 "DreamFolks Services soars 7% as MOFSL initiates coverage, sees 34% upside")
Shares of Dreamfolks Services zoomed 7 per cent to Rs 518 apiece on the BSE in Wednesday's intraday trade after Motilal Oswal Financial Services initiated coverage on the stock, seeing over 30 per cent upside from current levels.
In their report dated February 27, analysts at MOFSL said strong industry tailwinds make case for strong and sustained growth for DFS over the medium-term. The brokerage has, thus, given a 'Buy' rating to the stock with a target price of Rs 650. This is 34.4 per cent higher than the stock's last close on the BSE.
"We see a significant option value from the nascent expansion into international markets and diversifying into other sectors. This can significantly enhance the value of the business through an expansion of addressable customer base. With visibility of good earnings growth over the medium term and strong option value from the expansion plans, we initiate coverage on DFS with a 'BUY' rating and a TP of Rs 650 (premised on 30x FY26 P/E), implying a 34 per cent upside potential," the brokerage said.
DreamFolks (DFS) is India's leading airport services aggregator and tech platform, connecting lounges and premium airport facilities with users of bank credit/debit cards. It holds a more than 75 per cent volume market share in domestic airport lounges and is the only player with 100 per cent coverage of airport lounges.
DFS holds over 95 per cent of the card-based access to domestic airport lounges in India. In FY23, it accounted for around 68 per cent of the total lounge access volumes across both domestic and international terminals in India.
The company operates an asset-light structure, with minimal incremental capital deployment despite fast-growing revenues. This has resulted in DFS generating high return ratios.
These two propositions also enable it to expand without significant expenditure on consumer acquisition or marketing. This resulted in high profitability with 69 per cent of Q3FY24 gross profit being converted into Ebit and 52 per cent into PAT.
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DreamFolks Services debuted on the bourses on September 6, 2022. Its shares had listed at a 56 per cent premium over their issue price of Rs 326. At present, the shares are 48 per cent higher than their issue price. Over the past one year, shares of the firm have surged around 17 per cent on the bourses as against 23 per cent rally in the benchmark S&P BSE Sensex.
At 12:35 PM, the shares were nearly 5 per cent higher (Rs 506.6) as against 0.64 per cent dip in the Sensex index.
According to MOFSL, the record jump in air passengers accessing Indian lounges over the last two years (conversion rate doubled to 5.0 per cent in FY23) should lead to near-term growth moderation as banks tweak offers to manage costs.
The Indian airline industry is highly under-penetrated (0.13 passenger seats per capita as per CAPA) and is going through rapid expansion with growing air travel, rising class of leisure travelers, increasing number of airports, and government push under the UDAN scheme. With long-term tailwinds in place, the total number of passengers at Indian airports
(International + Domestic) is expected to surge 9x to reach 1.2b by CY40.
"We expect growth to rebound post a rebasing over the next few quarters, given structural tailwinds. We forecast a 29 per cent revenue CAGR over FY23-26E. We also expect DFS to deliver gross margin closer to the upper end of its 11-13 per cent guidance range from FY25, after bottoming out in FY24 (at 12.2 per cent). It can further improve (not factored in our estimate) as the share of other higher value services increase over the medium term. This should result in a healthy FY25/FY26 Ebit margin of 8.7 per cent/8.9 per cent, and a 18 per cent PAT CAGR over FY23-26E (28 per cent CAGR over FY24E-26E)," the brokerage said.
The growing adoption of bank cards also presents a substantial opportunity for DFS, particularly given that this segment constitutes its primary customer base. India, with its credit card penetration at a mere 3 per cent, stands among the lowest rates globally for both developing and developed nations. MOFSL forecasts ongoing growth in the cardholder base, thereby expanding DFS' accessible customer pool.