Dreamfolks Services Ltd Q2 FY2024-25 Earnings Conference Call

Dream Folk Services Limited Q2 and H1 FY25 Earnings Conference Call

Introduction and Overview

• The conference call begins with a welcome message, indicating that all participant lines are in listen-only mode.

• A reminder is given about the potential for forward-looking statements, which may involve risks and uncertainties affecting future results.

• Key participants introduced: Liberta Kad (Chairperson & Managing Director), G. Dian (CFO), Balaji Shasan (CTO), and Sandeep Sunav (CBO).

Financial Performance Highlights

• Liberta Kad opens the discussion, noting steady revenue growth of 12.2% year-on-year to ₹36.9 crores in Q2 FY25.

• Gross profit for Q2 stands at ₹39.2 crores, marking an 11.9% increase with a gross margin of 12.4%.

• For H1 FY25, revenue increased by 16.2% year-on-year to ₹6377 crores; gross profit surged by 21% to ₹76.8 crores.

Strategic Direction and Diversification

• Discussion on strategic direction focusing on diversification beyond airport lounges into various sectors and geographical areas.

• New services launched include highway dining services aimed at enhancing travel experiences for highway travelers.

• Introduction of excess baggage services to improve client convenience.

Expansion of Service Offerings

• Golf services gaining traction with the addition of golf academies offering coaching sessions across India.

• Aman Assist services expanded with new touchpoints established in Africa.

Client Base Growth and Partnerships

• Significant progress made in onboarding new enterprise clients; seven new partnerships formed during the quarter.

• Collaboration established with Akasa Air, providing crew members access to airport lounges as an alternative resting space.

Marketing Collaborations and Loyalty Programs

• Joint campaign with Amazon during Prime Day enhances customer experience through integration with Amazon Pay.

• Partnership with Countrywide Networks focuses on incorporating Dream Folk Services into their rewards programs.

Operational Achievements

• Maintained 100% coverage at all Indian airports; three new lounges opened at Pune Airport and Kochi International Airport.

• Global lounge network expanded by adding 38 lounges internationally, primarily focused on Asia.

Growth Prospects in India's Aviation and Credit Card Industries

Overview of the Aviation Sector

• The aviation sector in India is projected to grow at an annual rate of 6.9%, potentially reaching $512 billion by 2028, significantly contributing to the national GDP.

• The number of airports in India is increasing, particularly in high traffic markets and tier 2 and tier 3 cities, with existing facilities expanding their lounge capacities for more travelers.

• The Indian Civil Aviation Ministry aims to increase the number of airports from 148 in 2023 to 235 by 2030, driven largely by domestic tourism and a growing middle class.

• International tourism is also expected to rise as India becomes a popular destination for cultural, spiritual, adventure, and wellness tourism due to improved visa processes and infrastructure.

Expansion of the Credit Card Industry

• The credit card industry in India is poised for significant growth due to technological advancements, regulatory changes, and evolving consumer behavior.

• There has been a steady increase in credit card penetration; the Reserve Bank of India reported a growth of 14.1% year-on-year in Q2 with over 106.1 million cards circulating.

• Factors driving this growth include digital payment shifts, a rising middle class, increased digitalization, and demographic trends favoring younger generations adopting credit cards.

Company Performance Insights

• Dream Folks has shown strong performance through strategic decisions such as diversifying services and enhancing lounge networks which are expected to yield future benefits.

• The company emphasizes operational excellence and customer satisfaction as key components that reflect its capacity to navigate challenges effectively.

Strategic Initiatives for Growth

• Dream Folks remains focused on leveraging strengths while exploring new opportunities amidst positive industry outlooks that will drive future growth.

• Recent strategic initiatives include launching Highway Dining Services across major highways catering to travelers' needs with plans for over 600 establishments.

Service Innovations

• New services like excess baggage shipping free for eligible cardholders enhance convenience for clients traveling through airports.

• A diversified client base has been established with seven new enterprise clients added from various sectors reflecting commitment towards service innovation.

Future Directions

• Dream Folks aims not only at meeting current traveler needs but also setting benchmarks for service innovation within the industry through ongoing partnerships and expansions.

Banking Partnerships and Technological Advancements

Overview of the Tech Stack and Services

• The company utilizes a sophisticated tech stack to develop customized banking products aimed at optimizing consumer spending, moving away from one-size-fits-all solutions.

• The platform's agility has facilitated new alliances, expanding service offerings through an asset-light, cloud-based technology that allows real-time consumer benefit tracking.

• Seamless access to airport services is provided via multiple channels (credit/debit cards, apps, kiosks), enhancing the connection between the platform and its banking partners.

Financial Performance Highlights

• The proprietary tech platform serves as the backbone of Dream Folks, driving growth and aiming for significant impact in the travel industry.

• For Q2 FY25, revenue reached ₹36.9 crores with a 12.2% growth compared to previous figures; gross profit also increased by 11.9% year-over-year.

• Adjusted EBITDA was reported at ₹25.5 crores, reflecting a 4% decrease due to investments in talent across various regions.

Key Financial Metrics

• Profit after tax decreased to ₹16 crores from ₹17.7 crores year-on-year; net worth rose by 35.8% to ₹264 crores.

• A temporary increase in working capital cycle was noted due to client program implementations affecting net investment income during the quarter.

First Half FY25 Performance

• Revenue for H1 FY25 grew by 16.2% year-over-year reaching ₹6377 crores; gross profit surged by 21%.

• Adjusted EBITDA for H1 FY25 stood at ₹51.3 crores with an adjusted margin of 8%, slightly down from previous periods but indicating stable performance.

Future Outlook and Q&A Session

• Confidence in sustainable growth is bolstered by a robust financial track record and strategic initiatives aimed at creating reliable revenue streams.

• The session transitioned into a Q&A segment where participants were invited to ask questions regarding recent business ventures.

Highway Dining Business Insights

Differentiation from Traditional Restaurants

• Inquiry about how highway dining differs from traditional restaurants popular among travelers in India led to insights on unique marketing strategies employed.

Consumer Benefits Explained

• Highway dining offers benefits linked directly to consumers' cards rather than standard food offerings; discounts or free meals are provided based on cardholder affiliations with issuers.

Practical Example of Service Offering

Efforts in Consumer Communication and Business Model

Consumer Communication Strategies

• The issuer will communicate efforts to consumers as part of standard communication practices.

• Consumers will be informed about participating outlets where they can benefit from card programs.

Business Model Overview

• The business model is described as an asset-light model, managed by third parties rather than direct investment from the company.

• Partnerships with FBS at highways are emphasized, indicating no direct outlet investments from Drein Forks.

Performance Metrics and Industry Trends

Average Daily Footfall and Ticket Size

• The total pack for the current quarter is reported at 2.59 million, with a blend of various fees charged to stakeholders instead of a per-pack food fall rate.

Credit Card Spend Limits

• Discussion on credit card spend-based limits indicates that while one bank has increased limits, changes are still evolving across the industry.

• It is noted that these changes have been gradual since December last year and are not fully implemented yet.

Future Projections and Revenue Insights

Revenue Growth Expectations

• Despite changes in spend limits, the company aims to maintain a 20% revenue growth rate over the next couple of years.

• There is uncertainty regarding future projections due to ongoing market trends and program developments.

Non-Lounge Segment Revenues

• Currently, non-lounge segment revenues account for approximately 6.7%, showing improvement from previous years; there’s a goal for this to reach 20% in four to five years.

Employee Expenses Breakdown

ESOP Costs vs. Recruitment Expenses

• The increase in employee benefit expenses is primarily driven by recruitment costs rather than significant increases in ESOP costs.

Technical Glitch and Financial Insights Discussion

Addressing the Recent Technical Glitch

• The speaker acknowledges a recent technical glitch, prompting a question about its cause and future precautions.

• The glitch was attributed to an ongoing integration with an international client, which contributed to the issue.

• Changes during this integration process led to the glitch; measures have been taken to prevent recurrence in the future.

• Integration with multiple partners involves update cycles, and mismatches in these cycles can lead to such glitches.

• Steps have been implemented to ensure that similar issues do not happen again.

Increase in Trade Receivables

• A significant increase of approximately 140 crores in trade receivables since March is noted, raising questions about its causes.

• Delays in payments from clients were due to budget exhaustion at their end, affecting timely approvals for services rendered.

Employee Expenses and Future Revenue Expectations

• An extraordinary rise in employee expenses prompts inquiries about long-term utilization of these employees and revenue growth expectations.

• The increase in employees is part of an expansion strategy aimed at diversifying client types and services offered.

• New enterprise clients are being added; however, revenue from these clients will be smaller compared to traditional banking clients.

• The go-to-market strategy focuses on engaging with enterprises for larger volumes but recognizes that this process has long gestation periods.

• Guidance indicates that 20% of revenue from new enterprises may take four to five years due to slow growth dynamics.

Contractual Integrity Post-Tech Glitch

• Questions arise regarding contract integrity following the technical glitch; assurance is given that all contracts remain intact without discrepancies.

• Confirmation that no issues exist with contracts between operators or clients ensures ongoing program functionality.

Passenger Lounge Access Trends

Earnings Call Insights

Growth Trends and Challenges

• The speaker acknowledges that while growth is still positive, it is decelerating. This quarter marks the first instance where the Annualized Income Statement (AIS) shows a decline compared to the previous year.

• Macroeconomic indicators such as airport traffic and credit card growth remain stable, but there are concerns regarding the implementation of spend-based programs by banks.

• The company has been using simulation models to predict outcomes; however, recent declines have been sharper than expected, complicating forecasts.

• Changes in bank policies, such as increasing quarterly spend limits unexpectedly, contribute to uncertainty in forecasting future performance.

• The inability to accurately forecast numbers stems from these unpredictable changes in client behavior regarding spend-based programs.

Guidance on Margins and Revenue

• There will be no change in gross margin guidance despite ongoing fluctuations; however, revenue growth projections for FY 25 may need reassessment due to evolving circumstances.

• The speaker emphasizes that providing accurate answers about future revenue is challenging given the current volatility and changes among existing clients.

Business Dependency on Complimentary Benefits

• A question arises about the company's reliance on complimentary benefits provided to cardholders. The response indicates a dual dependency: yes, they rely on these benefits but also engage with various enterprises beyond just cardholders.

• Currently, partnerships extend beyond credit cards; collaborations include airlines and e-commerce platforms which diversify their customer base.

• While complimentary benefits were once the sole focus, now multiple avenues exist for offering services—such as loyalty programs through OTAs (Online Travel Agencies).

Future Growth Potential

• Although most business currently comes from complimentary benefits, other lines are growing. It’s too early to quantify this shift significantly but expectations for exponential growth exist.

• Initiatives like discounts during promotional events (e.g., Amazon Prime Day), indicate efforts to expand service offerings beyond traditional channels.

Conclusion of Conference Summary

Closing Remarks

• The speaker expresses gratitude to the participants for their time and engagement during the conference.

• A reminder is given for attendees to reach out to the investor relations team for any queries or additional information.

• The speaker emphasizes the importance of self-care as they conclude their remarks.

• The closing statement is made on behalf of Dream Folk Services Limited, marking the end of the conference.