Dreamfolks Services : Flying High on Rise of Air Travel Industry in In... Dreamfolks Services : Flying High on Rise of Air Travel Industry in India Read more

Summary

DreamFolks Services Ltd (DSL) operates as India's leading airport services aggregator, providing lounge access, food & beverage, spa, meet & assist, airport transfer, and other services. While the company has shown robust financial performance and market dominance, there are notable concerns.

DreamFolks is India’s leading airport services aggregator and provides an in-house proprietary technology platform that allows  Banks, Card Networks, Airlines, OTAs and Enterprises create custom offerings for their end consumers. 

DreamFolks today manages the lounge and other benefits for most of the top Banks including the top credit card issuers in India, and enjoys a market share of over 95% in the domestic lounge access market. The company has a global footprint extending to more than 1,500+ touch-points in 100+ countries, across the world.

DSL was incorporated in April 2008 by the promoters, Mr Mukesh Yadav, Mr Dinesh Nagpal, and Ms Liberatha Kallat. The Gurgaon-based company is a dominant player and India's largest airport service aggregator platform facilitating customers access to services like Lounges, Food & Beverage, Spa, Meet & Assist, Airport Transfer, Transit Hotels /Nap Room Access, Baggage Transfer and other services.

The company offers access to a comprehensive network of operational airport lounges in India, covering all 60 lounges across major airports such as Bengaluru, Chennai, Mumbai, New Delhi, and Hyderabad. Additionally, the company facilitates access to numerous restaurants and food and beverage outlets in Indian airports through partnerships, offering a curated menu of vegetarian and non-vegetarian combo offerings.

In collaboration with spa partners, the company provides specified massage therapies, including head, neck, and shoulder massage, as well as foot reflexology, aiming to enhance the enjoyable and relaxing aspects of air travel. The company also provides end-to-end assistance at select airports in India, offering services such as check-in assistance and lounge access at arrival and departure terminals. International meet-and-assist services are available through a partnership with an international airport concierge service provider.

The company facilitates airport transfers with pick-up and drop-off facilities in cities across India and internationally, ensuring convenient transportation for passengers. In Mumbai and New Delhi, the company enables access to hotel rooms through partnerships at New Delhi International Airport T-3 and provides specialized facilities like nap rooms or sleeping pods in Bengaluru, Cochin, and Mumbai for transit passengers.

Expanding beyond airports, the company has entered the railway sector, securing contracts to provide lounge access at 12 railway lounges across 9 railway stations in India, enhancing the travel experience for passengers. Through the acquisition of Vidsur Golf, rebranded as GolfKlik Private Limited, the company provides unparalleled access to over 40 golf courses in the country and 1,800+ globally, aiming to enhance the leisure experiences of its valued customers.

As of December 31, 2021, through partnerships with other service providers, the company has a global footprint extending to 1,259 touchpoints in 121 countries, including India.

The company has established partnerships with all five Card Networks operating in India, namely Visa, Master Card, Diners/Discover, and RuPay. Key clients has some of India's major Card Issuers, including ICICI Bank Limited, Axis Bank Limited, Kotak Mahindra Bank Limited, HDFC Bank Limited (pertaining to the debit card lounge program), and SBI Cards and Payment Services Limited. Additionally, the company has collaborations with prominent Indian 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.

Summary of DSL’s business model

The consumer submits credit card, debit card, or digital QR access code for authentication by the lounge operator. Real-time verification occurs upon swiping the credit card, enabling the system to identify and determine service eligibility based on client-defined thresholds configured on the platform.

Upon lounge access approval, a pre-authorization charge is applied to the consumer's credit or debit card, indicating card validity and service eligibility. Company’s deployed electronic data capture machines in Indian lounges support all card networks and usage modes (swipe, dip, 'tap and pay').

Revenue is generated per passenger (Pax) through credit/debit card swipes or taps on company’s platform. A specified fee is charged to the client(card network,bank,corporate)  for each service instance, constituting a pre-determined amount for consumer utilization. Additional revenue streams include annual membership fees, integration costs, platform fees, etc.

Company basically acts as a middle man between the card network,banks or corporate client and lounge providers assisting customers with it’s tech.

Industry Overview

Global Aviation Industry

The global aviation industry, a vital driver of economic growth and global connectivity, faced substantial challenges during the COVID-19 pandemic. According to IATA, global airline traffic (RPKs) plummeted by 66% in 2020 and 58% in 2021, resulting in significant economic losses of USD 244 Billion in 2020 and USD 146 Billion in 2021. ICAO reports that global air transport capacity and passenger numbers rebounded to approximately 80% of pre-pandemic levels, with passenger revenue reaching around 72% of its 2019 peak. However, intra-region traffic in the Asia-Pacific region lagged due to government restrictions and the impact of the Russia-Ukraine conflict, leading to airspace and travel restrictions.

 Indian Aviation Industry

The Indian civil aviation industry, a standout in the country's growth, has scheduled and non-scheduled air transport services, air cargo, and has experienced robust recovery post-COVID-19. Contributing 69% of South Asia's airline traffic, India's airports aim to handle 1 billion trips annually by 2023. Post-pandemic, the industry demonstrated resilience, with air traffic movements reaching 327.28 million in FY23 compared to 188.89 million in FY22.
The government's UDAN (Ude Desh ka Aam Naagrik) scheme, aimed at promoting affordable and widespread air travel, played a pivotal role in this recovery. Under the scheme, the government targets developing 100 airports by 2024, with the number of operational airports increasing from 74 in 2014 to 148 as of 2023. The initiative has connected 68 underserved/unserved destinations, benefitting over 1 crore passengers and providing air connectivity to more than 29 states/UTs. The scheme, coupled with ongoing airport privatization, presents significant investment opportunities in the Indian aviation sector.

Air and Rail Travel Propensity

Travel propensity is defined as the frequency of travel for a given individual within a nation. It is ratio of passenger traffic to overall population within a given region. The air travel propensity of some key countries is as given below. 

India’s Air Travel Data

The Indian travel industry is growing by leaps and bounds in double-digit and is expected to continue the momentum. 

Competitors

Priority Pass is a program owned by Collinson Group. No listed peer are available.

Promoters 

Liberatha Peter Kallat, Mukesh Yadav And Dinesh Nagpal

Management

Shareholding Pattern

Analysis : Promoters have reduced the stake by 1% post its IPO amid a steep rally.

Financials

Valuation

The current P/E multiple of 39 and EV/EBITDA multiple of 27.5  seems to be on a bit higher side, due to unavailability of any listed peer a comparative valuation is difficult.

Conclusions

Approximately 34% of lounges in India have been associated with DSL for over six years. As of December 31, 2021, DSL was the exclusive service provider for India-issued Card Based passenger traffic for around 11 lounges. However, the rest of the lounges do not have an exclusive deal with DSL and are free to switch between DSL, Priority Pass, or any other player.

DSL’s sales have grown at 36% CAGR for the last 5 years and the Net profit has grown at 44% for the same period.

Revenues from lounge access-related airport services have constituted a vast majority of DSL's revenues for the last three years, exceeding 95%.

Out of an estimated 7.5 million passengers using lounges in India, more than 80% use credit or debit cards to access domestic lounges. Recently, with the increase in air travel, passengers have become more aware of lounge access, impacting cost metrics for banks. Many banks have removed lounge access from their entity-level cards or shifted it to higher-tier cards with specific spending criteria to be eligible for lounge access.

While DSL may seem like a platform business with network effects, the negotiation power lies with both the lounge service providers on one side and the banks, card networks, and corporates on the other. DSL attempted to own the customer by creating its app(launched in 2019), but it has only garnered 100K+ downloads and a low rating of 1.9 stars out of 5.

The number of operational airports in India increased from 99 in Fiscal 2018 to 125 in Fiscal 2020 at a CAGR of 12.37%. During the same period, lounge access is estimated to have grown from 5.1 million to 7.5 million at a CAGR of 21.27%. Maintaining its current market share could enable DSL to capitalize and monetize on this growth.

The threat of airport lounge operators forward integrating and tying up directly with card networks and issuers poses a direct risk to DSL's business. With the recent launch of the Adani One app, which currently focuses on the OTA market, there's potential for entry into the lounge services segment as adani group which has 8 airports under its management and accounting for 25% of passenger footfalls.

DSL's revenue is susceptible to annual or term-based contracts, with the risk of non-renewal. The higher bargaining power of clients limits DSL's ability to negotiate prices, and the loss of even one significant client could significantly impact revenue.

The lounge service fee comprises 95%, with the remaining 5% associated with other airport services.The company commands a 60% market share of all lounge traffic and a 99% market share of card-paid lounge traffic. In an effort to diversify its client base, DSL is partnering with corporate clients, telecoms, online travel agencies, and exploring opportunities with railway lounges, golf and other corporate partnerships.

Receivables have increased in tandem with sales, and the receivables as a percentage of sales have consistently risen over the years.

Key Financial Highlights

Opinion and Analysis

Given the positive aspects and concerns highlighted, DSL presents a compelling case for further research and due diligence. Key areas for deeper investigation include understanding DSL's strategies to address customer ownership challenges, evaluating the competitiveness of its offerings, and assessing the sustainability of its revenue streams.

Investors should closely monitor industry dynamics, DSL's competitive positioning, and its ability to adapt to changing market conditions. Additionally, gaining insights into DSL's customer engagement strategies and the success of its app can provide valuable information for making an informed investment decision.

It is advisable to conduct a thorough analysis of financial statements, industry trends, and competitive landscapes before making any investment decisions. Consulting with financial professionals and considering a diversified investment portfolio is always prudent.