IPO Analysis: Dreamfolks Services

The price band of the issue has been fixed at Rs 308 to Rs 326 per equity share.

IPO Rating: Invest for long-term 

About the issue: 

Dreamfolks Services (DSL), which is an airport service aggregator is coming out with its initial public offering (IPO) of equity shares with the face value of Rs 2 per equity share. The price band of the issue has been fixed at Rs 308 to Rs 326 per equity share. The issue size is Rs 562 crore and the entire issue is offered for sale. 

Dreamfolks Services IPO is entirely an Offer For Sale (OFS) of up to 1.72 crore equity shares by promoters Liberatha Peter Kallat, Dinesh Nagpal and Mukesh Yadav. The public issue will constitute 33 per cent of the post offer paid-up equity share capital of the company. 

The IPO opening date is August 24, 2022, and it will be closing on August 26, 2022. The IPO market lot size is 46 Shares and in multiple thereof. A retail-individual investor can apply up to a maximum of 13 lots (598 shares or Rs 194,948) at the upper price band. 

About the company: 

DSL is India's biggest airport service aggregator platform, allowing an improved airport experience for travellers using a technology-driven platform. On a single technology platform, its business model integrates international 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 service providers (collectively, the Operators). Airport-related services including lounges, food and beverage, spa, meet and assist, airport transport, transit hotels/nap room access, and luggage transfer are made easier to access with DSL. Its dominance is supported by the fact that it provides access to all 54 presently operating airport lounges in India. In addition, it has a market share of more than 95 per cent of all credit cards and debit cards issued in India as of Fiscal 2022. Additionally, DSL accounted for almost 68 per cent of all lounge access in India during Fiscal 2022. 

As of today, it offers services to all card networks operating in India, including Visa, Mastercard, Diners/Discover, and RuPay, as well as many of the country's illustrious card issuers, including ICICI Bank Limited, Axis Bank Limited, Kotak Mahindra Bank Limited, HDFC Bank Limited (with regard to the debit card lounge programme), and SBI Cards and Payment Services Limited. It started out by facilitating lounge access services for Mastercard customers in 2013 and is currently It has evolved over time from being an aggregator of access to airport lounges to a provider of end-to-end technological solutions for creating and delivering services that improve the airport experience. 

In addition, lounge fees made up a sizable portion of its operating revenue in Fiscals 2022, 2021, and 2020, representing, respectively, 98.6 per cent, 97.25 per cent, and 98.82 per cent of the total consolidated operating revenue. Company’s average income from lounge fees for FY22, FY21, and FY20 was 98.55 per cent of overall operational revenue. On the payroll as of March 31, 2022, were 60 people. 

Financial  

The company's topline in March 2020 was Rs 367 crore, while in March 2019, it was Rs 248 crore. The COVID-19 pandemic disruption in the airline industry has caused the FY21 revenue to drop to Rs 106 crore. The most recent FY22 revenue was Rs 283 crore. If we disregard the Covid year, the company's revenue has seen a three-year CAGR of -0.083 per cent. The operating margins for FY19 and FY20 were 9.4 per cent and 12.3 per cent, respectively. For FY22, the operating margins have dropped to 8 per cent. Even the net profit margin decreased from 8.6 per cent in FY20 to 5.8 per cent in FY22. Earnings per share drastically decreased from 66 in FY20 to 3.1 in FY22. In FY22, the business generated a net profit of Rs 16 crore, which is significantly poor if we compare it with pre–Covid numbers. 

Companies receivable days are consistently rising, and their working capital performance for FY22 was subpar. However, the company's ROE and ROCE appear to be fine. The ROE is 22 per cent and the ROCE is 26 per cent for FY22. Additionally, the company's net cash flow situation for FY22 is negative at Rs (9) crore. 

However, these figures result from the fact that domestic air passenger volume, at 84 million passengers, is still 40 per cent below pre-pandemic levels. This being said, if air traffic recovers to normal levels, the company's top and bottom lines can both dramatically improve in the future. 

*Standalone Basis 

Valuation and Outlook 

The IPO is being offered at a P/E of 104.82 times, which is based on FY22 earnings. The issue is quite expensive. However, assuming if air traffic does recover to its pre-pandemic levels, firms' earnings can rise dramatically, and their 95 per cent market share also indicates a promising future for expansion. Therefore, while applying for the IPO, it is advised to retain a long-term perspective and listing gains may not be exceptional.