and there is rumor/news ? about Adani might venturing into this given they have few airports here

Dis: Wait and watch for now

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