Rating Rationale
December 21, 2022 | Mumbai
Dreamfolks Services Limited
Rating upgraded to 'CRISIL BBB/Positive'
 
Rating Action
Total Bank Loan Facilities RatedRs.6 Crore
Long Term RatingCRISIL BBB/Positive (Upgraded from 'CRISIL BBB-/Stable')
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has upgraded its rating on the long-term bank facility of Dreamfolks Services Limited (DSL) to ‘CRISIL BBB/Positive’ from ‘CRISIL BBB-/Stable’.

 

The upgrade reflects the improved business risk profile on the back of healthy recovery in operating income and operating margin in fiscal 2022. Operating income recovered to Rs.282.53 crore in fiscal 2022 (as against Rs.105.67 crore in fiscal 2021 and Rs.365.91 crore in fiscal 2020). Further, in the current fiscal, company has already achieved revenue of Rs.331.5 crore during H1-FY23 and is expected to clock revenue of around Rs 600 crore for full year fiscal 2023. The healthy growth in revenue would be supported by increased air travel post Covid-19, addition of customers and lounges over the years as well as increased customer awareness for availing airport lounge facilities. Operating margin has recovered to 11.9% during H1-FY23 and is expected to be around 11-12% going ahead. Financial risk profile continues to remain strong supported by a strong networth (expected at over Rs.125 crore as on March 31, 2023), a healthy capital structure (gearing expected to be around 0.01 time as on March 31, 2023), and strong debt protection metrics (interest cover and net cash accruals to adjusted debt (NCAAD) expected to be around 50 times and over 50 times, respectively, for fiscal 2023). The positive outlook reflects the expected strong growth in revenue along with recovery in operating margin which will result in generation of strong net cash accruals.

 

The rating reflects DSL's established position in providing lounge services, backed by healthy relationships with clients and lounge partners, and its healthy financial risk profile and healthy liquidity profile. These strengths are partially offset by risk to timely renewal of contracts with lounge partners and clients, and client concentration risk.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position and extensive experience of the promoters: The decade-long experience of the promoters has enabled them to gain a sound understanding of the market dynamics and establish healthy relationships with clients. Over the years, DSL has managed to establish its position as a facilitator between lounge service providers at airports, and clients. The company operates through more than 1450 touchpoints in over 120 countries worldwide, resulting in strong market position. It has pioneered the concept of Airport Lounge access in India accompanied with services like Meet & Assist, Wellness services, Airport Dining, and Airport Transfer, Transit Hotels /Nap Room Access, Baggage Transfer and other services. DSL offers its airport service solutions to clients which includes card network and card issuing companies, airlines, OTAs, and corporate enterprises.

 

  • Strong ties with clients and lounge partners: The company has a robust network of lounges in India and continuously strives to add clients and lounge partners at new locations and renew existing tie-ups. The management is also tapping the international market replicating its business model in India. Operating income recovered to Rs.282.53 crore in fiscal 2022 (as against Rs.105.67 crore in fiscal 2021 and Rs.365.91 crore in fiscal 2020). Further, in the current fiscal, company has already achieved revenue of Rs.331.5 crore during H1-FY23 and is expected to clock revenue of around Rs 600 crore for full year fiscal 2023.

 

  • Healthy financial risk profile: Networth and gearing are healthy, expected at over Rs 125 crore and around 0.01 time, respectively, as on March 31, 2023, against Rs 77.6 crore and 0.02 time, respectively, as on March 31, 2022. NCA/AD and interest coverage ratios are expected to be around 50 times and over 50 times, respectively, in fiscal 2023, supported by healthy profitability and limited reliance on external debt.

 

Weaknesses:

  • Susceptibility of revenue to annual or term-based contracts: As contracts with clients and lounge partners are generally term-based, revenue remains exposed to the risk of non-renewal of contracts. Higher bargaining power of clients also limits DSL’s ability to negotiate prices to an extent. Any change in arrangements with clients would remain a rating sensitivity factor.

 

  • Customer concentration risk in revenue: With the top five clients contributing to 80-85% of total revenue, revenue and profitability remain dependent on growth plans of the clients. DreamFolks endeavors to enhance the customer loyalty experience run by its clients.

Liquidity: Adequate

Fund-based bank limits of Rs 10 crore remain unutilized over the 12 months ended Oct 2022. Net cash accruals are expected to be around Rs.40-50 crore per fiscal, which will be more than adequate against term debt obligation of Rs 0.2-0.3 crore per fiscal for the same period. In addition, it will cushion the liquidity of the company. Current ratio was comfortable at 1.6 times as on March 31, 2022 and is expected to be around 1.8-1.9 times as on March 31, 2023. The company had high cash and bank balance of around Rs 37 crore as on Sept 30, 2022, and the unencumbered cash and bank balance supports the working capital requirements. Low gearing and strong networth support its financial flexibility and provide the financial cushion required in case of any adverse conditions or downturn in the business.

Outlook: Positive

CRISIL Ratings believes DSL will benefit from the expected strong growth in revenue along with recovery in operating margin which will result in generation of strong net cash accruals.

Rating Sensitivity factors

Upward factors

  • Sustained and healthy growth in revenue and an operating margin at around 11-12%, leading to net cash accruals of around Rs 45-50 crore
  • Sustenance of healthy financial risk profile

 

Downward factors

  • Any change in arrangements with clients resulting in sharp dip in scale or in operating margin leading to cash accrual below Rs 15 crore
  • Any large, debt-funded capital expenditure, weakening the financial risk profile and liquidity

About the Company

DSL was incorporated in April 2008 by the promoters, Mr Mukesh Yadav, Mr Dinesh Nagpal, and Ms Liberatha Kallat. The Gurgaon-based company is a dominant player and India's largest airport service aggregator platform facilitating customers access to services like Lounges, Food & Beverage, Spa, Meet & Assist, Airport Transfer, Transit Hotels /Nap Room Access, Baggage Transfer and other services.

Key Financial Indicators

As on / for the period ended March 31

 

2022

2021

Operating income

Rs crore

282.53

105.67

Reported profit after tax (PAT)

Rs crore

16.25

-1.45

PAT margin

%

5.75

-1.37

Adjusted debt/Adjusted networth

Times

0.02

0.03

Interest coverage

Times

16.79

3.01

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisil.com/complexity-levels. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN

Name of

instrument

Date of allotment

Coupon rate (%)

Maturity

date

Issue size

(Rs crore)

Complexity

levels

Rating assigned

with outlook

NA

Cash Credit/ Overdraft facility

NA

NA

NA

6.0

NA

CRISIL BBB/Positive
Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 6.0 CRISIL BBB/Positive   -- 30-12-21 CRISIL BBB-/Stable 23-09-20 CRISIL BBB-/Stable 11-06-19 CRISIL BBB-/Positive CRISIL BBB-/Stable
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit/ Overdraft facility 6 ICICI Bank Limited CRISIL BBB/Positive

This Annexure has been updated on 21-Dec-2022 in line with the lender-wise facility details as on 11-Dec-2021 received from the rated entity.

Criteria Details
Links to related criteria
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Approach to Financial Ratios
Understanding CRISILs Ratings and Rating Scales

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