Rating Rationale

Key Rating Drivers & Detailed Description

Strengths:

Established market position: Dreamfolks has established its position as a facilitator between airport lounge service providers and clients. The company operates through more than 3,000 touchpoints in over 100 countries. It pioneered the concept of airport lounge access in India, accompanied with services such as meet and assist, wellness services, airport dining, airport transfer, transit hotels/nap room access. Revenue rose at a CAGR of 66% over the three years through fiscal 2025, to Rs 1,292 crore. The revenue is expected to grow 15-20% over the medium term, driven by rising passenger traffic with addition of airports across the country as the government focuses on infrastructure expansion. Diversifying into new segments such as highways, railways, lifestyle, food and beverages, golf courses and tie-ups with RedBeryl, Grey Wall and VFS Global will help Dreamfolks scale up operations and maintain strong market position.

Healthy financial risk profile: The financial risk profile should remain supported by the management stance of relying on internal accrual for business requirements with no reliance on external debt. The financial risk profile is also backed by steady accretion of reserve and the absence of any large, debt-funded capital expenditure (capex) as Dreamfolks operates in an asset-light industry. The capital structure has been comfortable, with gearing of 0.00 time as on March 31, 2025, and projected at 0.00 time as on March 31, 2026. Working capital debt is nominal as the operations are managed through credit from vendors and internal cash accrual. Consequently, bank lines were utilised sparingly over the 12 months through March 2025, providing sufficient financial flexibility. Nominal dependence on debt will keep debt protection metrics healthy, with interest coverage expected at 80-100 times and net cash accrual to adjusted debt ratio at 90-100 times over the medium term.

Weaknesses:

Susceptibility of revenue to changing credit card schemes: Lounge services, which are majorly accessed through credit/debit cards, constituted ~93% of the total revenue of Dreamfolks for fiscal 2025. The company’s operating income is susceptible to changing credit card schemes as card operators and banks are now focusing on offering services based on spending (higher the spend, higher the eligibility to avail of service). Moreover, the network operators tend to limit the full pass on of the increased costs by lounge operators for 1-2 months. To mitigate the risk, Dreamfolks has continuously added banks to its clientele and diversified its service offerings to expand market presence by dealing with all major customer-friendly banks in India. Steady revenue growth and stable operating margin will remain key rating sensitivity factors.

Volatile operating margin: The operating margin declined to 8.4% in fiscal 2024 from 12% in fiscal 2023, and further reduced to 7.18% in fiscal 2025, It is projected at 8-9% over the medium term. There has been sizeable onboarding of employees in fiscal 2025 to manage the 3,000+ touchpoints; benefits for this may be visible only from fiscal 2026. The company has also penetrated into new segments such as highway dining, coffee, food and beverage outlets, lifestyle and ultra luxury experiences. Stability in the operating margin while maintaining growth in the new segments with prudent working capital management will be monitorable.