The initial public offering (IPO) of India’s largest airport service aggregator Dreamfolks Services opens for subscription today, August 24 (Wednesday). The issue, which has a price band of ₹308-326, will close on August 26 (Friday). At the top-end, Dreamfolks will be valued at ₹1,703 crore.
The company’s IPO is entirely an offer for sale by existing shareholders of up to 17.24 million equity shares. Earlier, the firm had planned to sell 21.81 million shares through the IPO, which has now been reduced by 20 percent due to market volatility.
The company would not receive any IPO proceeds
Let's take a look at everything you need to know about the issue:
IPO dates: The 3-day public issue opens on August 24 and ends on August 26.
Price band: Dreamfolks IPO price band has been fixed at ₹308 to ₹326 per equity share.
OFS: The Initial Public Offering (IPO) is entirely an Offer-For-Sale (OFS) of up to 1.72 crore equity shares by promoters -- Liberatha Peter Kallat, Dinesh Nagpal and Mukesh Yadav.
Issue size: At the upper end of the price band of ₹308-326, the issue size comes to ₹562 crore.
Bidding: Investors can bid for a lot of 46 shares and in multiples thereof.
Reservation: Up to 75 percent of the total offer is reserved for qualified institutional buyers, and 15 percent for non-institutional investors. The remaining 10 percent stake is allocated to the retail investors.
Shareholding: Post the issue, the promoter group would comprise 67 percent of shareholding, whereas the rest 33 percent would go to the public.
Anchor investors: The firm raised ₹253 crore from anchor investors ahead of its initial share sale. Societe Generale, BNP Paribas Arbitrage, Saint Capital Fund, Segantii India Mauritius, Kuber India Fund, Smallcap World Fund, Inc, Aditya Birla Sun Life Mutual Fund, Sundaram Mutual Fund, Quant Mutual Fund and PNB Metlife India Insurance Company Limited are among the anchor investors.
Grey market premium: According to IPO watch, shares of Dreamfolk Services were trading at a premium of ₹85 per share in the grey market. This means that the company’s shares may list at ₹411 per share against the upper price band of the issue price.
Allotment date and listing: The tentative date for allotment of Dreamfolks IPO shares is September 1, 2022. The company will likely list on exchanges NSE and BSE on September 6, 2022.
About the firm: Incorporated in 2008, DreamFolks is India’s largest airport service aggregator platform and has no listed peers at the bourses. The company consumers' access to airport-related services like lounges, food and beverages, spa, meet and assist airport transfer, transit hotels or nap room access, and baggage transfer services.
Market share: Currently, the firm facilitates all the 54 lounges operational in India and enjoys a market share of over 80 percent in the domestic lounge access market. It also commands a market share of over 95 percent of all credit card and debit card access to airport lounges at the end of fiscal 2021-22 (FY22).
Financials: The company's revenue from operations increased from ₹98.7 crore during fiscal 2017 to ₹367.04 crore in fiscal 2020 at a compounded annual growth rate of 55 percent. In FY22, its revenue surged 167.5 percent to ₹282.5 crore at the end of FY22 from ₹105.6 crore in FY21. Net profit margin also jumped to 5.75 percent in FY22 from 1.37 percent in FY21.
Strengths: According to Axis Capital, the company is a dominant player in the airport lounge aggregation industry in India, and enjoys a first-mover’s advantage.
"As of March 31, 2022, the company provided consumers access to 244 touch points in India and 1,172 touch points overseas. Services like food and beverages, spa services, transit hotels, and baggage transfers to consumers are incremental value-added services. Moreover, the company is able to capitalize on growing the consumer base of air traffic passengers and card users without incurring any direct, consumer acquisition cost. Further, the company’s minimal capital deployment results in high operating leverage," it said.
Risks: Key risks include (a) Business possesses high key man risk (b) Slowdown in Travel Industry (c) High Client and Revenue Concentration (d) Threat of airport lounge operators forward integrating and tying up directly with card networks and card issuers.
Sector outlook: The Indian aviation industry is at the cusp of exponential growth in the next two decades due to its demographic advantages, the potential growth in middle-class income, rising business travel, reduced cost of air travel and increased travel in Tier-2 and Tier-3 destinations. Due to the growing air travel, it is expected that the number of airport lounges will quadruple by 2040. Further, with the increasing size of the lounges, significant growth in the number of credit cards, and privatization of airports the Indian Airport Lounge Access Market Size is expected to rise from Rs. 4,014 million in 2018 to a whopping Rs. 66,784 million by 2030. DreamFolks will be one of the biggest beneficiaries of the aforementioned theme due to its first mover advantage and dominant position in the lounge access market (68 percent share in terms of volumes).
Should you subscribe? Here's what brokerages say:
Angel One: In terms of valuations, the post-issue P/E works out to 104.8x FY22 EPS (at the upper end of the issue price band). However, the multiple looks higher mainly due to lower profitability caused by pandemic-led industry-wide issues. DFSL enjoys a 95 percent market share and enjoys an early mover advantage in the segment. It has been an asset-light business model gaining the preference of air travelers. Further, DFSL has focused on diversifying and increasing its services portfolio. Thus, we have a SUBSCRIBE rating on the issue from a medium to long-term perspective.
Jainam Broking: We recommend Subscribe to this IPO on the following parameters: The company is profitable, has no debt, the traveling industry facing tailwinds post-pandemic, the company has no private equity, the Valuation of the company is high and it is the only point of concern, the company has First Mover advantage as there is no such companies in India its peer are only present in China and UK.
Swastika: Despite the asset-light operations, the company has witnessed volatile cash flows due to high receivables. Finally, the nature of the issue is OFS which will lead to a 33 percent dilution of the promoter’s stake and premium valuations (P/E of 104.82 based on FY22 EPS) makes it suitable for long-term investors with moderate to high-risk appetite. And therefore, we recommend a "SUBSCRIBE" rating only for “High-Risk Investors”.
