We should have always expected it. But I don’t see it as a threat to the business model yet. Imagine, one is selling some stuff at a market place, and has free samples to give. Whom will he chose to give it ? Type A: To the crowd who seem likely to buy the stuff after they have tried the free sample or Type B: the crowd who will try free sample and simply walk away. If seller has no way of differentiating between the 2 types, then hard luck. But if he has a way of knowing, then any rational seller would give it to type A. Credit card issuers have the data to separate type A from B. So, it’s very logical and this was coming.
Why it’s not a threat to the business model yet is because 1. we are still at single digit percentage of eligible credit card users using this facility. The general perception, among public with higher paying capacity is, they don’t want enter into a over crowded lounge. It’s claustrophobic. So it’s not like if the credit card issuers, who are footing the bill, withdraw the privilege from certain category of customers then the whole business model went kaput. India is a country with growing aspirations, we will see customers with better credit profile using this space, which is actually good news for credit card issuers, as they find more type A customers. 2. It’s one of the best reward schemes that I have seen from credit card issuers in a long time (God knows what all bs they have tried in the name of reward-separate card, points, redeem, expiry etc). Earlier lounge access was given from Visa/MC, so there was no loyalty per se to the card issuer. Now since it’s coming directly from issuer, they stand to gain from the customer loyalty. 3. Credit scores are a reality for any person who ever wants to take a loan. Imagine using a card only for free lounge access and not paying it’s 2/- rs charge only to have your credit score lowered and suffering in future. 3. The lounge business model is not a new invention made by dreamfolks, it’s existing in many developed economies since ages and it has stood the test of time so far. So there is no logic of being negative on the business model for India.
The higher growth in international passenger should be music to the ears of mgmt. International passenger spend more time at airport, have higher rates. Going by the numbers, it looks like this year dreamfolks could close in or cross on 100 cr. PAT mark. So now trading at 40x current year. Not cheap, but given the nature of business not expensive either. At, VP, when we have experience of making money in expensive businesses which remain expensive for a reason. Examples galore. I think, this is one such business (at least I hope so).
I will be keen to see what they do with the money that they are earning. Keen to see a good dividend policy of say about 50-60% of their earnings.
Disc: Remain invested with good allocation. No buys in last month.
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