Dreamfolks services limited( DFS)

DreamFolks had a decent Q3 performance (in absolute terms) – with revenue up 50% YoY + gross margins up 15% YoY. However in terms of margin %, both gross margins / EBITDA were down YoY.

I wrote a detailed article covering the performance of DreamFolks – here

Here’s a summary of DreamFolks Q3 performance

Pros

• DreamFolks launched ‘The DreamFolks Club’ – an exclusive membership program where it can bundle together it’s various services into a package. There are 4 package variants (ranging from INR 6,999 to INR 99,999). This is to cater to people who don’t have debit cards / credit cards and still want to avail benefits.
• The preliminary focus of the program would be to attract large enterprise customers (B2B) who can buy such programs to rewards their employees / customers / channel partners. However a normal individual can also buy into the membership directly from the website.
• Entered into partnership with Grey Wall (Russia’s largest lounge operator) whereby Indian passengers will gain access to airport lounges + railways lounges in Russia.
• Expanded their presence in railway lounges in Chennai & Old Delhi – the company continues to maintain 100% coverage in railway lounges in India.
• Added two new services – Pathology testing & Gifting services
• Major growth drivers will be increase in credit card penetration (currently 5.5%) and growth in air passenger traffic

Cons

• Credit card companies are moving from fixed benefits model to spend based model which will impact the volumes for the company
• Other services (e-SIM, Visa services, Golf, Spa) contribute <2% of total topline. Management expects these services to contribute around 20% in the next 4-5 years (I think the management should aggressively push for this in the next 1-2 years and not 4-5 years)
• Employee benefit expenses have increased due to increase in ESOP cost
• Q4 is expected to be flat in terms of topline / bottomline sequentially

Concluding Thoughts
I think the membership program has potential, but how much? Can it be profitable? Can it scale? Do they have some sort of pricing power here? I hope the management can answer such questions in the future.

The company already has 95% market share of the card based lounge access market – so not a lot of room to grow unless air passengers grow and more credit cards enter the market. The impact of shifting to a spend based model by credit card companies will have to be seen over the next few Qs.

Disclosure: Recently sold all my position in the stock due to low confidence in the B-model. Tracking, will buy if it falls atleast 30% from CMP