Dreamfolks Services Ltd IPO

Published by Sharekhan Education | August 24, 2022

Amit Pathak | Sharekhan Education 

Dreamfolks Services Ltd IPO

About the Issue

Issue size: ₹ 531-562 Cr
Price Band: ₹308-326
The issue opens on: Wednesday, 24th Aug’2022
The issue closes on: Friday, 26th Aug’2022

Company Overview:

Dreamfolks Services is India’s largest airport service aggregator platform with over 80% market share in the domestic lounge access market. It facilitates the customers of its clients to access the airport-related services such as Lounge, Food & Beverages, Spa, Pick-up and Drop service amongst others. The company facilitates an enhanced airport experience for passengers. It follows an asset-light business model that primarily integrates global card networks, card issuers, and airline companies with various airport lounge operators. As of March 31, 2022, Dreamfolks had 50 clients including the Card Networks and many of India’s prominent Card Issuers.

Objects of Issue: 

The entire IPO is an offer for sale and the company will not receive any proceeds from the same. The company expects that the listing of the equity shares will enhance its visibility and brand image and provide liquidity to its shareholders. It will also provide a public market for its equity shares in India. Investors will have to apply for 46 shares and in multiples thereon. Post allotment,  the company  will list the shares on both BSE and NSE.

Industry Overview:

Passenger traffic has been growing steadily since the new millennium, driven largely by income growth and low-cost aviation. The penetration of lounges per airport in India is still very low compared to the global average. Heathrow International, UK has the largest number of 29 lounges. The Indian Airports average around 2 lounges per airport. There is still headroom to grow the average airport lounge size per airport. The Indian lounge market is expected to grow at 4x of the current market size and is expected to reach 204 lounges by CY40E. The growth in the lounge operators’ market is anticipated to increase opportunities for the lounge aggregators market.

Competitive Strengths:

Their dominant position in the airport lounge access market has enabled them in building a bridge between their clients and airport lounge operators. For their clients, their comprehensive airport lounge coverage in India and single-point access to all lounge operators are a vital link to managing customer loyalty and retention. For lounge operators, their tie-ups with all card networks with operations in India and some of India’s largest card issuers facilitate a steady stream of lounge users being routed through them. The convergence of their dominant market position, prominent client base, extensive presence in the airport lounge market in India, and diverse service offerings helps create a network flywheel effect.

Their business model, by design, is asset-light and their ability to scale up their business requires minimal incremental capital deployment resulting in high operating leverage. This is one of the key reasons that they have a strong track record of delivering consistent growth along with high capital efficiency.

Key Concerns: 

Dreamfolks is heavily dependent on the air travel industry. Any downturn in the sector will result in a negative impact on the company. The average duration of its contracts with operators in India is four years. If the company cannot retain these contracts or renew them on commercially beneficial terms, it could adversely impact its profit margins. The company’s top 5 clients contributed 84.9% of its total income from operations over the last three years. This exposes the company to concentration risk from its inability to retain its established card networks and card issuer companies as its clients going forward.

Financials:

Revenue from operations increased by 167.5% in FY22, mainly due to the low base of FY21 on account of the Covid-19 pandemic. The average revenue per passenger increased from 752 in FY20 to 800 in FY22. In FY22, the company’s Net Profit Margin, EBITDA margin & ROE stood at 5.75%, 8.46%, and 19.78% respectively. The issue is priced at 104.8x P/E on FY22 EPS (at the upper end of the issue price band). We are maintaining a neutral outlook on the IPO mainly on account of expensive valuations.

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