DreamFolks: Is the upswing in air travel the wind beneath its wings?

DreamFolks dominates India's airport service sector, capturing 75% of the domestic airport lounge market. (Image: Pixabay)
DreamFolks dominates India's airport service sector, capturing 75% of the domestic airport lounge market. (Image: Pixabay)

Summary

  • The lounge access market in India is still in its nascent stage with large, structural growth ahead. Passengers are increasingly willing to spend on enhanced services at airports

Lately heard about credit card users complaining of airport lounges teeming? Blame, and if you are a shareholder, give credit, to DreamFolks, the name behind most lounges at airports in India. 

DreamFolks is one of those ‘different’ stocks that go in a growing economy with aspirational consumers. That frenzy at airport lounges reflected in the nearly four-and-a-half times jump in the company's net profit for fiscal year 2022-23 (FY23) to over 72 crore, on the back of a 2.7 times increase in revenue to 773 crore. Revenue in the first three quarters of the current financial year has risen 59.5%.

Operating with an asset-light strategy, DreamFolks dominates India's airport service sector, capturing 75% of the domestic airport lounge market. It's the go-to partner for banks looking to offer lounge access to their credit cardholders. DreamFolks sees a bright future, driven by rising domestic flights, digital payment adoption, and the increasing demand for lounge services.

Motilal Oswal Securities says the lounge access market in India is still in its nascent stage with large, structural growth ahead. Passengers are increasingly willing to spend on enhanced services at airports, it believes. The total number of people visiting lounges is expected grow 15 times by 2030 (40% CAGR) and at the same time, the Indian lounge market is expected to grow at an exponential 17 times by 2030 (42% CAGR). DreamFolks will be the direct beneficiary of the strong growth in the lounge market going ahead," the domestic brokerage said in a recent report.

The company recently launched an exclusive membership programme, The DreamFolks Club, offering tailored, premium travel and lifestyle services catering to diverse budgets. Services include complimentary global lounge access, golf, meet and assist, airport transfer, travel visa, beauty and grooming, healthcare, floral gifting, and more. It plans to leverage its almost a year-old acquisition of golf courses operator Golfklik (known as Vidsur Golf at the time of buyout) to present golf services as a premium segment offering to its clients.

Motilal Oswal has initiated coverage of the stock with a ‘buy’ and a target of 650, a nearly one-third the upside from current prices. The brokerage attributed its optimism to the country’s still highly under-penetrated airline industry that is going through rapid expansion. This can be seen in the growing demand for air travel, rising number of leisure travellers, both greenfield and brownfield expansion of airports and the government’s push under to air travel by making it more affordable under its UDAN scheme.

According to a report by Frost & Sullivan (F&S), with long-term tailwinds in place, the domestic passenger market is expected to grow at a CAGR of around 14% and the international market at around 15% in the long term. Overall, the Indian travel market is expected to surpass 1 billion by 2040, alongside a threefold increase in the fleet size of Indian airlines, reaching an estimated 2,360 aircraft.

Motilal believes the growing adoption of bank cards also presents a substantial opportunity for DreamFolks, particularly given that this segment constitutes its primary customer base. India, with its credit card penetration at a mere 3%, stands among the lowest rates globally for both developing and developed nations. The brokerage says the company’s asset-light model gives it an edge by keeping its needs for capital at modest levels even as it goes for expansion.

DreamFolks has also ventured into international business–setting up a wholly-owned subsidiary in Singapore and establishing partnerships in Malaysia–but Motilal isn’t factoring any revenue yet from those initiatives. It notes that “any success would meaningfully enlarge its customer base and disproportionately impact revenue and earnings growth." Additionally, the company recently tied up with Russia’s leading lounge operator, Grey Wall, to offer a blend of premium and streamlined services.

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