Dreamfolks Services Ltd
NSE:DREAMFOLKS
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Ladies and gentlemen, good day, and welcome to Q1 FY '24 Earnings Conference Call of Dreamfolks Services Limited.
This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict.
[Operator Instructions] Please note that this conference is being recorded.
Today on this call, we have with us Ms. Liberatha Kallat, Chairperson and Managing Director; Ms. Giya Diwaan, Chief Financial Officer; Mr. Balaji Srinivasan, Chief Technology Officer and Executive Director; and Mr. Sandeep Sonawane, Chief Business Officer.
I now hand the conference over to Mr. Liberatha Kallat. Thank you, and over to you, ma'am.
Good evening, everyone. And thank you for joining us on the quarter 1 FY '24 earnings conference call to discuss the company's operational and financial performance. We hope you all have had the opportunity to go through our investor presentation and press release that has already been uploaded in the stock exchange and our website.
Let me highlight a few drivers of the travel and credit card industry, both of which have a fair say on how we, as a company, operate and grow. To begin with, the undeniable rise of travel and tourism industry as a major economic force and its potential to drive infrastructure development cannot be ignored. This sector not only fosters economic growth but also enhances people's lives by generating extensive employment and capitalizing regional progress.
There was a robust demand for travel in the [ regions in the ] seasonal quarter despite high sales due to short-term supply challenges in the aviation market. This is driven by a large shift in people's propensity to spend on travel from their growing disposable income. And also, every month of FY 2023, the number of passengers carried by airlines domestically has surpassed the pre-COVID level and is reaching new highs.
As per the DGCA data, passengers carried by Indian domestic airlines during Q1 FY '24 were 38.6 million as against 32.5 million during the corresponding period of the previous year, indicating a growth of 19% year-on-year. This growth in footfall can be attributed to revenge travel strength, greater propensity to travel by air as against the other modes of travel. And the recovery in business travel results also suggest that this surge in air passengers is in a significant proportion stemming from first-time flyers.
According to [ ICAO's ] prediction, India's aviation industry is expected to grow at CAGR of 5.8% for the next 2 decades. By 2040, Indian aviation is predicted to accommodate 430 million additional aircraft in [indiscernible] compared to 327.28 million in FY '23. To support this growing demand in the number of passengers, India requires strong airport infrastructure. Currently, India has 140 operational airports, including international, domestic and customer airports, has experienced remarkable growth in recent years.
Emerging as one of the fastest-growing industries in India, India is expected to be the third largest aviation market by 2024 as for the IBEF report.
I would like to quote that the Honorable Civil Aviation Minister, Jyotiraditya Scindia, has said that India's aviation industry is poised for further growth and has set a target of increasing the number of airports in the country by 140 to 220 by 2025. In December 2022, Airport Authorities India and other developers have targeted to spend approximately INR 98,000 crores in the next 5 years for expansion and modification of existing terminals, building new terminals and strengthening of runways among other activities.
Some major airports that are inching closer to completion and expected to begin operations in the coming years are the Noida International Airport; Chaudhary Charan Singh Airport, Lucknow; Navi Mumbai International Airport; and Shri Ram International Airport, Ayodhya. The fleet sizes are also expected to significantly ramp up from 700 airplanes today to 1,200 to 1,500 in coming 4 years.
Credit card. Next, I would like to talk about the credit card industry. In the recent years, India has witnessed a notable surge in the use of credit cards. This transformation has had a profound impact on the country's payment system, completely revolutionizing the way in which people manage their finances in the country, which was traditionally relied on cash transaction, has undergone a revolutionary change as plastic money is becoming the new norm.
To give you an idea on how much the adoption of credit cards has grown over the last few years, there were only about 2.9 crores credit cards in 2017 as per the Reserve Bank of India data. This number has surged up to over 8.6 crores in April 2023. This represents a CAGR of approximately 20% from 2017 to '23. As per industry reports, the number of credit cards in India could well surpass the 10 crores milestone as early as 2024. To add to this, recent data from RBI shows that there were 25 crores merchant transactions in April 2023, representing a total value of INR 1.33 lakh crores, more than double of the value of debit card transaction of INR 53,000 crores.
There are several drivers behind the increased adoption of credit cars in India. Firstly, the overall banking ecosystem is revolutionizing and growing, especially with the increase in the number of banks, credit cards and fintech sign-ups and start-ups and [ new-age ] companies to promote the use of credit card. According to some industry reports, the card usage online has turned to 60% of the card spend, primarily across hospitality, travel and leisure and consumer durables. As per industry report, the total value of credit card transaction is expected to reach INR 51.72 trillion by FY '27, expanding at a CAGR of nearly 39.2% during FY 2022 to 2027. Meanwhile, during the same period, the volume of credit card transactions are projected to expand at a CAGR of around 26.4%.
As the credit card adoption increases, banks too are focused on increasing their customer base by providing additional benefits and tying up with companies to provide tailored solutions to their customers. Banks have also set up kiosks outside [indiscernible] to sell credit cards, which has helped them increasing issuances. According to industry sources, currently, only 30% to 40% of the bank's credit card portfolio is given free lounge access. For card issuers, providing lounge access to their customers at airport is increasingly becoming a key aspect of their customer acquisition and loyalty program, and there is still huge potential to increase the credit and debit card penetration in the country.
While the growing adoption of credit cards reflects the changing attitudes and behaviors of the consumers, the India still has a long headroom to grow. An important factor that will drive the industry is the integration of cards with the Unified Payment Interface system, UPI, which is estimated to result in 30x increased credit card usage in India. The credit card penetration in India is still around 5.5%, and for the most populous country in the world, which is forecasted to be the fastest-growing economy by agencies worldwide, the future is said to be -- looks bright for the industry.
Moving on to the lounges at these airports. The growing inclination of travelers to use them and the increasing awareness around the lounges and one's own card benefits have led to the rapid growth in the lounge infrastructure. The number of airport lounges in India currently stands at 58, with a total area coverage of around 400,000 square feet. Although the lounges are currently experiencing a situation of excess demand, deliberate efforts are being made to declutter the lounges, expand the space of the interesting ones and open additional lounges to meet the demand.
With extremely high digital penetration and continuously growing card user base, the probability that this customer base will [indiscernible], adopt and prefer air travel as well as increase its frequency is high. Currently, only a small percentage of eligible credit and debit card holders utilize airport facilities, but the future growth potential is phenomenal due to rising awareness and evolving preferences.
For Dreamfolks, this has been an eventful quarter for the company, both in terms of the financial performance and in terms of expanding our service offerings to a [ far wide ] network, owing to some newly entered partnerships. Of the total passengers that travel during the quarter, Dreamfolks facilitated lounge access and other ancillary services for 2.6 million passengers in Q1 FY '24 as against 1.8 million passengers in the corresponding quarter, signaling a 44% growth year-on-year. We are the industry leader with 100% coverage of airport services, including lounges nationwide due to our industry experience, knowledge, deep integration, strong partnerships and networks. We also have 100% coverage of railway lounges in nation as well and are growing rapidly as railway stations continue to get modernized.
Overall, we see a very significant increase in sustainable air traffic levels, followed by a demand for value-added facilities like lounges, spa services, food and beverage outlets and more. With an extremely high digital penetration and a continuously growing card user base, the probability that this customer base will [indiscernible], adopt and prefer air travel as well as increase its frequency is high.
On the organizational level too, we have had multiple noteworthy developments. To begin with our strategic partnership with Plaza Premium Group, this collaboration helps us include over 340-plus Plaza Premium Lounges in over 70-plus major international locations. This addition includes 240-plus airport lounges and 100-plus railway lounges into the Dreamfolks global lounge network, thereby offering an enhanced travel experience to members worldwide. This collaboration will facilitate extensive coverage of Plaza Premium Lounges across 4 continents, including key travel hubs such as Australia, Canada, the United Kingdom, Hong Kong, Florida, Brazil, Italy, Indonesia, Malaysia, Singapore, Dubai, Saudi Arabia, Jordan and more.
Let me now get to the financials. The company registered a 66% year-on-year revenue growth in Q1 financial year '24. Revenue from operation was INR 266.3 crores as compared to INR 160.3 crores in the corresponding quarter last year. Gross profit for the quarter stood at INR 28.4 crores in quarter 1 financial year '24 as against INR 25.1 crores in quarter 1 financial year '23. On a sequential basis, the growth was close to 12%, but the generic travel industry is seeing a growth of about 3% to 4% on an average. The growth is primarily on the back of continuing uptick in passenger volumes, steadily growing take rate and increasing preference to avail airport services.
This [ economic ] growth is clear indication of Dreamfolks' preeminent positioning in the industry, with a superior quality product and an efficient leverage of technology platforms that ensures highest level of service quality. As we move forward, our goals are very clear: we want to grow and grow rapidly. There is no like-to-like peer for us in India and even world over. There are just a few other peers who are in the business of what we do. The global stage is our next target. And as I have been mentioning in my previous calls, we are making earnest attempt to penetrate into global markets, starting with Asia Pacific and the Middle East.
This now brings me to the question of margins, and I'm sure you have observed the drop in margins. Optically, the number does not look substantial, but let me walk you through the factors that contributed to the margin drop and how we see the future margin trajectory panning out.
Let me outline 3 key reasons that have contributed to the drop in margins. First one is having mismatch escalation in costs with vendors versus increase in price points with clients that occurs annually. Second, an unexpected cost escalation and one-off revenues in the previous quarter. And the third, our investment in human capital. Let's address these issues one at a time.
There is a time gap between the cost escalation for the lounge operators versus the pricing rate change for our clients. The pricing typically lags the cost increase, and hence, quarter 1 typically will have this phenomenon, and once the price has changed in quarter 2, quarter 3 for our clients, this mismatch corrects itself.
Secondly, there was onetime significant increase in the CAM, that is the common area maintenance charges, by 3x levied by the airport operator to the lounge operator, which adversely impacted our overall renewal costs. Therefore, our operator cost to us increased by 10% to 15% instead of usual 5% to 8%. We believe this abnormal escalation is a one-off and, hopefully, will not occur in future. In the fourth quarter, due to the unexpected increase, we will not be able to pass on the full escalated cost to our clients.
Next, the previous quarter of the last year had a one-off project revenue, which led to higher margins for the last quarter. It was a onetime fee against the consulting development and setup of a new upcoming lounge. However, I'm very happy to inform you that this is a market project of Dreamfolks and would be one of its kind in India. This was a commercial contract that was unique to this project. We will share the details soon when the project is launched. Without this revenue, we would have been at a margin of 14% to 15% for the last quarter as opposed to 17%.
And finally, the last point is the increase in employment benefit expenses, which we believe is more of an investment by the nature of ESOP charges, has added around 15% to our employee costs.
All these 3, hence, have contributed to the drop that you see in the margins. So the next question on your mind is, what does this mean for the company from a long-term perspective? I wish I had a crystal ball today. I'll give you a right answer, but an honest answer at this moment is that we are working in an extremely dynamic marketplace. On the revenue front, the pathway is clear, and we have a huge opportunity in front of us to grow and grow fast. With a differentiated product, right investment in the people and technology, we believe we are poised for a steady growth for the middle term.
On the margin front, there are various moving parts at work. The Indian travel market, while growing, is still young compared to the Western countries, and hence, we will definitely see business models and cost structures undergoing change as we get closer to the maturity stage. Further, pricing models vary between private airports and Airport Authority of India-owned airports. And privatization of some of these airports will definitely increase pricing consideration in the years ahead. To date, we have not seen any comparable competition to us, but there could be new players emerging, given the potential that this industry offers.
In the light of the above, we are changing our gross margin guidance from the 14% to 15% that we have been reporting over the last couple of years to a more conservative 11% to 13% for this financial year. Please note that while this also assumes high-margin business from some of our other services like golf, et cetera. The contribution of the margin currently is low, but we will see this adding value over a period of time. For the medium to long term, we would assess the market conditions and guide you suitably should there be any change from the stated position.
Let me now come to dividends. I'm happy to announce that the Board of Directors has recommended an interim dividend of INR 0.50 per share, while we do not have a stated commitment of dividends in our dividend policy yet. Our capital allocation policy will be predicted on rewarding shareholders after accounting for the growth capital that company needs for its progress.
Another area that we have focused on is human capital. We strongly believe that our employees are our strongest assets and believe in seeing them grow along with the company. In line with this, the company has rolled out ESOP to more than 95% of eligible employees to recognize and reward employees' dedication and contribution to the factors of our organization. We believe this policy will foster a culture of collaboration, innovation and teamwork that will further drive our growth and achieve our strategic objectives.
The moat built over a decade have helped us scale up and redefine this business. We intend to replicate this expertise by leveraging our deep knowledge of the industry, technological innovation, process expertise and risk data-backed insight across new high-growth and high-margin markets. Thus, we are confident that the next leg of growth will be the back -- will be on the back of our technology progress, deep network, strong relationships, cross-selling and upselling of our services offerings and [indiscernible] expansion in the identified areas and thereby driving another successful chapter in our growth story.
I know this has been a longer than the usual prepared remarks, but we wanted to ensure that our shareholders had a clear visibility to what we are seeing at our end.
With this, I would like to invite Sandeep to take you through the developments in the business during the quarter.
Thank you, Liberatha. From the revenue mix perspective, currently, the bulk of our revenues come from the lounge access services. While we believe that the service offering is still at its nascent or growing stage in India and there is a large headroom for growth, we are consciously making effort to diversify our revenue mix and give things to our other service offerings, too. We are doing this in multiple ways, be it diversifying our services, restructuring our client mix, expanding geographies or even working on newer models. In terms of services and offers, we have ventured into adjoining premium offerings such as golf course access and duty-free offers.
From a client mix perspective, on the demand side, we work with not just card network but also card issuers, that is, banks and are now actively adding enterprise setups to our client base by providing them compelling value propositions for their end customers, employees and even channel partners. Though quite niche at this moment, it offers us another area of growth and enables us to provide customer engagement and loyalty solutions for the corporate clients while developing tailor-made solutions for business in the hotel sector, e-commerce, new-age digital and banking, among others, in another area of interest. Thus, we aim to expand into newer sectors to create customer engagement and provide loyalty management solution to derisk or reduce our dependency on one type of client.
Talking about diversifying geography, our recent tie-ups with Aspire Lounges, Australia, 2 quarters ago or more and recent ones with Plaza Premium Group are the steps taken to expand our footprint globally and not just provide our existing consumers with a wider area of option but also get us onboard newer customers from other geographies. As alluded in the earlier calls, we aim to grow meaningfully in Middle East and South Asia over time.
Lastly, in terms of models, we are constantly evolving and working on being future-ready by providing customized solution to our clients, whether in the form of consultation or solutions on the back and even tailor-making solutions and product offering to suit their needs.
To take you through our capabilities and development, I would like to ask Bala Srinivasan, our CTO to take over.
Thanks, Sandeep. On the tech front, our platform is proprietary and has been developed in-house and is aimed at providing our customers a hassle-free experience. This superior technology platform is one of the multiple modes that we have at the company. Building on this tech stack, we are in a position to develop and offer our banking partners, customize and advance products and solutions to optimize the spend by pushing targeted products to their end customers and driving a high-quality value proposition in terms of [indiscernible] or something that is a one-size-fit-all solution.
Last quarter, I mentioned that our web access portal that we had conceived and developed is already live. That's an extremely handy tool helping customers be aware of the card benefits, determine their eligibility to join certain benefits in advance, thereby avoiding confusion and grievances and ensuring a superlative experience. The adoption of this portal has been extremely encouraging, and we are seeing our partners drive growth of this as well.
In alignment with our asset-light philosophy and mode of operations, our entire platform technology is cloud-based, and allows lounge operators to check the consumers' benefit on a real-time basis. This supports correct accounting and is intended to stop system misuse and customer service [ line ]. Our advanced tech empowers continuous access to a wide range of airport services through various channels. These include credit and debit cards, card issuer applications, our own Dreamfolks app, self-checking kiosks and web-based portals, and we ensure a unified experience. Our clients have now started incorporating lounge benefits and access seamlessly within their own applications and tools as well. GolfKlik, formerly referred to as Vidsur Golf, strategically integrate the Dreamfolks platform within the global inventory of Vidsur Golf, and the fusion enhances the customer value proposition for our premium plans. From a way-forward perspective, we anticipate the role of our newer product offerings to increase and help in maximizing the profitability per customer.
Possible dynamic pricing models optimize utilization levels, and more extensive loyalty management programs could also be a trend in the future. And this is precisely why we continuously invest in our in-house talent and R&D efforts to ensure unparalleled quality, agility, low or no downtime and thereby setting us apart from our competition.
With that, I would like to hand over the call to Giya Diwaan, our CFO, for the performance highlights.
Thank you, Balaji. This quarter has been a really exciting and rewarding one for several reasons.
The company registered 66% Y-o-Y revenue growth, with the Q1 FY '24 revenue from operations being INR 266.3 crores as compared to INR 160.3 crores in the corresponding quarter last year. The growth is primarily a result of continuous increase in passenger volumes, growth of the take rate and an increase in accessibility of airport services as well. We have observed strong performance across critical key performance indicators, KPIs. The company continues to have strong client relationships that are helping in building a scalable, predictable, stable and sustainable revenue and operating margins.
EBITDA for the quarter stood at INR 18.7 crores as against INR 19.4 crores in Q1 FY '23. EBITDA margin for Q1 FY '24 stood at 7.0% as against 12.1%, the reason for which we have already been highlighted by Liberatha. PAT for the quarter stood at INR 13 crores, with PAT margins at 4.9%. As Liberatha mentioned, this quarter is an outlier, and Liberatha has already covered the updated guidance in her position of the speech.
Coming to the return ratio clocked by the company, strong profitability, stemming from efficient operations at scale and an asset-light business model has helped us deliver tremendous value to our stakeholders. We understand the value our employees bring to the organization and committed to the growth of our employees. In line with this, we have successfully extended the ESOP benefits to all the employees across the organization in the year FY '21 and FY '22, and some part of it got extended in FY '23 as well. The policy is designed to align the interest of our employees with those of the company and create a sense of ownership, encouraging them to be even more invested in the company's long-term success. The policy extends to all the employees and had a vesting period ranging from 1 to 7 years.
We have extended the ease of benefits to more than 50 employees during -- by the time Q4 FY '23 has logged in and also in Q1 FY '24. Total cost for the same is estimated to be around INR 18.9 crores, which would be spread over a period of 7 years, starting from Q4 FY '23 going up till FY 2030. This had an impact in our employee cost. Employee costs, including ESOP as a percentage of revenue in this quarter, is 2.8 compared to 2.4 in Q1 FY '23.
As a company, we have remained committed to delivering value to our shareholders and maintaining a strong financial position. The Board, in its meeting, has taken a call to declare an interim dividend of INR 0.50 per share, which would amount to a 25% payout for the quarter. To illustrate the dividend plan for the year, we aim to follow this up with a final dividend this year. We are debuting it with Q1 this year and would also aim to propose it to the Board and shareholders in the future as well.
We believe that the successful implementation of our internal strategies and utilization of our competencies, combined with the positive external environment, will augment our growth going forward. Our conviction is based on the fact that we are seeing a significant increase in the country's premiumization trends and buying parts from high-end automobiles and time pieces to a growing desire for upscale services like lounges and golf outing. In addition, the tendency to travel, particularly the desire to travel by air, is increasing. Customer spending has grown over time, resulting in a sustainable take rate going ahead. This demonstrates the shift demographics and a way forward in the life and purchasing patterns, which work spectacularly for Dreamfolks.
With that, I would request the moderator to open the floor for questions.
[Operator Instructions] First question is from the line of Mike Sell from Alquity Investments.
Thank you for the clear explanation about the margin change. Whilst disappointing, you've explained it very well. So thank you. Could we have your thoughts on the top line growth, which obviously surprised positively with 66% year-on growth? I don't imagine you will continue at that pace of growth for the full year. So could you give us some thoughts about what we should expect on the top line?
Thanks so much. So yes, I mean, if we look at the top line, I think the forecast is for this year is around 60% to 65%. So that is the growth what we are expecting for this financial year.
I'm sorry, ma'am. Do you say, 55% to 60%, 6-0? Did I hear correctly?
Yes.
Next question is from the line of Jaspreet Singh Arora from Equentis PMS.
Just to get that clarity, right? So earlier, the trend -- or let's say, the so-called guidance was 14% or more. Now we're talking of 11% to 13% for this particular year. Is that right?
Yes.
Okay. And given whatever I could understand from that detailed breakup of the 3 examples, it looks like they are more for 2Q, 3Q until 3Q. And therefore, suffice to say, from 4Q onwards, on a much higher base because obviously, we are on this 60% or more base going on, we could be back to 14% or more margins as early as fourth quarter onwards.
No. So as we mentioned that we are looking somewhere between 11% to 13% margin for this financial year.
So would -- next year, you would be back to that? Because much of whatever you've told in the call earlier, it looks like it's more of a 1-year phenomena.
So to be very frank enough, it's not -- I mean the way the volumes are growing, so obviously, there is -- and we all know that there are top 5 clients who are the major contributor to the business, so the way the volume is growing because the expectation was that it could grow around 20% to 25%. But the growth level is around 15%. So yes, there is a cost pressure even from the client's end. So I would not say that it's going to be only for this year. But I would say that, yes, yes, historically, we used to mention around 14% to 15%. That -- going forward, I think the margins will be slightly dropped and where we think that it would range from 11% to 13% going forward.
However, the other services, which are [indiscernible] and the airport transfer, but the margins are very high. But yes, in the present existing business, where the contribution from these businesses, the revenue is very marginal. But over the period, if we are expecting, and we -- the way the forecasting is done, that the contribution from these services are also going to be in a range where this will also impact our margins as well. And yes, then we would say that we would come back to our 14% -- or 13% or 14% margin going forward.
Next question is from the line of Sunil Jain from Nirmal Bang.
So my question is, so the demand is so high and there is a cost push, which is happening for you. Can't we push this cost to the customer, like all these banks and all, we can't take hike in that from them?
So if you actually see it was always that whatever the escalation used to be from the operator side, okay? And historically, it used to be around 5% to 8% and which we used to pass on to our client, right? However, now, I mean, as we mentioned in our speech as well that it is a onetime connection from the airport side as well, especially on the CAM charges.
So the increase from 5% to 7% -- or 5% to 8% has gone nearly to 15%. So because of the volume pressure or the volumes which are growing, we are not able to pass on the complete escalation to our clients. And as a company and we understand the value of what the clients are bringing to our business, so we have decided to absorb a certain percentage at our end, at least for this year.
So maybe going forward, with the help of the other services, we'll try and manage our gross margins. But yes, for this year, I would say that as a company, we decided to absorb a certain percentage, and the rest we are expecting -- I mean the clients would be taking up.
So these common area maintenance charges is of the airport or the lounge owners?
It is from the airport to the lounge operators.
Okay. So that they had passed it on to us, and -- but we can't pass it on to the customer?
Absolutely, yes.
And second thing, this ESOP charges for this quarter was INR 2.8 crores?
The ESOP charges for this quarter was INR 1.2 crores.
INR 1.2 crores. And how it is expected in the coming quarters?
If you see, there was a chunk of ESOP grants, which we did in Q4, for which the cost did not come in Q4 itself. But from Q1 onwards this year, it's coming. So if I see Q -- all the Q -- quarter 4 of this financial year, we would have a cost of INR 6 crore spread across these quarter 1 to quarter 4.
Okay. So this cost will continue or maybe a bit higher also?
Yes, because the allotment happened just in the last quarter, so as you are aware that the entire cost spread across over a period of one testing duration. And in the initial year, the higher cost gets resolved vis-à-vis the later year. So in this year, FY '24, we will absorb a cost of INR 6.3 crores to be precise on account of the ESOP expenses.
Next question is from the line of Sanjay Ladha from Bastion Research.
So just wanted to understand the business model a bit more detail. So firstly, we hold more than 90% market share in card-based lounge access in India and 68% market share in overall volume of lounge access in India. So just wanted to understand what are we doing differently on the competitive advantage as a company we have compared to others. Or is there any entry barriers to the business?
Sure. So I think let me first explain the 2 numbers. So if you observe the traffic that goes in a lounge, the bulk of the users who are using the lounge are typically the users who will get this benefit complementary from banks. So that accounts for the bulk of the revenue. And in that market, we have the major share, which is more than 90%, 95%. And that's the number that we operate in.
However, the other number, the 67% number is the number of traffic that we are sending, and the remaining traffic is really the -- the remaining traffic is the traffic that comes from, for example, airlines because they also run loyalty programs. There are international travelers. So all of that contributed is the overall general number. But interestingly, if you think about the major lounges, we send more than 80% of traffic to such lounges in the key major locations, for example, Bangalore, Delhi, so on and so forth.
So is that clear?
Yes. So sir, just wanted to understand, is there any entry barriers to the business, which we operate?
So yes. So I would say there are 3 modes that we consider. So one is the relationships that we have with our lounge operators and partners. So since we drive the major amount of traffic to these lounge operators, we have excellent relationships. And that also helps us get excellent pricing because we are able to send so much traffic to these operators the pricing that we get is fundamentally at a differentiated level. So a new entrant, for example, will not be able to get the pricing that we get.
And what we also do is pass on. So it's exactly the point that we were discussing earlier on this call is that we pass on bulk of the benefit or the discounts that we get to our customers. So the pricing that we are therefore able to upgrade -- give to our clients is very, very less compared to what the competition might do. So that's the first entry barrier.
The second thing is that we have got very deep relationship with our clients. And what they also do is that they use our technology to manage the benefit. So it is not that we are simply a basic aggregator. Rather, what we do is that the banks and some of the networks, they are using our technology to run a lot of the program ventures. So to give you an example, let's say a bank wants to run any kind of spend management, usage-based models, so on and so forth, the underlying tech is actually also supplied by us in addition to the aggregation business. So this is what we do, and this is the second big mode.
So just to add on what Bala was saying. So for your question, that's what do we do differently. So when Dreamfolks started, I think we started off with a differential offering in terms of the technology because there was a similar offering in India and globally as well, where the banks were offering the lounges to their cardholders, but they were offering a separate plastic. I think what differential we did was to give the offering or the benefit on the same credit and debit card.
So that was one of the biggest differentiator, what we created in the market, and that's how we are different from our competition, right? We do not have to have a separate card, or even now, the way we have enhanced our technology, it's not necessary that you need to download a separate app like what the competition is. But we had deeply integrated with our clients wherein it sits inside the bank app. So you do not have to have a separate app. So I think that is what we have created different in the market, and that's how we stand differently.
And of course, yes, the long-standing relationship in terms of our -- with our operators, which is the lounge operators and the other service providers. And secondly, also the long-term relationship, what we have with the clients. I think all this put together is the strongest moat, what Dreamfolks has today.
My another question would be, we charge the client on 2 models. That is -- one is annual maintenance or integration on the platform. That is annuity-based yearly charges. And other is when passenger uses the service. That is visible on when passenger access services. So could you share the revenue percentage on each segment? And how is the trend over the years?
Yes. So the bulk of the revenue that we get is a [indiscernible], so which is every time a customer goes into the lounge, that's the revenue generation opportunity for us. There will be some clients -- for this, there will be some kind of tech fee or a platform fee. But on a case-to-case basis, we choose to either absorb that cost into the transaction fee or there might be an independent line item in a billing, but that does not lead the way we think of the thing because we are -- when we structure the deal, it is more in terms of the absolute billing that they're able to get from a client. So most of the revenue would be per pax.
Sanjay, I [indiscernible] you again for a follow-up question. Next question is from the line of an Shreyans Mehta from Equirus Securities.
One, if you could break down or if you could highlight in terms of numbers, what would have been the impact because of the 2 reasons, which we have given for the drop in EBITDA?
So Shreyans, if you see, we were talking about how we ended the previous year. We ended the previous year, especially the last quarter at 14% -- close to 14% margin. And now if we are talking gross margin, I'm talking about. And now if you're talking about close to 11%, 10.7% to be precise, the primary impact is on account of the escalation, which we have bought from our operators, okay? And historically also, this escalation used to happen, but it used to happen in the range of 5% to 7%, 8%, while this was -- this time, it was upward of even 15%, right? So that delta of 7% escalation is what we have got. So that's one.
Second is that the time gap, which we spoke about, right? Though the contracts with our operators started from April, Q1 being part of the escalated cost, we would be able to actually do the escalation with our clients starting from August, September onwards, right? So that's another part of this differential 4%, which we are talking about is contributing to it.
Got it. Got it. Sure. And just to add on to it that this -- now that the time lag impact is over, so is it fair to assume that it would be retrospectively because that amount should be given to us probably this quarter?
Since your voice is echoing, we were able to hear but not able to clearly understand.
So my question pertains to the time lag, which we just discussed. So that -- did that -- that would be retrospectively or prospective in the sense that now since the agreement has been signed. So will that amount accrue to us during this quarter or what we've lost for 1Q?
It happens prospectively, Shreyans. So if it is due in the month of September, if for example, it would start from September. For our operators, it was due in April. So it started -- the escalation started from April. So the cycle is for 12 months, right? As and when any contract is getting due for renewal, it starts from that day.
Got it. Got it. Got it. Sure. Secondly, on the -- as a premium, if you could quantify what can be the potential impact as far as our international ops is concerned?
Okay. So actually, in terms of the inventory, what we have actually got from Plaza Premium is around 300-plus lounges, which also includes railway lounges as well. Now the thing is that the advantage is that in terms of the commercial. So obviously, the way the strategic partnership is done that we enjoy our best commercials from them. And equally, we can have a better margin because presently, if you actually see in terms of the global and which we have always mentioned that because of the high volume, what we drive in the Indian lounges, we enjoy the best of the commercials, right? And that's the reason we are -- the operating margins or the gross margins are better.
However, in global market, we are not -- we have just recently started. And for us to actually position ourselves in terms of driving the revenue or driving the volume there to enjoy the best of the commercial but eventually take time. But I think with this partnership, what we have done with Plaza, in most of the continents as we have mentioned that we have got the best commercial [ rev ], usually the most of the Indian travelers travel. So we forecast that when we -- I mean, the way we have started the global business are giving access to our customers for the global lounges, we will be able to derive a better percentage or a better margin from global market as well.
Got it. Got it. And one more question from my side. News articles suggest that Adani and Visa have joined hands and they'll be issuing co-branded cards. So any comments on that? Can it be a threat to us?
So it is just a co-branded card. I mean it is unlike all the other brands which come out with a co-branding. I mean there are airlines which come up with a co-branding. There are other brands which are there for co-branding as well like Amazon, but thing is that the benefit, which is there, right, it has actually been provided by different service providers. So when it comes to lounges, obviously, it is still Dreamfolks would be managing the complete program in terms of managing the lounge benefit. So we actually don't see a threat. And we have always mentioned that whether it is any operator for that matter because they will still have a limited lounge inventory.
And today, the clients when they actually look at it, they actually look at the lounge inventory in terms of not just India but also global and also the other services. And that is one of the reasons that why we are growing our network and also adding more and more services, so we don't see a threat, but actually, it is a good thing because more and more such co-branded cards come in the market. It is going to add value and add numbers to the lounge benefit.
Sure. And lastly, if I can add one more question. Just one clarification on the guidance of EBITDA margins. Does this also factor in the change in the passenger mix since the international mix is moving upwards? So does that factor that as well?
So the international, of course, impacted, and it will slightly move it upwards.
Got it. So just for clarification, 11% to 13% guidance which you have given, does it factor in the higher international pax?
It does. It does, yes.
Next question is from the line of Mukul Garg from Motilal Oswal.
Just -- I know this has been asked multiple times, but I'm still a little unclear. On the movement in gross margin during this quarter, if you kind of adjust for that one-off revenues last quarter, there is almost 400 basis point sort of debt. Is it possible to break out the impact, which you have seen from take, timing mismatch, be the cost escalation on the airport side and see any pressure you're seeing on pricing from banks, which you guys also indicated?
So Mukul, the way it is actually -- I mean if I have to just give you the breakup, okay? So when it comes to the onetime cost, okay, so as we mentioned that if I remove the onetime, see, what we have actually got for the special project, what we were talking about, the gross margin would be around 14%, okay? So that is one.
Secondly, yes, in terms of the time gap, and I think we have always mentioned about the time gap that there are contract revisions from the operator side, which is the lounge operator. Certain contracts get revived from Jan to December. And a few of them are from April to March. And these ones, which I'm talking about, are 90% of the major volume-driven lounges, right? However, when it comes to the client end, most of our contract revisions actually happen from August to September, so that is the time gap. And as we mentioned about the CAM charges.
Now just to give you an example, historically, the way the escalation was growing, which used to be around 5% to 8%, which because of the CAM charges, has suddenly, the escalation has gone to 15% okay? Now we cannot -- usually, the way it is that we usually pass it on complete costs to the clients. However, now with the rise in volumes as well, and we need to, as a partner, support the clients as well. So it is also important that how do we support, and part of the escalation is in -- it's been observed by Dreamfolks. And the certain cost has actually been passed on to the client.
So I think these are the factors which have impacted the gross margin for this quarter. And I would say that this will also have certain impact even in our Q2 as well. However, if I have to talk about the forecast for the financial year, I would say that there will be certain points down, but it would be somewhere in between 11% to 13%, what the gross margin looks like.
I understand that. What I was trying to -- try to kind of split out was, a, was the impact of timing mismatch did it contribute like 100, 150 basis points and that came from the cost escalation?
And secondly, on this part, cost escalation, given that your margin commentary has moved from almost 15% the last quarter to 11% to 13%, what are the pushbacks you are kind of getting from banks on pricing given that you guys are the kind of have a very, very strong moat in the system and the extent of the price impact for you seems to be very, very meaningful? So if you can just also help kind of explain that. And before that, if you can just help us understand the impact of cost escalation on this quarter's margin?
So the [indiscernible] the impact of the pushback, which is coming from the client is basically on the cost management. because there is a lot of pressure for the clients as well in terms of the volumes, right, because the expectation was around 20% to 25% growth for them. However, the way we see the growth is around 15%. So obviously, the cost management has actually become a major focus for them.
Just in terms of trying to revise the pricing for them, but I think in terms of the solution also, we are actually trying and building a solution in a way which can be -- the program can be managed well at the bank level. And when I say the solution is basically that today, it's a blanket offer which the banks or the network provider is providing to the cardholder, but the solution what we have there is actually to give the benefit to the right users. I think this is also very important, right?
So I would say that there are multiple things. So there is one way that we could do it in terms of revising the pricing to them. And the second one is in terms of the solution or enhancing the solution for them. So these are the things which are happening. And yes, because we are the market leader and because we have the strongest moat in the market, there are certain things which we are trying to do with. And I would say that these are the top 2 things right now, as a company, we are working on it.
Right. And so [indiscernible] again to push back on this aspect. What is happening right now is that you are interestingly also opening up other areas where spending will go. And I think that is something which, again, will get into relationship with the same banks. While your revenues have grown extremely well this quarter, the impact on your earnings growth is fairly muted because of this. So with more avenues opening up, what steps you guys are taking to prevent continued bleeding on profitability so that you don't get hit on your earnings because banks are seeing more users kind of use their offerings?
So Mukul, you're right. And the -- so you're right, that is actually the focus for us as well. And what we have actually figured out is that if lounge is the only product the bank is using and then there is a pressure on them to manage that cost, that's not the best approach for us either. So the idea for us is that we are giving them [ 2 ] options, right, you could say, to manage the overall cost proposition.
So from the point of view of the bank, we are actually trying to manage the cost now, whether it is by cutting the cost or whether it is managing it in a different manner. That is the -- that's where we are consulting with them. And now we are giving them the tech to actually go and manage the cost in different manners. For example, you would have seen recently that some of the banks they are restructuring their benefit programs. Some of the banks, they are moving from a usage-based on a spend-based model. So these are the ones that are using our tech to go and implement some of these solutions.
Second, while there is pressure on margin or, let's say, the lounge product, there are other services that we have already started, where the margin is higher. And as banks restructure the benefit models to include other services, that takes care of our interest to ensure that the margin is maintained. So these are the 2 things that we are working in parallel with the banks, and we are very deeply engaged with them actually.
Next question is from the line of Depesh Kashyap from Invesco Mutual Fund.
When you talked about the one-off project revenue in the last quarter and last year, can you please quantify the same? And I just wanted to know why was it not highlighted in the last quarter itself.
So as I mentioned that this was more of a consulting development and a setup of a new upcoming lounge for one of the clients. And as we mentioned that it is going to be one of our marquee projects for Dreamfolks as well. Now the reason that why it was not called out because it was -- obviously, we are always protected with the NDA, and we cannot announce it. So that was one of the reasons that you know why this announcement was not done.
And secondly, we will talk more in detail about this project the moment it's going to launch, which is going to be very soon, right? And in terms of the numbers, as we've always said, that if we actually take out that value, the margin, which was around 17.9% -- if you actually take out that onetime fee, it's going to be around 14%. So that is the value which this onetime project cost was.
So it was only the last quarter or entire year, it was there?
No, it was only for the last quarter.
Okay. Got it. And then secondly, which on-lounge operators have increased the cost? I believe like not everybody can come together and increase the cost, right? So is there still a plan to come? Because I think -- there are many different lounge operators out of there, and they cannot like combine together and increase the price, right?
So yes, you're right that it's not that everybody, but the major ones because the major ones, I would say the top 5 contributors who actually contribute to almost around 80% of the total volume to our business, right? Among them, there was a change. And the change is basically because all these major airports wanted to actually streamline or ensure that the price structure in terms of the charges or the CAM charges or even in terms of the rentals need to be similar. So those were the changes or the rectifications, which have been done. So that was one of the major reasons.
Secondly, I also want to highlight one more point that whenever there is a new terminal or in case if there is a government-owned airport, which is privatized and if a private operator is going to actually have the lounge there. So the pricing also varies or is revised almost 150% to 200% in terms of the lounge for tax rate as well.
These are the major impacts which are happening, and we all know that there is a lot of privatization and a lot of changes which are happening. So it is the overall average of what we are talking about. Yes, it's not for all the airports, but the major ones, which never had those type of price structure, they have tried and revised their price.
Okay. And lastly, if you can just highlight, where are we in terms of the international expansion that you talked about, Middle East, in Asia Pac? I think last time you told that the second half, we'll be launching. So where are we in that respect?
So the work is in progress, and we are working on it, right? And in terms of the network or in terms of expanding our network, if you have seen that we have actually done a strategic partnership with Plaza Premium. So it is very important for us at the moment we actually start any of our business in any of the regions. We need to be strong in terms of providing the right base to them, the way we actually are strong in India market.
So I think now with the Plaza Premium partnership, I think the ones which are in pipeline for the closures will be soon. And very soon, you will also hear some good news about the global market, what we have done because it's almost in the closure. And hopefully, in a couple of weeks, we'll be announcing the new market entry as well.
Next question is from the line of Aditya Sharma from Aditya Birla Sun Management.
Just wanted to understand, as per my knowledge, these lounge owners are in a very lucrative business. And also as the volumes increase, we understand the inherent nature of the business, there is significantly high operating leverage. So shouldn't we be pushing these lounge owners to actually take some part of the hit on their P&L as the volumes increase because otherwise, we are putting ourselves in a very precarious situation.
I think your observation is right, but I would say that not completely because I would say that measure of all the -- I mean, all the private owned airports right now, which is Delhi, Mumbai, Bangalore, Hyderabad, okay, all these airports, the way the contracting with the airport operators are is more on the revenue share model, right? So what happens is that either it has to be a rental or the revenue share model. Some airports have rental plus the revenue share model, where it is really very high.
So I mean just to give you an example, there are a few airports where the revenue share is around -- more than 40% as well. So if they have to actually share such revenue share, so obviously, they are left with a very less operating cost for them. So -- and the reason why -- I mean, I would not say, I mean, they are trying and supporting us in a lot of ways, but in terms of sharing the cost. But we also understand the cost what they are operating in terms of rentals. And as I mentioned, the revenue share as well. So I think these are the factors where we would not be -- or the lounge operators has not been able to take up the majority of the thing.
So I think Sandeep, you want to add something.
And this entire onetime cost escalation that has happened in the form of CAM has actually hit them badly and it was not expected. In fact, so much so I think it came in newspaper also as to people were protesting. So I -- yes, at best, we could do that. But unfortunately, the contract with the airport operator is such that there is year-on-year escalation. And like Liberatha said, in some places, where even occupancy cost is as high as 30%, 35%, so 30%, 35% occupancy cost, then you have another good 15% to 25% revenue share to be given at the share with the airport. I mean you can now imagine with the kind of cost that you will have, you can be as minimal as possible, but still there is -- so we do have -- nutshell, what I'm trying to say is we do analyze the P&L and we definitely know as to what margin that these guys would have for us to really negotiate. So unfortunately, in this case, we knew there's very little room to really negotiate with them.
Okay. At least what my understanding would say that their payback period was less than 4 years, so that they are generating a decent return on their investment already.
Aditya, we cannot hear you at all. Can you please speak through the handset?
Hello, can you hear me?
Yes.
Can you hear me?
Yes. we can.
Yes. So just another question that I wanted to understand was what has been the time lag to pass on the prices in the past because the 6-month time lag seems quite steep?
Yes. So the time lag has always been between 3 to 6 months.
Okay. So 3 to 6 months?
For negotiating and yes.
Yes, okay. Also just last question from my end. Is it that the pressure in terms of passing on the prices has come up because we have been public and the client can obviously see through our stock price and the profits that they're generating and that is causing in terms of passing on these prices?
So yes, I mean, it is right. I mean it's not that the client or the operator were not knowing that we have our margins. But yes, being going public, obviously, the numbers are out in the market and everybody has the visibility of what exactly the margins are. So there is a slight impact to it, but I would not say that major. But yes, it's an open thing that when you do a business, obviously, the clients and the operator are aware that we have a margin. But yes, the clarity of how much we do, I think, is out in the public. So yes.
Next question is from the line of Dhruv from Vasuki India Fund.
I just wanted to know what is the cash balance as of Q1 ending...
Sure. So the cash balance as of Q1 ending for us is INR 82 crores.
Hello. Am I audible?
One moment.
We can't hear you.
Yes. What was the figures of Q4 '23?
That was INR 80 crores.
INR 80 crores, okay. And second question, in terms of progress on the railway side, what is the progress that you need or any traction that you would want to highlight?
So if you actually see right now, there are 12 railway lounges in the country, and we have 100% collaboration with them, right? And if you have actually seen the recent news, which have actually come there, the government is actually taking an initiative of investing into the railway stations and having the investment in terms of the infrastructure. Yes, so I think that is the future where we actually see. So we are already present there.
And in terms of the volume or in terms of the growth, so we already have the same set of clients who are already giving a lounge benefit at the airport. So the same set of clients are also giving the benefit at the railway stations as well. So the way we are seeing the growth is there is a growth of almost 15% month-on-month in railways as well. And we see a huge potential. Right now, the numbers would be very miniscule in compared to the airport numbers. But I think going forward in coming years, railways will be one of the important and high-growing market for us.
So just a follow-up on that. Would that be your margin pressure similarly how we are seeing on the airport side? Would that be a similar way of margin pressure even on the railway side going ahead? I assume that the margins will be lesser than the revenue per passenger would be much lesser. Average ticket size will be much lesser compared to the airport lounges? But just wanted to understand what would be the pressure on the margins even on the railway side.
So of course, the take price in the railways would be much lesser than what it is at the airport, right? But however, as a company, we try and we would want to maintain a similar type of margins what we are continuing it. And the same set of margins, we will try and maintain at the railways as well.
Next question is from the line of Hemesh from Dolat Investments.
So this question is continuous to one of the questions that was asked previously. Given the kind of strong demand that we are seeing and currently we are witnessing the cost passed on to the banks, so going forward, can there be a scenario where banks might actually ask you to reduce the prices given the kind of strong volume that we are witnessing?
So actually, to just give you a forecast on the plan what we have, right? The thing is that it's a focus. I don't know if you have actually heard what Sandeep also mentioned. So the focus is not just going to be with the banks or the network providers. So as a company, the focus is also going to be on the enterprises, right? So the thing is that, yes, we understand the way the volumes at the banks and are growing, right, but however, we also see that there is a huge market in terms of -- because those are the enterprises as well, where we see that the margins would differ, right? So overall, if we have to consider, I think we will try and maintain the margins. And we see a huge potential coming from the enterprises as well.
Next question is from the line of Hemant from Alder Capital.
I have 2 set of questions. First one, when I look at the numbers on a historical past, basically from a cost per passenger basis, customers who are accessing a lounge, it was in the range of around INR 600-odd, but it seems like there was a jump in '23 to around INR 790 and now it's around INR 915. So it seems like the cost escalation from whether it's CAM or from the vendors has been running now over last year and even it seems to be coming through this year as well. So the question remains that, are we in this new bracket where you're seeing more number of passengers accessing lounge and the airport operators are using that to have a systemic escalation, which is going to run in a double-digit going ahead, which was not anticipated? And this is something at a higher level that is going to continue going ahead as well?
So I would say a good observation what you have. If you have actually also seen the changes which are happening in the airport industry as well, okay? So there are a lot of airports which are actually getting privatized. And the moment the privatization happens, the price escalation usually, as we mentioned that it varies from -- actually from 150% to 200% or 300% in terms of the pricing, right? So I would say that, that is one of the biggest reason. And if you have actually seen in the last 2 years because they were more lounges, especially if we are seeing that Adani has taken over 6 airports. However, not all the airports have been taken over and have started, but there are few almost -- from 6 airports, there are 3 airports which are being controlled directly by Adani. So there is a price escalation in these airports.
And secondly, even the existing airports, what we were talking about, when there is a new terminal or change is happening in terms of the service, there are changes at the -- in terms of the pricing. So I would say that these are the impact in terms of the pricing, which is there and we have always mentioned that if it is a government-owned airport and from there, if it goes to a private player, so obviously, the price impact is around 200% in terms of the toll tax rate. So I think the observation from INR 600 to INR 800 and today, it is INR 900, it's all in terms of the way the privatization is happening. And I think this is one of the impacts. And yes, as we also mentioned that the CAM charges are also one of the biggest reason.
I think Giya in case, if you want to add a few more details here?
Yes, sure. I think that's a very good observation in the trend. I must repeat that again. Now this is the recent development which we discussed about, right, that one-off large escalation happening. Historically also, if you see, there is a similar amount of delta, which we have been talking about 14% to 15% for quite some time now because that's the way it was constructed commercially between our operators as well as on the other hand with our clients. So as and when the inflationary base escalation was happening, we were also able to pass it on to the clients as well. And our clients also very well understand what is going on in the lounge space as well.
A lot of development, as Liberatha is mentioning, has been happening the way the lounge used to be 5 years back is very different than the way it is right now. There are some very key locations wherein the kind of lounges they have introduced is not less than a premium lounging section or I must say, so a hotel kind of thing. So that -- having said that, this amount of escalation, which we have been having from INR 600 to now going up to INR 905. I would just urge you to look at quarter 4, which was INR 835. That's the kind of escalation we have been driving. And similarly, our clients have also been absorbing the similar escalation for us.
This one-off is definitely creating a little gap, which we spoke about, which over a period of time, would -- I would say, normalized. And this is a one-off thing, which we don't expect in future to happen. Now this definitely has another angle to it that with the growth which we are witnessing at this point in time would also kind of marginalize the gross margin for us as well. And hence, the new guidance of 10% to 13% on a conservative basis is what we would want to highlight here.
So the second question being, see, as investors, we are concerned about business models where pricing part starts weakening, right? And why I say this is when we look at the number of passengers increasing at the airports, I mean, as observers, we obviously see a huge build-out of people who want to access lounge and aren't able to access it.
What I want to understand from you is, are you thinking about tackling, obviously, the potential that you talk about and really see on the ground that people are accessing it by giving a differential so-called structure for people who are visiting the airports and also card providers so that if you are at a particular card level where you are charging the customers at a higher level, maybe you can have a differential product over there and maybe charge even the end user, I mean, your customers as well accordingly? Maybe that gives a little bit more better pricing power because what seems like out here is that when you have a level playing field and if a large number of customers are coming in as a funnel, you are -- you will have to succumb to the fact that the pricing is not leveled out from the end user as well and therein that problem lies.
So I think right observation, I think we are already working on it and we have already started doing that in terms of the section premiumization, right? So in terms of giving a premium offering, I think we have already started doing that, right? So the thing is that in terms of the benefit right, so the premium cardholders are not just getting the lounges, but we are already offering a medium access for the airport transfer, which is a premium offering to them, right? And similarly, the way we are actually working in terms of the product segmentation that we have already started and I think Bangalore is already one of an example what we have actually done. In terms of giving a differential offering to our cardholders, where the premium cardholders get a different set of services at the lounges, whereas a different segment of the cards get different lounge service. So this has already started and which we are very closely working with the airports.
However, as a company, we have also started working on different service offerings, right, in terms of F&B offering. And there are a few more, which we are going to announce very soon, right? And there are some super luxury products as well, which are there for the premium cards as well, which we have already announced. I think if you have already seen our deck, we have actually announced service like VFS services, which is Visa at Doorstep and also lounge at the Visa centers. So these are actually for the premium cardholders. And also one of the other products is the eSIM.
So there are a few more products which are in pipeline. And I think in a few weeks or months, we would be announcing those services as well. Now these services are basically to create a differential offering in terms of different set of cards. So this is what we are doing. We understand that today, the lounges are getting full and there is a space constraint there. But I would say that the airports are also very closely working with us in terms of increase the lounge space, giving a differential offering for the lounges.
Secondly, we are working on different services. It's not just outside the airport, but within the airport as well. So I would say that overall, yes, not just the service offerings, but I would say that in terms of the solution also, the way we have integrated with the banks and with the -- giving the solution in terms of whether it is a spend based or whether it is a credit to be given to a higher user customer. I think those are the models what we have already created and we have already started working on.
Next question is from the line of Dhruv Joglekar from Vasuki India Fund.
My question was regarding the expected margin in the next coming quarters. So since our guidance is around 11% to 13% going forward, and what would be the ask rate and will we see a substantial jump in the margin in the Q2, Q3? Or how do we see this?
So you're right. When we're talking about the guidance of 11% to 13%, it would increase over a period of time in quarter 3 and quarter 4 as well. And that is where we will reach to an average blended rate of 11% to 13%.
So how do we plan to do that? So are we expecting this timing mismatch to take in the Q3 onwards or how?
Yes. So as we've mentioned that client escalations are due from -- starting from August, September and October are some client escalations happening. The moment we close that, this time gap would get mitigated over a period of quarter 3 and quarter 4.
Understood. Okay. And going forward, for the CAM charges for the next year onwards also, do we expect this escalated price to continue? Or can we see some bit of drop there? Or how do we see the CAM charges looking forward?
I don't think so this will happen because CAM charges, this time around, it happened through an external party, and then one airport did that, and obviously, the other airport took cue from that and the airport that we are talking about are those airports which contribute very high in terms of PAT contribution. So I don't think so because there's a lot of resistance already that happened. So I don't think it was one-off. It is not possible to the kind of unprecedented escalation that happened. This would be one-off, clearly.
Ladies and gentlemen, due to time constraint, this was the last question for the day. I would now like to hand over the conference to the management for the closing comments.
To conclude, I would like to highlight that Dreamfolks is working on a number of new projects and initiatives with the goal of providing a wider variety of services to our clients throughout the whole value chain. The health of our unique technology, wide range and large networks as well as external tailwinds of strong growth in the aviation and credit card sector we are positioned correctly to grow our business sustainably. And not to forget the undivided attention on our top line. Thank you all for joining the call today. And we hope all your queries have been answered. Feel free to contact Strategic Growth Advisors, our investor relationship advisers, should you have any additional inquiries. Stay safe and take care. Goodbye.
Thank you very much. On behalf of Dreamfolks Service Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.