DreamFolks Services IPO is open for subscription, should you Subscribe?

The DreamFolks Services IPO saw strong demand from retail investors, with subscribtion of up to 8x the alloted quota. The HNI segment was also oversubscribed at the end of Day 1 of the offer period.

DreamFolks Services' initial public offer (IPO) was subscirbed 1.96 times at the end of day 1 of the offer period with strong demand seen from the retail investors and high networth individuals (HNIs). As against 1.72 million shares reserved for the retail category, the company received bids for up to 13.7 million shares - i.e. a multiple of 7.93 times.

The HNIs or Non Institutional Investors also showed keen interest, with 1.39x subscription at the end of day 1 of the offer period. 

The company plans to raise Rs 562 crore by way of offer for sale (OFS) of 17.24 million equity shares. The IPO has been priced in the band of Rs 308 to Rs 326, and will close for subscription on August 26, 2022.

Further, the airport service aggregator platform had successfully raised Rs 253 crore from anchor investors on Tuesday. Societe Generale, BNP Paribas Arbitrage, Saint Capital Fund, Kuber India Fund, Aditya Birla Sun Life Mutual Fund, Sundaram Mutual Fund and Quant Mutual Fund were among the anchor investors. 

Meanwhile, brokerages are largely positive on the company's prospects and recommend 'Subscribe' rating on the same.

Anand Rathi Securities

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The brokerage firm states, the company's unique (corporate-cum-customer) business proposition and an aspirational brand image augurs well for the company in the long term. Also, it been the first move in the space, gives the company an added advantage and places it in a sweet spot. 

Angel One

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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 issues, the brokerage said.

The brokerage report adds that DreamFolks enjoys a 95 per cent market share and an early mover advantage in the segment. Going ahead, the company focusses on diversifying and increasing its services portfolio.

ICICI Securities

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ICICI Securities says the company's valuation based on FY22 looks stretched, but the full business recovery shall be visible from FY23.

Given the fact that company enjoys over 95 per cent market share in card based lounge accesswith its asset light business model and the monopolistic nature of business and further growth potential in the air travel and credit card segment, the brokerage firm recommends 'SUBSCRIBE' rating on the issue for listing gains.

K R Choksey

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K R Choksey finds the company, due to its dominance, well positioned to benefit from the expected growth opportunities, as the air travel industry recovers sharply from the Covid-19 uncertainties.

The company has also been expanding its presence in the international air lounge market by improving touchpoints.

The brokerage firm believes that it is significant for the company to grow in the domestic and international lounge services by expanding its partnerships with card issuers and other service providers.

Nirmal Bang Securities

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With FY22 being Covid impacted, Nirmal Bang feels FY23 is expected to be a pent up growth year for DreamFolks Services. The brokerage firm expects the company to post sales of Rs 529.1 crore and Rs 714 crore for FY23E, FY24E respectively. (i.e. growth of 87.3 per cent for FY23E and 35 per cent for FY24E).

With higher sales, they expect margins to improve to 10 per cent and 10.7 per cent for FY23E & FY24E respectively from 8 per cent in FY22. The brokergae firm pegs expect adjusted PAT of Rs 38 crore and Rs 55.7 crore for FY23E & FY24E, respectively. 

Basis on this assumption, Nirmal Bang finds the IPO at the upper price band of issue of Rs 326, is offered at PE of 30.4x FY24E EPS which they feel is attractive.

Reliance Securities

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Reliance Securities reasons out three key reasons why they feel DreamFolks has a strong business revenue potential over next decade:-

• Healthy air traffic growth
• Increasing issuance of credit cards
• Better awareness of usage of cards for lounges and higher penetration from current low level of ~5 per cent

SBI Capital Securities

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At the price band of Rs 308-326, the post-issue market cap is expected to be at Rs 1,609-1,703 crore, respectively, translating into a PE ratio of 99.0x and 104.8x FY22 earnings at lower and upper band price band, respectively says the SBI Capital Securities note.

The report further states that, ramp up in business from the recently developed international touch points in FY21 and FY22 augurs well for the company's earnings growth during FY23E and FY24E.

Swastika Securities

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According to Swastika Securities, the biggest competitive advantage for the company is its network effect; the tie-up with all the 54 lounges in India enables it to provide a one-stop solution to its clients and strengthen its position between the clients and the lounge operators.

Additionally, the company has created a proprietary technology platform that ensures scalability.

However, the brokerage cautions that, 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 per cent 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, the IPO note states.