Dreamfolks Services Ltd
NSE:DREAMFOLKS
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Earnings Call Analysis
Summary
Q2-2024
This quarter, the company's journey is marked by a striking 65% year-over-year revenue surge, from INR 171 crores to INR 282 crores, propelled by heightened travel demands. Concurrently, gross profits ascended by 30.4% year-over-year to INR 35 crores. The company's operational efficiency shines as EBITDA climbed 18.1%, reaching INR 25 crores, and Profit After Tax (PAT) expanded by 19.2% year-over-year to INR 18 crores. The company's earnings narrative per share is equally robust, standing at INR 3.37.
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Ladies and gentlemen, good day and welcome to Dreamfolks Services Limited Q2 FY '24 Conference Call. [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 Ms. Liberatha Kallat. Thank you. And over to you, ma'am.
Good evening, everyone. And thank you for joining us on the Q2 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 on the stock exchange and our website. For those who are new to Dreamfolks' story, we are India's leading airport and lifestyle service aggregator. Having pioneered the concept of airport lounge access in India and enjoy a market shares of over 90% in the card based domestic lounge access in India and 100% lounge coverage across Indian airports.We provide an in house proprietary technology platform that allows our clients to create custom service offerings for their end customers. Our company has a global footprint extending to over 1,500 touch points in over 100 plus countries. Over the years, we have ventured into additional value added services like meet and assist, golf games and lessons, airport transfer, visa at your doorstep, car services, airport dining and transit hotel, maximum access and many other services. We are focusing on these value added services, both in terms of the number of services and their share in the overall revenue path. We have also been tapping into more geographies by partnering with global lounge players like Aspire Lounges and The Plaza Premium Group.Now let me turn your attention to the performance of the quarter. Our Q2 revenues came in at INR 282 crores, which was a 6.1% sequential increase over the quarter 1 revenues of INR 266 crores. Gross profit came in at INR 35 crores, which translated to a 12.41% gross margin and an increase of 1.7% over the gross margins of the last quarter. The profit after tax was INR 18 crores translating to a net profit margin of 6.25%, an increase of 1.39% over the last quarter.Last quarter, we discussed the difference in timing between cost increases for lounge operators and the price changes for our customers. I am pleased to report that this mismatch has now started to correct itself, which is why our margin has bigger growth on a sequential basis. In terms of some general business highlights for the quarter, we have started providing golf as part of our service offerings to a new queue of our clients. This is a positive step in our efforts to diversify our revenue mix and increasing the volume share of our services.In addition to this, we have also entered into the Malaysia market, thereby spreading our wings into -- in another Southeast Asia country. We have also collaborated with a leading visa service provider to offer premium lounges at visa processing centers and door step visa services. This strategic partnership marks a significant milestone for Dreamfolks as these services will enhance the tailor-made offerings to augment Dreamfolks' plan, card loyalty program and card value proposition.Now let me touch upon an important structural change that is happening in the cards industry. Some of you might have read news articles that few banks are changing the program structure of the benefits on the card program. What used to be a blanket card benefit for customer is slowly being changed to a spend-based structure by such banks. For the lounge benefit, this would imply that there is a threshold spent by the customer on the category of the card on the credit or the debit card to get the usage of lounge services.The broader change put forth by the banks will be visible beginning November, December. At an industry level, this optimization and benefits of non-premium cards may have a short-term impact on these nonpremium card services. However, on the flip side, we expect travelers who are specifically looking on our premium benefits such as lounge access will shift to premium cards that offer this facility. We believe consumers will get a chance of upgrading cards within the same bank offering or shift to other competitors. [indiscernible] the change to the premium offering might take a quarter or 2 to benefit from consumer awareness to apply and sanctioning the new card.Due to this change, while in the short run, we expect a reduction in the revenue trajectory, we believe that for the longer term, the move to a spend win benefit mechanism will be sustainable for all the stakeholders concerned. We expect the impact of the changes made by various card issuers to be visible starting November, December.Given the evolving nature of the specific changes made on the various categories of cards, it will be premature on our part to quantify the impact at this moment. We expect that our previous guidance would have to be revised and where there's a confidence on the long-term growth came from. It is a combination of many factors, but I would like to highlight a few that are driving this unique industry forward.The first factor is travel that is driving growth. The travel industry is expected to continue to grow at a CAGR of 9% and expect it to reach USD 125 billion by FY '27 from USD 75 billion in FY '20, driven by factors such as rising middle class, increased urbanization and a shift in consumer preferences towards the travel and new experiences.Despite being seasonal modest quarter for the industry, the domestic passenger data from the DCGA showed that the traffic this quarter grew by more than 20% year-on-year, driven by an improvement in both business and leisure travel.Next, the credit card industry in India is expected to experience significant growth as the number of credit cards are expected to grow by 33x in the next 2 decades. This will be driven increasing shift towards digital payments. According to industry reports, online card usage has already reached 60% of the total card spending primarily in the hospitality, travel and leisure, the consumer durable sector. However, credit card penetration in India remains low at around 5.5%. This presents a significant opportunity for growth as consumers' attitudes and behavior towards credit cards continue to evolve.As the industry continues to witness robust demand Dreamfolks are are well positioned to capitalize on the growth opportunities supported by the industry tailwinds. The good thing for us is that all our clients are implementing these spend and usage models using our proprietary technology, which further increases our deep integration with our clients. Our technology continues to be one of our greatest strengths and our team has built a platform which is deeply integrated into our clients' operations, which also adds to the long-term sustainability of the business. The platform and the technology is cloud-based and is aimed at providing our clients and their end consumers the visibility of the benefits provides access to such benefits, a choice of access mechanism using a host of services, while getting an excellent consumer experience and this superior technology stack on the multiple modes we have at our company. Through our platform, we allow lounges and have operators to check the benefits of the consumer base on the cards, memberships on vouchers and also allow access to the different facilities based on the benefits or integration as product lines.Our next stage of growth is predicted on a multi-faceted approach. We will persist in the endeavor to promote and enhance our offerings to our clients, leveraging the introduction of premium services.I would now request Sandeep to give an update on the business front.
Thank you Liberatha. I'm happy to announce that we have got our first major client for our recently launched e-SIM services, where the consumer of our client will get access to free e-SIM for valid cards. We also continue to see good traction in our other services. During the quarter, we have also formed a strategic partnership with a leading visa service provider to offer premium lounges at visa centers. Moreover, we will also be able to provide those doorstep visa services, which will allow customers to conveniently submit their visa application from the comfort of their homes or offices. Further, as Liberatha mentioned, we have also started providing golf services to some of our clients in this quarter, including one of the biggest card issuer in the country. Through this offering, the customer of a client can arrange their golfing excursions and lessons simply by giving a call to the dedicated concierge services. We also expanded our global footprint by entering Malaysia market with technology solutions by offering our card-based lounge benefit management. This is a very different type of model where the lounge operator, in addition to being a service provider also adds to the client to provide such benefits to their customer base. These efforts are testament to our customer centric approach that we follow in all our efforts. We are constantly developing synergic strategies around scaling of the current services and are on lookout for bringing on newer services to a spectrum of services.Another aspect we are extremely focused on is diversifying in terms of geography. This will not only increase our brand identity globally, but also enable our current customers in India to access lounge services across the world. We continue to be on the lookout for opportunities to spread our wings, like our collaboration with leading organizations like Plaza Premium Group and Aspire Lounges. In addition to this, we are also using and diversifying in terms of client mix and are actively adding enterprise setup to our client base by providing a payment-made solution to them, compelling value proposition for the client and stakeholders. But we aim to expand into newer sectors to create customer engagement and provide lounge management solutions to derisk or reduce our dependency on one type of a client.Finally, with regards to our models are continued evolution, aims to ensure our readiness for the future. We are dedicated to furnishing our clients with [ deeper ] solutions, whether through advisory services by classing tailor-made solutions and product offering that precisely align with their requirement.For an update on technology front, I would like to invite Balaji to take it forward.
Thank you, Sandeep. Regarding our tech infrastructure, a proprietary platform has been developed internally with the primary objective of delivering a seamless experience to our client tier. Leveraging this technology, we possess the capacity to design advanced custom tailored products and solutions for our clients. This approach allows us to enhance the spending habits of our clients by offering precisely targeted products and presenting a high-quality value proposition rather than a one-size-fits-all solution. As Liberatha mentioned, we are observing an industry trend where many of our clients are looking to implement spend and usage-based solutions. And we are seeing rapid adoption of our spend and usage solutions by our clients to optimize the TCO of the product offerings and also launch new product initiatives. Now consistent with our asset-light philosophy and operational strategy, our entire system is account-based. This infra enables operators and other partners to promptly assess the benefits available to consumers and grant access to services based on their eligibility. This not only facilitates activate accounting, but also serves as a deterrent to system misuse, ultimately improving customers' experience and service by reducing unjustified demands. A notable feature of a platform is its user-friendly benefit configuration and management capabilities. We offer integration options and data APIs for our partners, making our services accessible through various channels, including credit cards, debit cards, card issuer apps, our proprietary apps, [indiscernible] in a normal direct system.Furthermore, we empower banks to seamlessly integrate the benefits into their own applications, ensuring seamless experience for end consumers. We've also introduced golf links through our clients' platforms, and the golf services are also seamlessly integrated into the resource platform.In conclusion, to reiterate what Liberatha mentioned, our tech represents our most significant asset, and we maintain a steadfast commitment to invest in to ensure unadulterated quality, agility, minimal downtime and as a result, to differentiate ourselves and accommodate us.Now I'll hand over the call to Giya for an update on the financial points.
Good evening, everyone. Let me quickly take you through our financial performance for the quarter and half year. The company has reported a robust 65% Y-o-Y growth in terms of revenue this quarter from INR 171 crores in Q2 FY '23 to INR 282 crores in Q2 FY '24. This growth can be attributed to the pick up in volumes in this quarter driven by strong travel demand. Gross profit has also recorded a strong growth of 30.4% Y-o-Y from INR 27 crores to INR 35 crores in this quarter. EBITDA for Q2 FY '24 stood at INR 25 crores in Q2 FY '24 as against INR 21 crores, in up by 18.1% y-o-Y. PAT for the quarter was at INR 18 crores, up by 19.2% from INR 15 crores in Q2 FY '23. EPS for the quarter stood at INR 3.37 per share. For H1 FY '24 too our revenues recorded a robust growth of 65.6% Y-o-Y from INR 330 crores to INR 549 crores. Gross profit was up by 21.9% Y-o-Y and should be INR 53 crores in H1 FY '24 and remains INR 52 crores in the corresponding period of last year.[indiscernible] for H1 FY '24 stood at INR 44 crores as against INR 40 crores in H1 FY '23. PAT for H1 FY '24 stood at INR 31 crores as against INR 28 crores in the corresponding period of last year. EPS for H1 FY '24 stood at INR 5.82 per share. Our strong profitability and our ability to manage our operations efficiently has enabled us to maintain strong return ratio and ROE stood at 13.7% and ROCE at 20.4% on a YTD basis.Being an asset-light company with a lean team and organizational structure, we do not have any major CapEx needs for the time being and are confident of financing any future acquisitions or expansion through internal accruals. Our working capital cycle stood in line with our expectations with our receivable days and payable days to be within a range of 100 days and 75 days, respectively.With this, I would like to hand over the call to Liberatha for the closing remarks.
Thank you, Giya. I would like to thank everyone who has joined us for this earnings call. At Dreamfolks, we are actively engaged with various strategic endeavors aimed at expanding our service offering. We leverage our global technological expertise and our market clientele to do so. Our company holds a prominent position in the airport service industry, and our primary focus is to diversify our client base, ensuring a consistent and prudent performance. The encouraging external tailwinds such as derived from domestic passenger traffic, the increased use of digital payments and the growing demand of the lounge services and related offerings offers substantial growth potential in the years to come. Our [indiscernible] technology and strong team are poised to deliver strong performance in the future. We are confident in our ability to navigate any short-term challenges that might affect our performance, also our steadfast industry business and a solid foundation of our company while maintaining an unvarying belief in the long-term sustainability of our business model.With that, I will request the moderator to open the floor for questions. Thank you.
[Operator Instructions] The first question is from the line of [ C.A. Vikash from Ecomtree ].
One thing in the last quarter, you just mentioned about the gross margin, we were 11% to 13%. Whether this margin is impacting the future?
So we had mentioned 11% to 13% range. Are we audible to you?
Yes.
Okay. We had mentioned 11% to 13% of the gross margin in our previous quarter. We maintained the same stance in this quarter as well.
So this will continue in the next 2, 3 quarters.
So this is an annual guidance, which we have provided -- if you compare to the previous quarter, this quarter, the margins have improved.
And what is the average range in the per passenger because right now, our Dreamfolks' PAT is at 2.7 is the last quarter, is the 2.6 is there. And what is the average revenue per passenger is there?
Yes. So this quarter, if you see the passenger base, that is 2.7 million compared to 2.63 million previous quarter. And if you look at the [indiscernible] rate this quarter, it is 990.
990 it's improved from the last quarter is the 915 is there.
Yes.
And one thing also in the last question, in the cash flow side, one part is the net cash from the investing activities, which is increased 343.8. Might be, this is an investment you sell out I think. --
Right. So this is an investment of the free cash reserve, which we have, which we deployed for earning the investment income.
This is a listed entity or it's a subsidiary entity we invested in FY '23?
No, it would be in either overnight funds or fixed deposits. So these are completely secured based on our approved investment policy. We do not invest in the market directly.
The next question is from the line of Mukul Garg from Motilal Oswal Financial Services.
And I think quite a commendable performance this quarter despite the air traffic going down, you guys continue to see more and more people come in. Just wanted to get an understanding because it has been, I think, a fairly long duration that you have been increasing the conversion rate. Any sense you have whether it is on account of more lounges opening up? Or is this something which is -- goes more people are kind of spend in the lounges. And then I'm just kind of thinking about from a this quarter perspective, any sense you can provide exactly what is going on behind this?
So I would say that, as we have also mentioned earlier that the awareness of lounges are growing, and I would say that is one of the biggest reasons, right? Yes, number of lounges growing will add, but I would say the major thing right now would be the awareness of lounges and the benefit being given on the cards. So that is one of the major factors.
And the second question was you mentioned that as kind of card issuers are rejiging the way they kind of offer the facilities to their customers. How should we think about the drag in the near term? And is this something which you expect to kind of come into the base over the next 2 to 3 quarters? Or is this -- will this spread out over a longer-term period? I know you can't really quantify it because it's very difficult, but any sense on whether this can have a meaningful impact?
Mukul, we are actually giving you a heads up on upcoming trends where some of the benefits of the cards will be given out on meeting certain criteria, maybe it is spend-based or usage based that we are told. Of the spend based growth process has already rolled out and some of the banks are already doing as we speak. For the -- so for the time that we have seen since they have implemented, there has been no serious impact as such we are seeing. But we thought at this point in time, it's right to actually call it out.
The last question which I had from my side was on this Malaysian expansion. Just if you can help us understand how this model will work because this looks more like kind of you guys are providing a software solution to them and is this going to be more of a paper usage kind of a model similar to what you do in India? Or is it going to be different? And does this mean that you are kind of going with a slightly different approach globally versus how we operate in Indian markets?
So, Mukul, the thing is that when we say that it is a different model altogether, unlike lounges which are right now are service provider, right? Here what we have done is that we have actually given a solution to us. So that is the technology what we have built is also will be marketed service providers, okay? So yes, Malaysia is the first market where you have actually started this for their other customers, see unlike -- if you actually see it's not just the card users who are actually accessing the lounges but there are various customers who are accessing the lounges like the airlines and also the other, I would say, corporates as well. So we have built the technology for them, wherein there would be a different revenue model, unlike what we have done in India. Maybe the same method can be also -- will be used in India market as well. But this is one of the different thing what we have built in here.
And so, just to close this, any quantification you can do in terms of whether this will be meaningful from a revenue perspective in the year ahead? Or is it still too small to call it out?
It is still small, Mukul, right now because we have just started this. So it will be too early for us to actually quantify anything right now.
Congrats again on a good rebound.
Thank you, Mukul.
The next question is from the line of Tarbir Shahpuri. Nidara Capital.
You guys have emphasized a lot on the technology that you have developed. I'm struggling to kind of understand what exactly is the technological edge? And if you can just help me with how much money you have spent to develop the technology, the platform over time? That would be very helpful.
Sure. So I think we made -- the way to think about it, this is that banks basically use this as a way to administer the benefits that have been given to the end consumers. And this is the main platform on which all the usage, the spend and everything is getting tracked. So there are 2 elements to this. One is the interfacing with the clients such as a bank or a network. And on the other end, is the access mechanism that is deployed, at let's say, a lounge or a golf course or a spa outlet [indiscernible] on the business. So it's an end-to-end platform that gives the banks the ability to manage a card program. So that is the -- which is a layer one of it. And as we mentioned in this call as well here, banks are using this technology to also drive a lot of their spend based models and the usage models. So they are able to carve out or identify segments of users that are let's say profitable for them or, let's say, consumers that are not good for them, et cetera, et cetera, and do a differentiated benefit in practical terms. So the idea is that this becomes a long-term solution for them where they are able to also launch new products with this template. So that is our core spend. But from an end consumer point of view, also, what's interesting is that the action mechanism, such as, for example, banks are taking a technology that integrating this into the bank apps. And that also then has a consumer side to it. But the consumer doesn't really realize it is our tech because it's probably branded as somebody else's tech. To give an example, if you go to a -- any of the large metros today, there would be some of the other mechanism to do a kiosk check-in to -- for a lounge. It may or may not have a Dreamfolks' standing in, but that tech is actually given by us. So we do end-to-end tech service for both banks -- so everyone in the ecosystem, we're giving them a solution.
And if you can help me with what is the total cost that you have spent to develop this software as a platform, you call it?
So we have actually developed this over a period of the last 4 to 5 years. We started way back in '17, '18 and slowly and gradually new capabilities that get built in. If I just put a number to so far where we have invested to probably somewhere around INR 5.5 crores is what we have spent in the last 5 years to develop it.
The next question is from the line of Shreyans Mehta from Equirus.
A couple of questions from my side. Last quarter, we had guided for [indiscernible] 55%, 60% in terms of revenues. So I do understand that we've indicated that probably November, December would be the quarter or would be the month where we'll see the major impact. But in terms of any quantification, whether the revised guidance is nearer to 40%, 45%, 50% any number on that front?
Shreyans, I don't specific number and -- but we do have some working. So see from a modeling point of view. So like Sandeep mentioned, this kind of model has already been there in the market for some time, even actually it's still more like in terms of years. There are some banks are doing the spend base on our tech for some time. And so far, there has been no practical impact on traffic. However, just from a -- just to be underweighted, we are baking in some correction in the short term in our model. So what's been happening is that it's slowing [indiscernible] banks. It's too early to get an actual estimate. So we have a high hypothesis there are probably 2 kind of consumers, right? So consumers that are probably have multiple cash in their wallet. So in case there is some kind of spend based model one of the cards because just a through a different card. So that is one kind of consumer. And the other consumer, let's assume doesn't have any other wallet. So that simply makes an opportunity for the same bank or a different bank to upsell a different card. So these are the 2 kind of consumer behavior. And realistically, what we also expected that competing banks will see that as an opportunity to onboard these sort of consumers and then start the market dynamics will change. So that's really our hypothesis. So there may be some impact in Q3 and expecting some of that in Q4, we can't quantify. That's our guess at this moment. However, the pattern will probably self-correct itself to the consumer behavior. I think that is our hypothesis I would suggest.
Secondly, on the margins. So on the flip side, can it happen that banks would ask us to bear more costs or cut down on our profits. So can there be a downside as far as our margins are concerned.
No actually. So the thing is that as we always mentioned that there may be try and the costing is that whenever there is a client except what has happened this year, we try and pass it on. So I don't see that factoring wherein there will be an impact on our margins going forward.
And one question for Giya. If I see the working capital this quarter probably a debtor days have increased whereas creditor days have remained the same. And our working capital, the net working capital has increased. So is there any change to our model or this is just a temporary phenomenon?
It's not a permanent change to the model. It remains the same because the credit period for the clients as well as the operators are based out of the contracts, which we signed and we have some long-term contracts with both the parties. However, there are certain business cases and changes, which keeps on happening every quarter. So say for example, the increase in the receivables was, a, of course, the revenue had increased, but proportionately, that has increased. But disproportionately, if you see, when we get into a new client renewal discussion, a new client addendum gets signed. So that's also some time gets delayed by 1 or 2 or 3 weeks or so and then resultantly the payment get delayed. So that is the temporary impact -- so I've always said that quarter-on-quarter is not the right way if you look at the receivable, the working capital management cycle because on an unrealized basis, we see that receivables debtor days are 100 days and creditor days are anywhere between 75 to 80 days. And since our balance sheet is strong, in quarter-on-quarter basis that does not impact our cash flow requirement.
And 2 more questions from myself. Any updates on our railways business? How is it moving?
I think it's going good. I think it is a normalization and multi-retail banks now started offering it as a -- offering to the mid layer and mid layer and -- over their product offering. So I think it has continued to -- we are seeing good engagement and thanks to our [indiscernible] there is an opportunity to include in newer products of a specific category. So I think we seeing a traction.
And in terms of any numbers so you would like to highlight? How much that would have been in 1H or probably in this quarter?
We don't do segment reporting because for us, it's about the client-based services, right? So segment reporting doesn’t come into the picture. But yet, the railways as well as other newly added services have been growing very fast. In fact, if you look at other services, that has compared to the previous year that has grown 5x. Now of course, the quantum is low over there. But increase in 5x is also a big jump from the point of view that we always highlight that we focus on other services. So that the mix which we actually do between the lounges as well as non-lounges business comes to a certain parity.
And lastly, on the 1 data point, what would have been the stock targets for the quarter?
So the [indiscernible] EFO charges for this quarter, which we have booked already is close to 17.62 million.
17.62 million.
Yes.
The next question is from the line of [ Balamurali Krishna from Oman Investment Advisors ].
So I want to know regarding the international operations. So we are looking to start a replicate kind of Indian operations in the Middle East and Southeast Asia, we are expecting some contracts to get signed, but any update on that?
So it's a process right now, as you know, over that, any say client onboarding, especially with the banking or the financial sector is a time taking. But however, the team is working on it, and we will shortly tell you about the new clients which are getting in. But however, in terms of the new market, I think Malaysia as we have already mentioned to you that we have already entered Malaysia market in terms of our technology support to the lounges. However, the model is slightly different from what we do in India market, wherein the tech support here is really is to the client managing their program. However, here, it would be more in terms of the tech support is to manage the lounge customers for the lounge operator. So here the lounges are not just a service provider for us, but would also be one of the clients, and would also -- I mean we will be generating [indiscernible] from there.
And regarding this last quarter, there was some hike from the lounge operator. So you told that it is nearby, its almost compensated from the card issuer also. I think that there will be still some -- there will be some difference between this lounge hike and that's what we are offering to the card issuers. So could you please quantify what could be still the difference how much on our side?
So these are running contracts. Even when the operators, it's a running contract and the rates gets closed for next 12 months. And for the clients as well, we were running contracts. So it's very difficult for us to quantify in the manner that just the impact.
The next question is from the line of [ Varun from Abacus Asset Management ].
I just have 2 questions on -- we did some data points. Firstly, the international passenger traffic for the quarter. And secondly, if you could give the split of Dreamfolks' passengers between domestic and international lounges.
Okay. So international passenger traffic when it comes to the industry data, it gets published after the end of the quarter, of the next quarter. So those numbers are not yet out. So when you see the numbers in DGCA, which is 36.8 million for Q2 that is the domestic passenger? And for us also, when we report, when we say domestic, it is for us, the entire India passenger traffic, whether it is in the international side of the lounge or India side of the lounge. So put together, we have clocked 2.73 million passengers in Q2.
So you don't have the split of domestic and international lounge for 2.73 million.
Yes. So when we see the split, the split for this is 76-24 for us.
And secondly, have you been experiencing any cut down on the passenger traffic due to this credit card, banks cutting down on the free credit card benefits; lounge benefits?
So far, we have not seen the trend there. There is any reduction in terms of the usage. Actually, if you see that the trend is on the growing side. As we mentioned that going forward, maybe there would be something. But presently, there is nothing as such.
The next question is from the line of [ Nihar Davey from Vallum Capital. ]
I apologize I was not able to get myself out of the queue, but my questions have been answered.
The next question is from the line of the Divyesh Mehta from 3P Investment Managers.
Can you look at the non-lounge access revenue and the users. While you have highlighted multiple services like Meet and Greet which have a higher gross margin. Has this services have improved on a quarter-on-quarter basis? Why is the gross margin still not fully recovered? So my broader thought is there part of it has to recover when the banks contract get those higher fees. But you should also have a benefit of the meet and greet services which have a higher margin or a higher fee per customer, which should also improve your gross margin right?
So presently if you actually see that the other services contribute a very small pie to the overall business. So obviously, it is too early for these services to show a benefit into the gross margin. But going forward, yes, as we have always said that in a couple of years, maybe around 3 to 4 years, once the numbers of other services, the contribution would be around 20%. That's where the impact on the gross margin will be visible. Right now, it is too early, and it is actually a very, very small pie wherein for the total contribution of the revenue.
So continuing on sales -- when you started the services. And I'm assuming [indiscernible] banks would have taken these offerings to their customers. But what is your take -- what is the penetration you are seeing for these kind of services? Are they only into the super premium segment for a very small amount of usage or like one in a quarter or the top end part of it? Or how is it going through? The broader thought is to understand that if they are at this very super and the very premium end they'll not be able to get a sizable share of the benefit, the whole card benefit cost as a whole?
So yes, these services are offered to the premium card or the ultra premium cards, I would say. But over the period, if you look at the lounge usage as well, it's over the period where the awareness has grown and the usage has started increasing. Similarly, I would say that even these services, I would say that the awareness needs to grow that there will be benefit of [indiscernible] or airport transfer for that matter of course, which is a part of the benefit. The more the awareness grows, it will grow. However, just to highlight that, presently, I would not want to mention the client or the card which has this benefit. We actually feel a good close of usage in terms of conversion from that set of cards or the set of the premium benefit, which has been given. So yes, there is a good conversion which is happening right now.
And can I squeeze in just one more question?
Yes, please.
So when you look at card benefits management like providing lounge access and different kind of accesses any bank or any credit card player would be thinking in terms of having a specific spend they would want to do every year right on such kind of services? And when in your interaction with banks on a year-on-year compared to this year to next year, what is the visibility usually see that this -- how much they are going to increase or decrease this many because effectively, this is still a cost for them, and they would have a mindset we have spent x amount this year, next year we want to increase 10% or 20%, depending on their businesses. So in this sense, have you got any visibility from the bank?
Yes. So typically, banks saying more in terms of the portfolio and typically product managers would like to think in terms of the product that they own. So then, for example, a new product is getting launched, the chances of them investing in that new product and investing and trying to get customer acquisition is higher. And then there will be products which are probably more in terms of maintenance mode where they're trying to manage the cost or optimize. So depending on the product and the life cycle of the product, different products would have a different trajectory. We have made -- they kind of do some -- in some cases, they do give an indication, but I don't think we are in a position to share what they think. But typically, if you see the statement of banks, it is a cost that we are trying to manage, but they're also actively investing in new products as well. So both happen at the same time.
The next question is from the line of [ Ganit Singh from CCIPL. ]
Most of my questions have been asked, but I will follow a couple of questions. So you spoke about the lead by card issuers. Can you please talk a bit more about that because you are, I mean, anticipating maybe a small reduction in revenue in the short term. But you also mentioned that most of the card issuers have already implemented the spend-based model to provide benefits. So I mean if most of them have already done it. So why do we now undertake [indiscernible] can you make talk more about that?
So when we said that a few of the banks have done it, we said that a few of the banks have already started doing it. But there are few which are in pipeline right now because of the NDA, we cannot announce it because you will see the announcement coming from the bank directly. But yes, the implementation were done by few, but you know there are few other banks who will be implementing this and that is the reason we just thought that we should reduce the [indiscernible] in terms if there would be any impact coming in.
But in the past, these had no impact, right?
We have not seen any such impact in the past.
So I mean, are these just spend based? Or are this -- is there some other criteria also, which is on the pipeline by the banks.
We will not be able to disclose more on this because it would be banks who would actually give such announcement from their side.
And in Q1, the margins were affected by a onetime increase in the targets by the lounge providers, right? So I mean can you throw some light on that? And going forward, I mean, why do we expect a gradual increase in margin? Is it because these have been passed on to the customers? Or I mean, I just want to understand.
Yes, sure. So look, I mean, we have always been saying that escalation happens at both the sides, right? And this was an exceptional increase, which happened in the previous quarter. And the client escalation also happened as and when the contracts get due for the renewal. We don't see this kind of exceptional increase happening again because it was one of its kind. So our guess is that it might not happen again. So whenever the new clients are going to get renewed, the gap, to some extent, would get reduced. However, our annual guidance of 11% to 13% is what we would like to take here?
I mean to achieve 11% to 13% margins now, we would have to clock near 13% volume over the coming 2 quarters.
It would not be 20% margin, yes, I mean, 10.6%, to some extent, larger than what we have said in this quarter, it would be slightly higher than 13% and 14% so it would be in the range of 11% to 13%.
[Operator Instructions] The next sign of question is from [ Arka Bhattacharjee ].
I have just 2 questions. One is a -- in the previous presentation, it was mentioned around 17 million. Has there been a reduction in the number of touch points because in the presentation it is showing around 1,500 this is one. And second is the kind of business that you guys are acquiring from time to time, whether it's the lounge services, [indiscernible] how much top line are you expecting from these businesses [indiscernible].
Yes. So actually, it's a good question. And the number of touch points are actually rapidly increasing for us. So like today, I think we are also talking about, for example, we just did a partnership with salon for new services. And that itself contains 200 touch points, okay? When we did the golf partnership that came with 1,800 touch points. So I think at some stage, the number is sounding more and more larger and may -- so we actually thought, let us not give that kind of nuanced detail because then we'll also need to explain what those numbers really are. So we've just gone with a safe and confident number of 1,500 plus. But for example, just if you think about all the services, if you see all the services that itself will probably be 600 touch points in the last maybe couple of months. So that's the reason we have stopped giving a number because it's -- sometimes people get the impression that there aren't so many lounges and then how come your number of touch points are larger than the total number of lounges. So these kind of anticipatory questions do come and we've faced these questions in the past. So that's the reason we are sticking to a number that we're going to be kind of remaining stable with that number. We're not trying to go and keep updating this number.
And regarding the second question, how much is the businesses that you guys are actually on how much topline --
So the answer to that already was told the other services in the 3 to 5 years would continue and they are growing significantly, but would touch 20% of our overall service portfolio.
So we will take the next question from the line of Jainam Shah from Equirus Securities Private Limited.
My first question is related to the -- our client base given that in RHP, you have been disclosing that how much income has came from the bank? And how much has come from the card issuer, which is the [indiscernible]. So has there been any broader sense how it is moving as of now?
We don't report client-wise, right? I mean that was one of the requirements in RHP wherein the segregation from a network to a BFSI to any other segment was disclosed on a quarter-on-quarter basis on annual basis, we do not disclose client wise? Because internally, the client arrangement also keeps changing, right? I mean within the client, there are different billing entities. So that becomes very complicated for us at this point in time to get into a segment reporting.
And then the other question is more on the business profile. So as you can see that we are already 95% market share in card-based lounges in India. And I believe that majority of the lounges in India is through the card only and majority of this is being borne by bank and this issuer companies, how has been at international or whether walk ins are higher or clients are bonding this cost or some corporates are doing it or any broader sense on the market dynamics on an international level?
So internationally, it's slightly different than the India market because internationally, if you actually look at the rise, there are few reasons that mostly, it is more on the airline loyalty program. So that is one of the major contribution, I would say. Walk ins as such, I would say that is at a lesser or in the same line the way it was in India market because even in India, if you see hardly it is less than 1% contribution from the walk in customers, largely it is through the cardholder. So similarly, I would say that the airline loyalty program holds the major in the other markets outside India. And then there are partly few regions like whether it is Southeast Asia or Middle East countries, where -- and also a few of the European countries where you actually have the card benefits, which are part of the lounges.
So on initial eventually, when we go into these regions, so we need to have contracts with 3 parties. One could be airline, other could be the banks and even like [indiscernible] and then would be lounge operator right? [indiscernible] substantially grow the international levels, we should be having all these 3 contracts in place.
So internationally, if you actually see in terms of the inventory, we already have tie ups with the lounges, right? So that part is already covered, right? Second is in terms of the banks or the network providers, which is in process, and we are working on that. And like in India, we have already tied up with the airlines. Yes, we would be focusing internationally also to work with the international airlines as well.
And just last on this part. So in India, we are having only one plastic card, which can be used for both the purposes, whereas internationally, there have been separate cards. So in India, in the last 5 years, only we have captured the entire market so how we are looking at internationally, given that this kind of concept will also work over there? And if you are having contract with banks or airlines, there could be substantial growth given that penetration of the cards or even lounges is very less in India as compared to the global level.
So actually the models would differ and the models will change because unlike in India, yes, you are right, the number of lounges are limited, right? And the number of programs which are there. So it is easy to train the lounges. However, globally, to talk about different banks or network provider or clients would be a challenge. So the way it works globally is that we are trying to do it as a Dreamfolks program or identify a Dreamfolks customer, like we have already introduced our plastic, which is there through ICICI, which issues the Dreamfolks card. Similarly, we have also done our integration with the bank app, wherein the access to the lounges is identifying the Dreamfolks logo and that's where the entry is. So these are the different ways and even the vouchers, the onetime vouchers, which are also being issued to the customer also has a Dreamfolks service. So that is how the identification is done because if we have to be 100-plus countries where there are multiple lounges, so it becomes easier for the lounge and also easier to the customer to access the lounge.
The next question is from the line of Shreyans Mehta from Equirus.
One, in terms of looking at the way traffic is moving, are we hearing from the existing lounge operators, any specifics in terms of they growing or expanding their lounges?
Yes. I mean, I would say that the expansion of lounges are happening. And the way the traffic is growing, the airport is also in support of giving additional space to increase the lounges. Lounge sizes, I would say. So if you actually look at Delhi, there is in an international side, there is a lounge, which is around 35,000 square feet, which has already opened up. Hyderabad is coming up with a new terminal with a lounge with 20,000 square feet with the additional lounge which is already existing. So I would say that, yes, all the major cities where the volumes are growing, both the lounge operator and the airports are working towards increasing the space.
Anything from Mumbai or Delhi on the domestic front where we could see some expansion?
They are working on it. And both the cities, you will see additional lounges coming up.
So can you, as far as our stadium operations are concerned, can you throw some color on it? Will it be only technology -- because first from what I recollect, probably because looking at some local tabs with the banks. So where are you on that front?
So you're talking about Malaysia?
No, Korea.
I do not know about --
Korea. I mean -- I might be wrong. Yes.
I mean, we never mentioned Korea as such, but then it is definitely part of our larger geography widespread that we have spoken already part of the Southeast Asia. But as of now, we are present in Malaysia and why not tomorrow every single country is a potential geography for us where we want to enter.
So the follow-up is, will it the only technology or probably we also have local tie ups. That's what I want to understand.
No. So it would be a similar model the way we have done in India. But however, it was a different way we have entered them, but we are in the process of tying up with different set of clients and banks in these nations as such.
And lastly, on the new line of service we added during the quarter. So how will the business model work will it be you getting additional discounts or holding that inputs are the bank card? Or will it be similar to what we have as far as the airport lounge is concerned, that is to be [indiscernible].
So there are different models. So there are a model where you would be getting free services like the way the lounges are; right? And there would be a few clients who would also give to their customer a discounted model as well. So both the models are in place.
The next question is from the line of Arka Bhattacharjee.
Yes. Actually, that was the call off actually, I got disconnected. I wanted to understand if I have not said anything [indiscernible]. Regarding the line of businesses that you guys are acquiring from time to time from spa and salon services, golf and everything. I was wanting to know the kind of top line margins that you guys are expecting from these businesses.
So as we mentioned that the services would be of high margins and the margins are at a higher side or in a competitive way compared to the lounges. However, right now it is too early because the size of the business that we are in terms of the lounges compared with regard to the other services, the contribution is very miniscule right now. And I would say that in coming years around 3 to 4 years, we would say that, yes, the margins, what we would be getting from these different services will contribute or will be visible in our overall margins.
One more question. Regarding the number of card holders that you are seeing in the businesses is the way more towards the price than card holders or people are holding more Dreamfolks cards particularly? Or are there any shifts in these cards?
Sorry, I did not understand. Can you please repeat the question?
Yes. What I try to understand is the people who are visiting the lounges are mostly carrying bank cards with them, which is credit or debit cards. Do you see any significant rise in the debit card holder and the Dreamfolks branded cards, which they are carrying like in a household if there are 3 to 5 numbers, they could be having like 2 to 3 credit cards and 2 debit cards. So are they carrying Dreamfolks card specifically as well because in your presentation, you had mentioned that the proprietary application that we are using have both the channels Dreamfolks as well as banks.
Yes. But if you actually also see that we have always been saying that the way we have managing or launched the program in India market is to give the access on the bank issued card, which is the credit or the debit cards. So the emphasize of using the lounges in India market is through these cards. However, globally, I would say that the card or the Dreamfolks card is primarily used as we were also talking about how the access mode is going to be or is outside India, so it's more on the Dreamfolks logo, which would be either through the plastic or through the app. So that's one of the main reasons that why you see that India, it is more of credit and debit card because that is how a differentiator what we have created in the India market.
As there are no further questions, I would now like to hand the conference over to Ms. Liberatha Kallat for closing comments.
Thank you once again for joining us. We hope all your queries have been answered today. If you have any more questions, please do not hesitate to contact us or our Investor Relations team at EY. Have a wonderful day and all the best. Thank you.
Thank you. On behalf of Dreamfolks Services Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.