DreamFolks Services (DFS) shares surged 7.3 percent on February 28 after domestic brokerage firm Motilal Oswal initiated coverage on the airport services aggregator with a "buy" call.
The brokerage has a target price of Rs 650 on the share, an upside of 34 percent from the current market price.
DFS has more than a 75 percent volume market share in domestic airport lounges and is the only player with 100 percent coverage of airport lounges, the report said.
At 12.30 pm, the stock was trading at Rs 507.25 on the National Stock Exchange, up 4.9 percent from the previous session's closing price.
Growing customer base
"DFS is the go-to partner for banks seeking to provide complimentary access to paid airport services lounge and this is a highly profitable and (has) asset light model," noted Motilal Oswal.
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The domestic aviation and airline industry is highly under-penetrated and there is scope for rapid expansion, as air travel increases, rising class of leisure travelers, increasing number of airports, and government push under the UDAAN scheme.
This presents an opportunity as the total number of passengers at Indian airports is expected to surge 9x to reach 1.2 billion by CY40.
India, with its credit card penetration at a mere 3 percent, stands among the lowest rates globally for both developing and developed nations. "We forecast ongoing growth in the cardholder base, thereby expanding DFS’s accessible customer pool," the brokerage added.
Strong growth to drive earnings
DreamFolks Services has an asset-light structure, with minimal incremental capital deployment despite fast-growing revenues. This has resulted in DFS generating high return ratios.
While the company has disrupted the domestic market, it is looking towards other countries to replicate the success. Using its real-time software, in comparison to peers with legacy offerings, it has saved time and streamlined the banking processes.
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