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BACKGROUND

Dreamfolks is a dominant player & is India's largest airport service aggregator platform, facilitating an enhanced airport experience to passengers. They facilitate access to 100% of the 54 lounges currently operational in India, and also enjoyed a market share of over 95% of all India issued credit card and debit card access to airport lounges in Fiscal 2022.

Objects and Details of the Issue:

The public issue consists of Offer for sale of ~Rs 562 cr by Promoter group

Investment Rationale:

* Dominant player in the airport lounge aggregation industry in India

* Growth in the industry , with higher penetration will lead to growth for the company

* Expansion into newer sector will led to diversification

* Strong Financials

Valuation and Recommendation:-

FY20 sales grew by 47.9% and came in Rs 367 cr majorly driven by higher volume . H1FY22 , being covid impacted, H2FY22 sales came at Rs 197cr , annualizing this , revenue for FY 22 stood at Rs 394 cr , higher than FY20 , indicating the company is showing growth over pre covid levels. Total Pax accessing Lounges in India has increased to 8.3% in 2022 vs. 5.4% in 2021 , and is expected to increase going ahead. With rising opportunity from the industry , we feel, the company being a dominant player will be able to capture this opportunity. Although , average revenue per passenger has been increased from Rs 752 in FY20 to Rs 800 in FY22 gross margins remained range bound, since higher pricing from the customer is passed on to the lounge operator. With this, Gross margin for FY20 stood at 18.4%, Ebitda margin at 12.3%. Since the company has a platform business , ability to scale up its business requires minimal incremental capital deployment. So ROE and ROCE for FY20 stands high at 48.4%, 47.2% respectively. FY20 , Debt for the company stood minimal at Rs 3.3 cr , CFO for the company stands at Rs 22.4 cr. Going ahead ,FY22 being covid impacted , we feel , FY23 is expected to be a pent up growth year. We expect, the company to post sales of Rs 529.1 cr and Rs 714 cr for FY23E, FY24E respectively. (I.e. growth of 87.3% for FY23E , 35% for FY24E). With higher sales , we expect margins to improve to 10% and 10.7% for FY23E & FY24E respectively from 8% in FY22 . We expect , Adj Pat of Rs 38 cr and Rs 55.7 cr for FY23E & FY24E respectively.

With this, At the given upper price band of issue of Rs 326, Dreamfolk is offered at PE of 30.4x FY24E EPS which we feel is attractive. We recommend subscribing to the issue.

Business

Promoted by Liberatha Peter Kallat, Mukesh Yadav and Dinesh Nagpa, Dreamfolks is a dominant player and is India's largest airport service aggregator platform, facilitating an enhanced airport experience to passengers .The company has asset-light business model, and integrates global card networks operating in India (Card Networks), 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.

The company facilitate Consumers access to the following airport related services (i) lounges(have 100% coverage of operational lounges in Indian airports,), (ii) food and beverage(tied up with various entities to facilitate access to around 57 restaurants / F&B outlets at 18 airports across India, as at March 22. ) (iii) Spa(tie-up with O2 Spa Salon Private Limited), (iv) meet and assist, (v), airport transfer (airport ‘pick-up and drop’ facilities in 47 cities across India and in 145 cities outside India, as at March 2022. ) (vi) transit hotels /nap room access, and (vii) baggage transfer.

Industry

The Debit/ Credit card with lounge access in India is expected to grow from 5.7 cr in 2021 to 8.2 cr in 2025 i.e. growth at a CAGR of 9.3%. The lounges in India is expected to grow from 57 in 2021 to 112 in 2025 i.e. growth at a CAGR of 20%. Penetration of Total Pax accessing Lounges vs. person having a card with lounge access has improved to 8.3% in 2022 vs. 5.4% in 2021. With, travel coming back, with awareness about lounge access increasing penetration of passengers using lounges is expected to increase going ahead.

Investment Rationale:

Dominant player in the airport lounge aggregation industry in India

Dreamfolks is the largest and dominant airport lounge access provider in India. Their dominant position is underpinned by their estimated market share of over 95% in Fiscal 2022 of all India issued card based access to domestic lounges in India. Moreover, they have coverage across 54 operational airport lounges constituting 100% of airport lounges in India. Further, as at March 31, 2022, they had an exclusive arrangement for card based transactions at 12 lounges across 11 airports in India constituting 22.22% of the domestic lounges for credit cards and debit cards issued in India. In Fiscal 22, they catered to approximately 68% of the overall lounge traffic in volume across all lounges in Indian airports (both the domestic and international lounges). With this, they 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. Dreamfolk aims to continue to maintain its 100% coverage of airport lounges by expanding its coverage across new airport lounges in India accompanied with their constant endeavor to provide incremental value-added services to enhance the experience of consumers of their clients which will help them to expand their business.

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