Dreamfolks services limited( DFS)

Sharing notes from Q2FY24 concall of Dreamfolks:

Numbers:

• Revenue up 65% YoY
• In the previous quarter, as per management, “one-off” expense charged by lounge operators, acquisition of a business and wage hikes caused EBITDA margins to fall from 12% to 7%. This quarter the EBITDA margins have improved to 8.7%. Although a positive sign, it is not a complete recovery most likely because wage hikes are irreversible.
• Gross margin guidance for the year is between 11% to 13%. In H1, they’ve done 11.5%
• Due to increased Accounts receivable, CFO is negative for H1 FY24.

Existing business updates:

• Management comments about what exactly is the proprietary technology:
  DFS’s platform gives the card providers (banks) the ability to manage card programs. Card providers also drive consumer analytics using this platform. DFS has invested around 5.5 crores over last 4 to 5 years to develop the technology. I still find it hard to comprehend.

• New lounges or larger existing lounges (after transformation) are coming up at Hyderabad, Delhi

• Railway business has been growing fast but the base is quite low to be called out separately

• When asked if card providers can decide to reduce DFS’s margin, the management said they do not think card providers can/will do that. Won’t share details about card providers’ budget to offer lounge services to its customers.

• Non-lounge services like “meet and greet” have higher gross margins. Management noted that the segment is small. Once it grows to provide a 20% contribution to revenue, overall gross margins will improve. It will take another 3 to 4 years.

Newer business updates:

• Lent their technology of card-based lounge management as a service to a Malaysian lounge operator. Currently, its revenue is too small to be material as it just began per management. However, if it grows, it will prove that their technology has got some teeth after all.
• Onboarded a network provider to offer E-sim service to its consumers using DFS’s e-SIM service. I don’t know further details about the profitability, scale, etc. of this initiative.
• Onboarded a card provider for providing on-demand golf services to its consumers.
• New service: Partnered with salon chain brand. DFS plans to offer salon services to its customers. No further details were provided.

Risks:

• Management provided a heads-up about a potential risk due to a change in the way card providers offer services to consumers who avail lounge service. Card providers look to prioritise customers who have higher spends or usage of credit cards. This means fewer customers will get fewer free lounge access than in the current situation. It may directly impact DFS’s revenue in the short term. They didn’t quantify the impact as the situation is still unfolding.