Dreamfolks Services coming up with IPO to raise around Rs 562 crore

Dreamfolks Services

• Dreamfolks Services is coming out with a 100% book building; initial public offering (IPO) of 1,72,42,368 shares of Rs 2 each in a price band Rs 308-326 per equity share.
  
• Not less than 75% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 10% for the retail investors.
  
• The issue will open for subscription on August 24, 2022 and will close on August 26, 2022.
  
• The shares will be listed on BSE as well as NSE.
  
• The face value of the share is Rs 2 and is priced 154 times of its face value on the lower side and 163 times on the higher side.
  
• Book running lead managers to the issue are Equirus Capital and Motilal Oswal Investment Advisors.
  
• Compliance Officer for the issue is Rangoli Aggarwal.
  

Profile of the company

The company is a dominant player and India's largest airport service aggregator platform facilitating an enhanced airport experience to passengers leveraging a technology driven platform. Its asset-light business model integrates global card networks operating in India (Card Networks), credit card and debit card issuers (Card Issuers) and other corporate clients, in India, including airline companies (Corporate Clients and along with Card Networks and Card Issuers, the Clients) with various airport lounge operators and other airport related service providers (collectively, the Operators) on a unified technology platform. It facilitates customers of Clients’ (Consumers) 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, (collectively, the Services).

The company’s dominance is underpinned by facilitating access to 100% of the 54 lounges currently operational in India, and it also enjoyed a market share of over 95% of all India issued credit card and debit card (Card Based) access to airport lounges in Fiscal 2022. Additionally, in Fiscal 2022 it also accounted for around 68% of the overall lounge access volume in India. Further, as at March 31, 2022 through its partnerships with other service providers, it 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.

Proceed is being used for:

• Carrying out the Offer for Sale of up to 17,242,368 equity shares by the selling shareholders with the benefits of listing the equity shares on the stock exchanges.
  

Industry overview

The growing markets within India and South Asia are some of the key drivers for the growth of the overall Asian aviation sector. South Asia is forecasted to have a passenger growth rate of 6.6% till the year 2040. The passenger growth prospects within this region is considered to be strong due to the presence of India. India’s economy is anticipated to grow with a CAGR of 5.1% between 2021-2040. The demographic factors and the high propensity to travel within India is expected to accelerate the growth associated with the Indian aviation market. India has a highly competitive domestic market catered to by domestic carriers. Policies that promote airport infrastructure and the imposition of regulations that support the aviation sector is expected to be a key driver for this market. The induction of project UDAN is expected to be one of the key contributing factors to the Indian Aviation Industry.

The credit card industry in India is experiencing high growth. The credit card market grew from around 33 million outstanding cards in Sept 2017 to around 65 million outstanding cards in Sept 2021 at a CAGR of 18.17%. The number of outstanding credit cards in Dec 2021-were 68 million representing a growth of more than 13% over Dec 2020. Similarly, there were around 819 million outstanding debit cards in Sept 2017 which grew to 920 million debit cards in Sept 2021 growing at a CAGR of 2.93%. Outstanding debit cards are expected to surpass 1 billion next 2-3 years. The exponential increase above the average for 2018-2020 is due increased adoption of digital economy due COVID. New debit card issued is experiencing a mild decline over the past three years, however this is expected to bounce back with the improvement in the post COVID economic scenario. The increase in credit/ debit cards bodesmwell for players like DreamFolks who stand to benefit from the card loyalty programs targeting lounge access.

Pros and strengths

Dominant player in airport lounge aggregation industry in India: The company is the largest and dominant airport lounge access provider in India. In Fiscal 2020, of the total Indian domestic lounge access, around 80% was through India issued credit cards and debit cards. Its dominant position is underpinned by its estimated market share of over 95% in Fiscal 2022 of all India issued Card Based access to domestic lounges in India. Moreover, it has coverage across 54 operational airport lounges constituting 100% of airport lounges in India, as at March 31, 2022. Further, as at March 31, 2022, it 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 Fiscal 2022, it catered to approximately 68% of the overall lounge traffic in volume across all lounges in Indian airports (both the domestic and international lounges). Moreover, it also provide access to various other Services such as F&B offerings, spa services, ‘meet and assist’, airport transfer services, transit hotels / nap rooms access, and baggage transfer to Consumers. Its constant endeavour to provide incremental value-added services to enhance the experience of Consumers of its Clients has helped it make strong in-roads and expand its business.

Entrenched relationships with marquee clients: 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 its key clients including ICICI Bank, Axis Bank, Kotak Mahindra Bank, HDFC Bank (in respect of debit card lounge program) and SBI Cards and Payment Services. In Fiscal 2022, it enjoyed over 95% market share in the India issued Card Based transactions for lounge access. In addition, it also have tie-ups with some of India’s prominent corporates including airline companies, telecommunications company, OTA, loyalty aggregators, and other corporates such as Interglobe Aviation, Go Airlines, Air Asia (India), Vodafone Idea, Jet Privilege, Hettich India, Easy Trip Planners and Mahindra Holidays and Resorts India. This enables it to broaden its customer base. It has also provided meet-and-assist solutions to a pan-India hospital chain.

Strong business moat due to flywheel effect led by clients and operators network: Given the company’s dominant position in the airport lounge access market, it has been successful in building a bridge between its Clients and airport lounge Operators. Its position 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 further strengthen its position in the market. For Its Clients, its comprehensive airport lounge coverage in India and a single point access to all lounge operators in India is a vital link to manage customer loyalty and retention / enables them to provide Consumers value added services as part of their customer engagement and loyalty management programs. Moreover, its platform is, to the extent relevant, integrated with the information technology systems of its Clients. Consequently, details like, the benefits for each card variant, the benefits availed by Consumers, and the accounting pertaining to use of the lounge services by the Consumers are maintained and monitored through its systems.

Proprietary technology platform that ensures scalability: One of the key aspects of the company’s business model is a strong focus on technology. Its technology platform is aimed at ensuring that all entities on or availing of its platform i.e., Client, Operators and Consumer, have a ‘hassle-free’ experience. Its 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. It 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 also facilitates digital access like its Client’s banking apps (called ‘in-app’), or its DreamFolks mobile Application. In addition, Consumers can use either their credit cards or debit cards, the Client’s app in certain cases, or its DreamFolks App to purchase additional visits over and above the benefits available on their credit cards or debit cards and get access to lounges and other Services.

Risks and concerns

Dependent on relationship with airport lounge operator: The company’s ability to continue its association with lounge operators is, therefore, critical to its operations. While the company has not failed to renew/ negotiate the terms of its engagement with lounge Operators during the last 3 Fiscals, it cannot assure that the company will not face any such failure in the future. Further, certain lounge operators provide lounge access service across multiple airports at various cities. Except for a few airports in larger cities like New Delhi, Mumbai and Chennai, most airports have only one lounge or the lounges in an airport are all operated by same operator. If it is unable to timely renew its contract with such operators or if its relationship with a lounge operator or with multiple lounge operators is adversely affected, it will be unable to provide Consumers access to a particular airport or airports with lounges operated by such operator. This, in addition to affecting its revenues and profitability, could also have an adverse impact on its leverage with its Clients.

Operations are heavily dependent on travel industry: The company is a dominant player in India's lounge access aggregator industry leveraging a technology driven platform facilitating an enhanced airport experience to passengers. Almost all its revenue is derived directly from the use of the various Services at airports by passengers. The company is, therefore, inordinately reliant on the air travel industry for its business. For Fiscals 2022, 2021 and 2020, 100% of its revenue from operations was from the air travel industry. The air travel industry has, in the recent past, been buffeted by the COVID-19 pandemic which has adversely impacted its operations. Further, the travel industry is also generally affected by various factors such as increase in the fuel price, government policies applicable, in particular, to the airline industry, failure of airlines etc. Increase in fuel prices could result in an increase in the air fares. Further, failure of airlines may reduce competition in the air industry which may in turn lead to an increase in the air fare due to a mismatch between demand and supply.

Heavily dependent on Cards that are in circulation: While Consumers can avail of the Services facilitated by the company through either Card Based transactions or through digital access, it is heavily dependent on Consumers using credit card or debit card to avail the Services. Out of an estimated 5.2 million passengers using lounges in India more than 80% passengers use credit cards or debit cards to access domestic lounges. Usage of credit cards and debit cards in India and the discretionary spending capacity of the Consumers are dependent on a number of factors such as general macroeconomic conditions, unemployment levels, interest rates, credit risks, availability of discretionary income, consumer confidence and any slowdown or perceived slowdown in the Indian economy. In the aftermath of the cancellation of the legal tender character of old Rs 500 and Rs 1,000 notes in 2016 (Demonetisation), the Government of India introduced a package for promotion of digital and cashless economy (Source: cashlessindia.gov.in) which saw an increase in the use of digital modes of payment. . 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 behavior in terms of usage of credit cards or debit cards and could have an adverse impact on business, results of operations and financial condition.

Face competition: Currently, the company is a dominant player in the industry in which it operates, in India. There are currently limited operators of its scale who provide similar services. However, it face competition from large global players such as Priority Pass who have significant experience. The company’s business, prospects, financial results and financial condition could be adversely affected if its competitors gain significant market share at its expense. Further, any consolidation amongst its competitors could have an impact on the level of competition. Moreover, in the international arena, it compete with global operators who are already well entrenched, may have a significantly larger size of operations and, consequently, may benefit from economies of scale. Further, its advent in the international arena, is more recent, and its success will depend on its ability to break the hegemony of entrenched operators.

Outlook

DreamFolks is a dominant player and India's largest airport service aggregator platform facilitating an enhanced airport experience to passengers leveraging a technology driven platform. It facilitates customers access to services like Lounges, Food & Beverage, Spa, Meet & Assist, Airport Transfer, Transit Hotels /Nap Room Access, Baggage Transfer and other services. Over the years, it 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. It has crafted its service proposition to provide Clients the option of offering a wide-ranging bouquet of Services to the Consumers. Its asset-light business model integrates global card networks operating in India, credit card and debit card issuers and other corporate clients in India, including airline companies with various airport lounge operators and other airport related service providers on a unified technology platform. On the concern side, the company’s business, results from operations, and financial conditions are heavily dependent on retaining contracts with Card Networks and Card Issuers. If it is unable to retain contracts with Card Networks and Card Issuer or renew / negotiate the contracts with Card Networks and Card Issuer on commercially viable terms then it could have an adverse impact on margins, and consequently, profitability. Besides, the company’s business operations suffered disruptions in the period between March 2020 and March 2021, due to COVID19 related lockdowns.

The issue has been offered in a price band of Rs 308-326 per equity share. The aggregate size of the offer is Rs 531.06 crore to Rs 562.10 crore based on lower and upper price band respectively. On performance front, the company’s revenue from operations increased by 167.43% from Rs 1,056.33 million in Fiscal 2021 to Rs 2,824.98 million in Fiscal 2022, primarily due to increase in number of Pax accessing lounges from 1.38 million in Fiscal 2021 to 3.53 million Pax in Fiscal 2022 primarily due to the relaxation in the COVID-19 restrictions. The company’s profit for the year increased to Rs 162.52 million during Fiscal 2022 from a loss of Rs 14.50 million in Fiscal 2021. Meanwhile, the company intends to focus on increasing wallet share with its existing Clients by identifying cross-selling opportunities that its diversified set of Services offer. It plans to continue to nurture its relationships with its Clients, to expand its association beyond airport lounge services to the full bouquet of Services that it offer including F&B, spa and ‘meet and assist’ and increase their contribution to its total revenue from operations. It plans to increase the stickiness of its Clients through deeper integration of their systems with its platform, which will allow it to generate recurring revenue and aid the aim to increase its wallet share from each Client.