Rating Rationale
March 19, 2024 | Mumbai
Dreamfolks Services Limited
Rating upgraded to 'CRISIL BBB+/Stable'; Rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.95 Crore (Enhanced from Rs.6 Crore)
Long Term RatingCRISIL BBB+/Stable (Upgraded from 'CRISIL BBB/Positive')
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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 Ltd (DSL) to ‘CRISIL BBB+/Stable’ from ‘CRISIL BBB/Positive’.

 

The rating upgrade factors in the improvement in the business risk profile of the company, as indicated by the ~60% on-year growth in its operating income for the first nine months of fiscal 2024, to ~Rs 850 crore. The growth is largely on account of ~16% increase in domestic air traffic (as per DGCA data) and additional services offered by the company. DSL is likely to clock operating income of Rs 1,100-1,200 crore for fiscal 2024. DSL has strengthened its presence through partnership with foreign lounge operators, which along with continuous addition of services to its offerings shall not help DSL diversify its product offerings, shall also help company scaling up its business operations. Operating income is expected to grow at a CAGR growth of 15-20% over medium term and business risk profile will continue to be supported by the company’s established market position and healthy operating margin of 8-9% over the medium term.

 

The ratings upgrade also factors in robust capital structure of the company, as reflected in gearing of 0.05 time as on September 30, 2023, largely because the company remains focused on scaling up operations with minimal dependence on external debt. No major, debt-funded capital expenditure (capex) proposed over the medium term and steady accretion to reserve will keep the capital structure and debt protection metrics healthy over the medium term.

 

The rating continues to reflect the estabilished market position and robust financial risk profile of DSL. These strengths are partially offset by susceptibility of revenue to changing credit card schemes.

Key Rating Drivers & Detailed Description

Strengths:

  • Estabilished market position: DSL has established its position as a facilitator between airport lounge service providers and clients. The company operates through more than 1,450 touchpoints in over 120 countries, resulting in a strong market position. 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 and baggage transfer and has achieved compound annual growth rate of ~32% in operating income over the four years through fiscal 2023. With year to date operating income of Rs 850 crores till December 2023, the operating income is expected at Rs 1,100-1,200 crore for ongoing fiscal. Going forward the growth in operating income shall largely be driven by rising passenger traffic with addition of airports across the country as the government focuses on infrastructure expansion. Partnership with Grey Wall, agreement with VFS Global and addition of services will help DSL diversify its product portfolio and scale up operations. The company’s established market position will continue to support its business risk profile.

 

  • Healthy financial risk profile: DSL operates in an industry which is asset light and does not require major debt-funded capex. As a result, its capital structure has been comfortable, as reflected in gearing of 0.05 time as on September 30, 2023. Working capital debt requirement is nominal as the operations of the company are well managed through credit from vendors and internal cash accrual. Consequently, bank lines were utilised sparingly over the 12 months through February 2024, providing sufficient headroom to take on additional debt for business purposes, if warranted. Going ahead, with no major, debt-funded capex proposed over the medium term and accretion of reserves into business, the capital structure is  expected to remain comfortable with expected gearing of 0.04-0.05 time in ongoing fiscal. Nominal dependency on external debt will keep the debt protection metrics healthy, too, with interest coverage expected at 80-100 times over the medium term.

 

Weakness:

  • Susceptibility of revenue to changing credit card schemes: The operating income of DSL is susceptible to changing credit schemes as credit card companies are now focusing on offering services based on spend (higher the spend, higher the eligibility to avail of service). To mitigate the risk, the company has continuously added banks to its clientele and diversified its service offerings to expand market presence. Sustained improvement in operating income amid sustenance of operating margin would therefore remain a key rating sensitivity factor.

Liquidity: Adequate

DSL is expected to generate net cash accruals in range of Rs 60-100 crores, which shall be sufficient to meet up with annual repayment obligations ranging between of less than Rs 1 crore over medium term. Cash and cash equivalents have been ~Rs 18 crores as on Sep’23, which is expected to be in range of Rs 20-50 crores over medium term. DSL also has access to fund based working limits of Rs 95 crores, which have been sparingly used for last 12 months ended Feb24.  CRISIL Ratings expects internal accruals, cash & cash equivalents and unutilized bank lines to be sufficient to meet its repayment obligations as well as incremental working capital requirements.

Outlook: Stable

CRISIL Ratings believes DSL shall continue to be benefitted of its estabilished market position aided by increasing domestic and international air traffic and diversification into other value added services.

Rating Sensitivity factors

Upward factors

  • Sustained improvement in operating income with along with sustenance of operating margins in range of 9-10% leading to higher than expected net cash accruals.
  • Sustenance of healthy financial risk profile.

 

Downward factors

  • Decline in operating income or operating margins falling below 7% leading to lower than expected net cash accruals.
  • Any large, debt-funded capital expenditure, weakening the financial risk profile and liquidity.

About the Company

DSL was incorporated in April 2008 by Mr Mukesh Yadav, Mr Dinesh Nagpal and Ms Liberatha Kallat. Based in Gurugram, the company is India's largest airport service aggregator platform. Its clients include major card networks, banks, online travel agents, airlines and enterprises. It provides the customers of its clients access to services such as lounges, food & beverage, spa, meet and assist, airport transfer, transit hotels/nap room access and baggage transfer.

Key Financial Indicators

Particulars

Unit

9M FY24

2023

2022

Revenue

Rs crore

853

773

282

Profit After Tax (PAT)

Rs crore

51

72.55

16.2

PAT Margin

%

5.9

9.4

5.8

Adjusted debt/adjusted networth

Times

0.005*

0.01

0.02

Interest coverage

Times

NA

79.4

16.7

*As on Sep30, 2023

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.crisilratings.com. 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

level

Rating assigned with outlook

NA

Cash credit/ Overdraft facility

NA

NA

NA

6.0

NA

CRISIL BBB+/Stable

NA

Cash credit

NA

NA

NA

34.0

NA

CRISIL BBB+/Stable

NA

Cash credit

NA

NA

NA

55.0

NA

CRISIL BBB+/Stable
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 95.0 CRISIL BBB+/Stable   --   -- 21-12-22 CRISIL BBB/Positive 30-12-21 CRISIL BBB-/Stable 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 34 ICICI Bank Limited CRISIL BBB+/Stable
Cash Credit 55 HDFC Bank Limited CRISIL BBB+/Stable
Cash Credit/ Overdraft facility 6 ICICI Bank Limited CRISIL BBB+/Stable
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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