DreamFolks Services IPO Review: Should You Invest?

Dreamfolks Services Limited IPO opens for subscription on 24th August. The company is looking to raise up to Rs 562.10 crore through the public issue. Here are the details:

Dreamfolks Services  IPO Details

Dreamfolks Services IPO Date: 24 August - 26 August 2022

Dreamfolks Services IPO Price band: Rs 308 - Rs 326

Dreamfolks IPO Issue Size: Rs 562.10 crore (Offer for sale of 17,242,368 Equity shares)

Reservation: QIB 75%, Retail - 10%, NII 15%

Minimum Investment: Rs 14,996

Bid lot: 46 shares, and in multiples of 46 shares

Dreamfolks Services IPO: Objects of the Issue

The company will not directly receive any proceeds from the Offer and the entire Offer Proceeds will be received by the Selling Shareholders, in proportion to the Offered Shares sold by the respective Selling Shareholders as part of the Offer.

About DreamFolks Services Limited

• DreamFolks is a dominant player and India's largest airport service aggregator platform, an incubator of the industry with its unique, capital-efficient, asset-light business model.
• It provides services to all the Card Networks operating in India including Mastercard, Visa, Diners/Discover, and RuPay. 
• DreamFolks carefully crafted a service proposition and a tech platform to provide DreamFolks clients the option of offering a wide-ranging bouquet of services to their end customers as part of their customer engagement and loyalty management programs. 
• The company also provides many other services like door-step to the airport, within the airport, and again from the airport to the door-step at the destination including Lounges, Food and Beverage, Airport Transfer, Spa, Meet and Assist, Transit Hotels/Nap Room access, and Baggage Transfer.
• DreamFolks has a global footprint extending to 1,416 touch-points in 121 countries across the world out of which, 244 Touch-points are present in India and 1,172 touch-points overseas, as of March 31, 2022.

They are a dominant player in the industry with a share of over 80% in the domestic lounge access market in India. 

DreamFolks Services IPO: A Diversified List of Services Offered

Below are DreamFolks' top services:

Lounge Access: The company has 100% coverage of operational lounges in Indian airports, and they offer a unique value proposition to clients by enabling access to consumers to a network of all operational airport lounges in India.

Food and Beverage offerings: They have tied up with various entities to facilitate access to around 57 restaurants/F&B outlets at 18 airports across India, as of March 31, 2022.

Spa Services: As part of their focus on making air travel as enjoyable and relaxing as possible, consumers can avail of specified massage therapies such as head, neck, and shoulder massage, and foot reflexology.

Meet and Assist: They facilitate end-to-end assistance to the consumers at the airport. The services are available at select airports to consumers at arrival and departure terminals of select airports in India.

Airport transfer services: DreamFolks facilitate airport transfer - airport ‘pick-up and drop’ facilities in 47 cities across India and in 145 cities outside India, as of March 31, 2022. 

DremFolks IPO: Industry Outlook

• The number of lounges is expected to grow at a 7% CAGR between the period 2022-2040. As of March 2022, the number of airport lounges in India was 54, and this is expected to grow to around 204 lounges by 2040.
• An increase in passenger traffic and growth in demand within the air travel industry is expected to boost the market growth.
• Tier II airports are expected to drive the growth of new lounges. This is due to the lower rates and increases in traffic from these airports.

DreamFolks IPO: No Listed Peers

The company operates in an industry that is in its nascent stages. Therefore, there are limited numbers of operators in this industry and there are no listed peer companies.

DreamFolks Services IPO: Key Financials Details

• The revenue from operations has decreased from Rs 367.04 crore during FY20 to Rs 108.11 crore during FY21 to Rs 283.99 crore during FY22. The revenue has declined because of Covid and its impact on the airline industry. 
• During the same period, the company's profit After tax decreased from Rs 31.68 crore in FY20 to Rs (1.45) crore in FY21 to Rs 16.25 crore in FY22.
• EBITDA decreased from Rs 45.85 crore in FY20 to Rs 24.04 crore in FY2. The EBITDA margins for FY20, FY21, and FY22 was 12.47%, 1.94%, and 8.76% respectively. 
• The return on capital employed was 61.48%, 63.46%, 0.74%, 23.99% in FY19, FY20, FY21 and FY22, respectively.
• The average revenue per passenger has increased from Rs 752.14 in FY20 to Rs 800.28 in FY22.

DreamFolks IPO: What is its Unique Selling Proposition?

Dominant Player in the industry: They are the largest and dominant airport lounge access provider in India. In FY20, of the total Indian domestic lounge access, around 80% was through India-issued credit cards and debit cards. Their dominant position is underpinned by their estimated market share of over 95% in FY22 of all India-issued Card Based access to domestic lounges in India.

Entrenched relationships with marquee Clients: DreamFolks has tie-ups with all the 5 Card Networks operating in India including Visa, Master Card, Diners/Discover, and RuPay. They also have India’s largest Card Issuers as their key clients - ICICI Bank Limited, Axis Bank Limited, Kotak Mahindra Bank Limited, and HDFC Bank Limited.

Strong business moat: Their position in the industry enables them to create interdependencies for its service offerings through their unique value proposition enabling them to attract new clients and operators, which helps them further strengthen their position in the market. 

Ability to capitalize on growing consumer base: They can capitalize on the growing consumer base of air traffic passengers and card users without incurring any direct, consumer acquisition cost. Given the nature of their business model, the acquisition of the consumers is done by their clients.

DreamFolks Services IPO Review:  What is its Growth Potential?

Increase wallet share with existing clients: The company will focus on increasing its wallet share with existing Clients by identifying cross-selling opportunities that their diversified set of services offers. 

Continue to maintain 100% coverage of airport lounges: The company plans to consistently establish new relationships or extend existing relationships as and when the opportunity arises to capitalize on the expected growth in airport lounges driven by inter alia the growing air traffic and passenger traffic, development of new airports, and government initiatives. 

Expand to newer sectors: They also want to focus on customer engagement and loyalty solutions for Corporate Clients and build specific solutions for, amongst others, loyalty companies, e-commerce companies, companies in the hospitality sector, new-age digital companies, and neo banks.

Expand client base: They intend to penetrate deeper into the existing sectors that they cater to by expanding the client base. They plan to increase the number of clients in the banking, telecommunications, OTA, and airlines sector.

DreamFolks Services IPO Review: What are the Risk Involved?

Dependency on relationships with card networks: The company's success is dependent on its long-term relationships with card networks and card issuers which on average contribute 98.98% of its total revenue from operations. It exposes them to risk emanating from the inability to retain their established card networks and card issuers companies as their clients.

Business is dependent on the travel industry: Almost all of their revenue is derived directly from the use of the various services at airports by passengers. They are inordinately reliant on the air travel industry for business. Any downturn in the travel industry and in the air travel industry will adversely impact its financials.

A limited number of clients: They are heavily reliant on a few clients, and they derive a significant part of their revenue from lounge access-related services and from select clients. Its top 5 Clients on average contributed 84.91% of total revenue during FY22, FY21, and FY20. 

 DreamFolks IPO: Review

• Fall in revenues: Owing to the pandemic and its severe impact on the airline industry, DreamFolks has seen a decline in revenue from Rs 367 cr in FY19 to Rs 284 cr in FY22.   
• Recovery in profit: After turning in a loss of Rs 1.45 crore last year, the company posted a profit of Rs 16.25 in Apr-Mar 22. However, they are still below pre-pandemic levels. DreamFolks had reported a profit of Rs 32 crore in FY20. 
• Margins under pressure: The company’s margins have witnessed some pressure due to higher costs and lower sales. EBITDA margin declined to 8.76% as compared to 12.5% in Apr-Mar 20 period. 
• Dominant market share: DreamFolks has got the first mover advantage in the lounge access aggregator industry. It has a dominant share of over 80% in the domestic lounge access market in India. DreamFolks' dominance is underpinned by facilitating access to 100% of the 54 lounges currently operational in India. 
• Reasonable valuations: At the higher end of the price band, DreamFolks IPO is aggressively priced at 109 times FY22 earnings (post-issue fully diluted basis). There are no other listed peers for DreamFolks.
• DreamFolks IPO Final recommendation: Given factors such as a decline in revenue, falling margins, dominant market share, robust expansion, and good runway for growth but reasonable valuation, analysts have given a ‘neutral’ rating on the company’s long-term prospects.