|New Issue Monitor||Click here for CM Rating Reckoner|
|Tuesday, 23 August 2022|
Largest airport service aggregator platform
A strong moat due to flywheel effect, led by client and operator network
Dreamfolks Services is one among the dominant player and India's largest airport service aggregator platform, facilitating an enhanced airport experience to passengers leveraging a technology driven platform.
asset-light business model integrates global card networks operating in India,
credit card and debit card issuers and other corporate clients, including
airline companies, with various airport lounge operators and other airport
related service providers on a unified technology platform. It facilitates
consumers' access to the airport related services like lounges, food &
beverages, spa, meet & assist, airport transfer, transit hotels or nap room
access, and baggage transfer services.
As on March 31, 2022 through its partnerships
with other service providers, the company has a global footprint extending to
1,416 Touch-points in 121 countries across the world (covering 536 cities) out
of which, 244 Touch-points are present in India and 1,172 Touch-points
Over the years, the company has transformed from being an airport lounge access aggregator to an end-to-end technology solutions provider for designing and delivering services that enhance the airport experience. The company has crafted its service proposition to provide Clients the option of offering a wide-ranging bouquet of Services to the Consumers. Currently, the company facilitate Consumers' access to a host of services: from doorstep to the airport, within the airport, and again from the airport to the door-step at the destination. The company's first mover advantage in the lounge access aggregator industry in India has enabled it to become a dominant player in the industry with a share of over 80% in the domestic lounge access market in India.
Lounge fee contributed a vast majority of the company's revenues from operations during FYs 2022, 2021 and 2020, contributing 98.68%, 97.25% and 98.82%, respectively, of its total consolidated revenue from operations. During FYs 2022, 2021 and 2020,the company's average revenue from lounge fee was 98.55% of its total revenue from operations.
The company's platform and services portfolio allow Card Networks, Card Issuers, and Corporate Clients to build bespoke solutions addressing disparate aspects of airport services for Consumers. Card Networks and Card Issuers can avail of any of the Services and may provide complimentary lounge access and complimentary access to other services to the consumers as part of their offerings under eligible credit and debit cards programmes, and the company enables this access across services. Corporate clients also leverage the company's solutions to extend benefits to their user base and facilitate access to Services.
The company provides clients the option of providing the consumers different mechanisms to access certain airport related services like lounges via the more traditional mechanisms like credit cards or debit cards, membership cards, or via digital solutions such as mobile applications using its hybrid technology.
The company also focus on the operators who provide the services and give them the option of a single point access to the consumers along with consolidated footfall and revenue, while also providing them technology to validate the benefits available to consumers, provide card-based and digital access, and billing.
The company's service offerings have increased significantly, and it has continued to augment its client base over the years and, as on March 31, 2022, has 50 clients including the Card Networks and many of India's prominent Card Issuers.
Further, the company has long association with many of its clients, and its top 5 Clients, as of March 31, 2022, having been associated with the company for over 3 years out of the 9 years that the company has been operational. The company's Client portfolio also includes prominent airlines, a telecommunication company, an online travel agency (OTA) and other corporates in India who generally make available these services to customers of their choice. As of March 31, 2022, 9.79 million Paxes, cumulatively, had availed the company's services since FY 2020.
Object of the offer
The offer comprises an offer for sale by selling shareholders MrMukesh Yadav of up to 65,31,200 equity shares aggregating Rs 212.9crore at upper price band, Mr Dinesh Nagpal up to 65,31,200 equity shares aggregating Rs 212.9 crore at upper price band and Ms Liberatha Pater Kallatof up to 41,79,968 equity shares aggregating Rs 136.3 crore at upper price band.
Mr Mukesh Yadav pre-issue shareholding was 34.0%, which shall decrease to 21.5% at the upper price band of Rs 328.
Mr Dinesh Nagpal pre-issue shareholding was 33.0%, which shall decrease to 20.5% at the upper price band of Rs 328.
Ms Liberatha Pater Kallat’spre-issue shareholding was 33.0%, which shall decrease to 25.0% at the upper price band of Rs 328.
The company is the largest and dominant airport lounge access provider in India. In FY 2020, of the total Indian domestic lounge access, around 80% was through India issued credit cards and debit cards. The company's dominant position is underpinned by its estimated market share of over 95% in FY 2022 of all India issued card-based access to domestic lounges in India. The company has coverage across 54 operational airport lounges constituting 100% of airport lounges in India, as on March 31, 2022. Further, as on March 31, 2022, the company had exclusivity to provide access to 12 domestic lounges across 11 airports in India constituting around 22.22% of the total access of the domestic lounges for India issued credit cards and debit cards. Further, in FY 2022, the company catered to approximately 68% of the overall lounge traffic in volume across all lounges in Indian airports (both the domestic and international lounges).
Strong relationship with marquee Clients including global card network providers in India and prominent Indian and global banks and corporate:The company has tie-ups with all the 5 Card Networks operating in India including Visa, Master Card, Diners/Discover and RuPay. Further, some of India's largest Card Issuers are also among the company's key clients including ICICI Bank Limited, Axis Bank Limited, Kotak Mahindra Bank Limited, HDFC Bank Limited (in respect of debit card lounge program) and SBI Cards and Payment Services Limited. In addition, the company also has tie-ups with some of India's prominent corporates including airline companies, telecommunications company, OTA, loyalty aggregators, and other corporates such as Interglobe Aviation Limited, Go Airlines Limited, Air Asia (India) Limited, Vodafone Idea Limited, Jet Privilege Private Limited, Hettich India Private Limited, Easy Trip Planners Limited and Mahindra Holidays and Resorts India Limited which enables the company to broaden its customer base. The company has also provided meet-and-assist solutions to a pan-India hospital chain.
The company has a strong business moat due to flywheel effect led by clients and operator network. Given the company's dominant position in the airport lounge access market, the company has been successful in building a bridge between its clients and airport lounge operators. The position of the company in the industry enables it to create interdependencies for its service offerings through its unique value proposition enabling it to attract newer clients and Operators, which helps it to further strengthen its position in the market.
The company capitalizes on the growing consumer base of air traffic passengers and card users without incurring any direct, consumer acquisition cost. Given the nature of its business model, the acquisition of the consumers is done by its clients. For the company's clients, providing access to airport lounges to consumers is increasingly becoming a key aspect of their card sales and customer engagement programs, and its clients leverage the company's technology driven solutions and platform to provide these value-added services to the consumers as part of their customer engagement.
The company business model is asset-light and the company's ability to scale up its business requires minimal incremental capital deployment resulting in high operating leverage. This is one of the key reasons that the company has a strong track record of delivering consistent growth along with high capital efficiency. The company's revenue from operations has increased from Rs 98.7 crore to Rs 367.0 crore during FY2020, at a CAGR of 54.93%. Also, during the same period the company's profit before tax has increased from Rs 8.1 crore in FY 2017 to Rs 43.6 crore in FY 2020, at a CAGR of 75.10%. The company's return on capital employed was 76.93%, 78,83%, 61.48% and 63.46% in FYs 2017, 2018, 2019 and 2020, respectively. However, the company operations were impacted during COVID 19 pandemic and are not comparable with earlier years. Further, the company's operational expenses are also relatively minimal, and its business model is not human intensive.
One of the key aspects of the company's business model is a strong focus on technology. The company's technology platform is aimed at ensuring that all entities on or availing of the company's platform i.e., client, operators, and consumer, have a 'hassle-free' experience. The company's platform addresses aspects such as benefits calculation and accounting, provides real time visibility of transactions to clients and consumers, reduces potential fraud and abuse, as well as provide the platform for clients to run usage and spend based campaigns for their users. The company leverages its configuration-driven extendible platform with solution templates for flexibility, reliability, and customization, to provide solutions for multiple access models. Its hybrid model enables omni-channel access for Card Based transactions, through membership cards, and facilitates digital access like its client's banking apps (called in-app), or its DreamFolks mobile Application.
Contracts with card and lounge partners are generally term-based, which exposes revenue to risk of non-renewal of contracts. In addition, higher bargaining power of card partners limits the company's flexibility in negotiating prices.
All of the company's revenues are directly derived from the use of the various services at airports by passengers as such the company is inordinately reliant on-air travel industry for its business. The air travel industry has been buffeted by Covid-19 pandemic which has adversely impacted the operations of the company in FY2021. Further, any downturn in the travel industry, in general, and in air travel industry, particularly, could adversely impact the result and operations of the company.
The company is heavily reliant on a few clients and derives a significant part of its revenue from lounge access related services from select Clients. Its top 5 Clients on an average contributed 84.91% of its total revenue from operations during FYs 2022, 2021 and 2020. Any instance of termination of its contract with any of its top 5 client in future will have a significant impact on the company's revenues. Also, the company's revenue growth and profitability are susceptible to top 5 clients growth plans.
The company is heavily dependent on the Cards that are in circulation and on issuance of new credit cards and debit cards. However, continuing increase in cash spending coupled with digital transactions including UPI could impact the relevance of credit cards and debit cards. These factors could adversely affect consumer behaviour in terms of usage of credit cards or debit cards and could have an adverse impact on the company's business.
Any inability to compete effectively by the company may lead to a lower market share or reduced operating margins of the company. Further, threat of airport lounge operators forward integrating and tying up directly with card networks and card issuers themselves will have an adverse impact on the operations of the company.
Operations of the company are working capital intensive with receivable days of 117 days in FY2022.
ValuationFor FY 2022, consolidated sales were up by 167.4% to Rs 282.5 crore. OPM rose 834 bps to 7.98% which led to increase in operating profit to Rs 22.51 crore. Operations of the company were disrupted between March 2020 to March 2021 this resulted in revenues decline by 71% YoY in FY2021, however with gradual ease in travel restrictions the company's recovered in FY2022. Other income was lower by 39.8% to Rs 1.49 crore while interest cost increased 92.1% to Rs 1.43 crore and depreciation increased 37% to Rs 2.13 crore. PBT stood at Rs 20.48 crore when compared to loss of Rs 0.2 crore in FY2021. Tax expenses increased by 238.2% to Rs 4.22 crore. Net income stood at 16.25 crore as against net loss of Rs 1.45 crore in FY2021.
At the higher price band of Rs 326, the offer is made at around 104.81 times P/ (E FY2022). There are no listed peers for the company in India.