Dreamfolks Services Limited (DREAMFOLKS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Dreamfolks Services Limited Q3 FY '24 Earnings 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, Executive Director and Chief Technology Officer; 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.

A very good evening to everyone, and thank you very much for joining us on this earnings conference call for Dreamfolks Services Limited for the third quarter and 9 months of the fiscal year 2024. We announced the financial results earlier today, and I hope you had a chance to go through our financial results, investor presentation and press release that are available on the stock exchanges and our website. Let me now begin by briefly touch upon the industry that we operate in; and how the landscape is expected to evolve over the next few years, augmenting our growth. The Indian travel industry is one of the largest and fastest-growing industry in the country. In the third quarter, the air passenger traffic in India grew by 9% year-on-year to 39 million passengers, as per DGCA data. For 9-month period of the fiscal, the domestic air passenger traffic saw a growth of 16% year-on-year. The government has also intensified its efforts towards infrastructural development, and the key airports across the country are undergoing significant transformation projects to enhance the travel experience of passengers. The lounge industry also stands to benefit significantly from this growth in the travel industry. And we are poised to capitalize on macro-level surge in demand and look to get deeper ingrained with our key clients across the economy. Moving on to the credit card industry. India's credit card penetration is as low as 5.5%. The data show that credit card users in India has grown significantly over the past 2 years from over 7.5 crore credit cards in April 2022 to 8.6 crores in April 2023, recording a 15% growth. This number is poised to hit 10 crores by April 2024. An important factor that will drive India's credit card penetration and usage in the future is a gradual integration of cards with the Paramount Unified Payment interface. UPI's dominance of India's payment landscape is such that its cards gained a strong foothold on it. We are almost guaranteed to penetrate much more deeply into the Indian market. Hence, with the evolving model and changes in the credit card industry, an interesting time line ahead for the industry. Dreamfolks is currently positioned and stands as India's leading aggregator of airport and lifestyle services, pioneering the introduction of airport lounges access in India. We currently hold a market share of around 90% in card-based domestic lounge access and provides complete lounge coverage across all Indian airports. Our proprietary technology platform empower clients to tailor-service offerings for their end customers. With a global presence spanning more than 1,500 touch points across 100-plus countries, we have evolved beyond airport lounge access to offer additional value-added services such as Railway Lounges, Meet & Assist, Golf Games and Lessons, Airport Transfers, Visa services at your doorstep, Spa services, Airport dining, Transit Hotels, Nap room access and eSIM. We also have recently launched beauty and floral gifting services. For the third quarter of the fiscal 2024, I am pleased to announce that we have crossed the INR 300 crores mark in revenues from operations in Q3, recording INR 305 crores, witnessing a growth of 50% on year-on-year basis and 8% on sequential quarter-on-quarter basis. Our gross margins continued to remain at similar levels sequentially at 12.54% in Q3 financial year '24. Last quarter, we addressed ongoing structural changes that are happening in the credit card industry. You would have observed that many banks are in the process of changing the program structure or the benefits on the card programs by moving to a spend-based structure instead of fixed benefits. We are working very closely with the banks for the redesign as well as usage of proprietary tech platform for implementation. Although we have observed initial pressure on volumes resulting from this transformation, we remain optimistic about medium- to long-term sustainability of this spend-based benefits mechanism. We are also focusing on adding more enterprise clients to our client base, which will provide us further growth opportunities. This optimization in benefits for non-premium cards should have short-term impact on these card sales. We believe the self correction of the numbers might take some time to manifest from customer awareness to applying and sanctioning the new cards. As part of our innovative product strategy, during the third quarter, we launched our exclusive membership initiative, the Dreamfolks Club. This offers a range of membership packages where our world-class services are bundled together and aim to provide luxury and comfort for all budget ranges. For someone seeking enhanced comfort and convenience to those earning for a truly luxurious travel experience, Dreamfolks Club ensures inclusivity. Dreamfolks card provides us a value proposition for a corporate client base where we can negotiate with them and sell our services in bulk. The initiative reflects our commitment to our foundational principles and serve as a potent tool for business to elevate relationship with key stakeholders, thereby enhancing retention and loyalty. In our ongoing commitment to enhancing the area of services, we are pleased to announce 2 additions in the quarter. We now offer our customers the convenience of availing health checkups across India, further prioritizing their health and wellbeing. Secondly, we have introduced a new service category of allowing customers to send flowers, cakes, planters and more to their friends and family. All these new services will add up to our non-lounge business and will help us to achieve our target to make a double digits revenue contributor in future. We continue to expand our geographical footprints through our strategic partnerships. These partnerships contribute to enhance our brand awareness across newer countries and continents across the globe. During the third quarter, in terms of global expansion, we continue to spread our wings globally by signing an agreement with Grey Wall, one of the Russia's leading lounge operator. Sandeep will be talking more on this. We also have expanded our presence in railway lounges by partnering with new railway lounges in Chennai and Old Delhi. We continue to maintain 100% coverage in railway lounges access across India as well. As an outcome of all the strategies and efforts, the company and leadership have received several awards during the quarter. Economic Times awarded us the "Best Brands 2023" and "India's impactful CEO 2023" Awards. We were also awarded "World's Best Emerging Brand" and "World's Best Emerging Leader" by WCRC group. In addition to that, we have also received the "Top 20 India Tech Leaders" at the 4th Annual Digital Transformation Summit 2023 and "Entrepreneur of the Year 2023" at the India Achievers' Forum. Our primary objective right now is to diversify our client base and expand our services, service offerings, while maintaining a consistent performance. With an added technology and resilient team, we are well positioned to deliver strong performance in the times ahead. With that, I would invite Sandeep to give an update on the business front.

Thank you, Liberatha. It has been an eventful quarter from the business point of view, beginning with the Dreamfolks Club. It presents a range of 4 card options: Aspire, Premium, Select and Elite. These meticulously crafted packages encompassing travel and lifestyle experiences serve as a seamless means for organizations to drive and engage their employees, customers and channel partners. Consequently, these initiatives would contribute to increased customer retention and loyalty, concurrently enhancing the perceived premium status of your brand and facilitating companies in fostering strong brand preferences. We are excited about enabling businesses to associate their brands with unforgettable travel and lifestyle encounters. In line with our strategic vision of expanding our client base, we are delighted to announce the addition of an e-commerce company to our roster of clients. This collaboration allows our new client to benefit from our diverse range of lounge and non-lounge services. Additionally, we are also proud to welcome new-age fintech company like FI Money into our clientele. We are excited about the synergy these partnerships will bring and anticipate further growth and success in our endeavors. We have established partnership with Grey Wall, a prominent airport and lounge service provider in Russia, as Liberatha mentioned. Leveraging our proprietary technology platform, we will facilitate seamless access to approximately 100 lounges strategically situated in the key airports and, of course, railway stations throughout Russia. These strategic moves not only enhances our global brand recognition but also extends the accessibility of lounge services worldwide for our existing clientele in India as well. These endeavors serve as an evidence of our unwavering commitment to our customer-centric approach across all our initiatives. Our ongoing effort involves the strategic expansion of existing services, coupled with exploration of innovative services to augment our service portfolio. We remain vigilant for all the opportunities to broaden our horizons as exemplified by our strategic collaboration with a prominent organization. Furthermore, our focus includes diversification in the client mix as we actively incorporate enterprise setup into our clientele. The overarching objective is to extend our reach into new sectors, fostering customer engagement and offering loyalty management solution. This strategic approach is designed to mitigate risk and, of course, diminishing dependency on the similar clientele. In conclusion. Our ongoing evolution is geared towards securing our preparedness for the future. We stand committed to providing our clients with virtualized solutions, be it through advisory services; or the development of tailor-made solutions and products offerings which are meticulously aligned with their specific requirements of the client. For an update on the technology front, now I invite Balaji to take it forward.

Thank you, Sandeep. The recent introduction of the Dreamfolks club membership program on our tech platform marked a pivotal moment for us. Leveraging the capabilities of our innovative platform, we have seamlessly integrated new offerings like eSIM, health checkups, floral services and grooming services; enhanced the benefits available to our valued beneficiaries. These initiatives not only signifies a push for innovation but also reflects our ongoing efforts to create a comprehensive value proposition for our clients and consumers. Our proprietary platform has been developed in-house and empowers us with the ability to create bespoke products and solutions for our clients. Aligned with our commitment to maintain an asset-light and lean-org structure, our platform and tech are cloud-based, with the objective of offering our clients and their end customers clear visibility into the benefits and services, facilitating access to these services through various access mechanisms and services. This is achieved through an omnichannel approach enabling access to lounges and other benefits via cards, card issuer apps, the Dreamfolks app, self check-in kiosks or web-based portal, all of this facilitated by our hybrid technology. Utilizing our platform, our clients can effectively monitor and optimize the spends on the product P&L and implement targeted benefits for the profitable customers. As Liberatha mentioned, we are seeking an uptake where our customers have been implementing these solutions. I would like to point out a couple of examples where these solutions are getting implemented. A large bank has implemented this for one of the premium credit card products among others. Using our Tiers technology, they have defined a few tiers of benefits; and each tier has different number of benefits. For example, one tier might have 8 lounges per quarter, while the upper tier might have 12 per quarter. And more interestingly, getting access to more premium services as well in the higher tiers, such as Airport Transfer and Meet & Assist. So depending on annual spend, the additional tier or the next tier would get unlocked, and the associated benefits as well. Another example would be where another large bank has implemented this for their debit card portfolio end users. Here the tier incentives are evaluated every quarter and benefits such as lounges are assigned based on the spend cohorts. Further, I am delighted to share that our platform is now compliant with the payment card industry data security standard, which is PCI DSS version 4, signifying a substantial upgrade from the previous PCI DSS version 3.2, and that's a significant milestone for us. These enhanced standards not only align with the latest industry best practices but also reinforces our dedication towards data security and thus ensuring trust and confidence among the stakeholders. To conclude, our tech stands as one of the most prominent asset, underscoring our perseverance to continuously upgrade the platform. This commitment is rooted in the pursuit of giving appropriate and timely solutions to our clients and continue to disrupt the industry. With that, I hand over the call to Giya to take over and walk us through the financial performance.

Thank you, Balaji. And a very warm welcome to everyone on this call. Before we deep dive into the financial performance of third quarter, I'm glad to highlight that the company has posted another set of growth results in the quarter gone by, summing up a strong performance in the 9 months of fiscal 2024, building on its performance from a record year. The solid foundation laid in terms of the network's cutting-edge and agile technology and deeply entrenched client relationships positions us well to drive sustainable growth, which is in line with the guidance in this ever-evolving industry. For the third quarter of 2024, the company reported a revenue from operations of INR 305 crores with a year-over-year growth of 49.5%. Gross profit grew by 14.7% to INR 38.3 crores in the quarter, as compared to INR 33.4 crores in the corresponding quarter of last fiscal. Gross margin stood at 12.54% for this quarter, a slight uptake from quarter 2 FY '24 levels of [ 12.11% ]. EBITDA margin for the quarter was 9.2%, as against 8.8% in the previous quarter. EBITDA was at INR 28 crores versus INR 24.8 crores in the previous quarter. PAT for the quarter was also at INR 20 crores, as against INR 18 crores in quarter 2 FY '24. EPS for the quarter stood at INR 3.8 per share. Despite recent macro uncertainty, we see growth holding steady in the travel industry. However, given the recent changes in the card industry in terms of optimizing the benefit management offerings by the banks, we maintain a cautiously optimistic approach, keeping an eye on development across the industry. In 9 months FY '24, our revenue exhibited substantial growth surging by 59.5% Y-o-Y from INR 535.5 crore to INR 853.9 crores. Gross profit experienced 19.1% Y-o-Y increase, reaching to INR 101.7 crores in 9 months FY '24 compared to INR 85.4 crores in the correcting period of the previous year. EBITDA for 9 months FY '24 was INR 71.6 crores, marginally up from INR 67.1 crores in 9 months FY '23, primarily due to the compression in the gross margin. PAT for 9 months FY '24 was INR 50.7 crores compared to INR 47.2 crores in the corresponding period of the previous year. EPS for 9 months FY '24 was at INR 9.6 per share compared to 9 months FY '23 at INR 9 per share. As an asset-light company with a streamlined team and structure, we currently do not anticipate significant capital expenditure requirements. We are assured in our ability to fund potential acquisitions and expansions using internal approvals. Our strong profitability and our ability to manage our operations efficiently has enabled us to maintain a strong return ratios, as ROE stood at 23%, and ROCE at 30% on YTD basis. We are pleased with our performance in quarter 3 FY '24, in an evolving business environment. In terms of guidance for the fiscal '24 given the YTD performance, we would like to reiterate the revenue guidance to more than 40% year-on-year growth. Concurrently, given the improved margin performance in the last 2 quarters vis-a-vis quarter 1, we estimate gross margin for the year to be in range of 11.13%. With that, I would like to conclude my update. And we are happy to open the floor for questions.

[Operator Instructions] Sorry. Go ahead.

Just a correction. I think, when I said 11% to 13%, probably I said 11.13%. So the range between 11% to 13% is what I meant.

[Operator Instructions] The first question is from the line of Shreyans Mehta from Equirus.

Yes. Congrats on healthy performance. A couple of questions from my side. Ma'am, first, on the air traffic growth. How do you see it playing out, say, for next year and within next 2 to 3 years given that the air traffic is almost above the pre-COVID levels?

I think Liberatha did mention about it. I think, the air traffic, we are envisaging going to be in the range of 15% to 16% CAGR for the next 4 to 5 years.

Okay. Okay. Sure. Secondly, in terms of gross margin, despite we being on a cautious side and despite the industry going through the turbulent times, the margins seem to be at the higher end of what we have guided for, so fair to assume, the disruption that overall probably will have some lag effect. And probably we could see some disruptions in margins in the next 1 or 2 quarters?

So I would say that this would be -- and as we mentioned even in the last quarter earnings call as well, that yes, I think we would try and maintain our margins at this level only for the next few months, which will be between 11% to 13%.

Got it. So ma'am, I'll put it other way around. So you think that the disruptions are largely over because majority of the banks have already switched to the spend-based. And given that we've been -- the conversions are intact, the margins are intact. So is it that -- fair to assume that there's no lag effect or probably we might see some lag effect coming in?

I think it is still the early days. So the program has gone live, and at this stage, I don't know if there is enough data for us to extrapolate for a longer period. So I think it's still early days for us to comment on this.

Got it. Got it. Last question from my side, on the membership program which you've introduced. Just wanted to understand the growth prospects of the scalability and what's your strategy out there?

Okay. So fundamentally the idea for launching this membership programs are manyfold. One is fundamentally to increase the discoverability of the services. We mentioned in the call also that there are quite a lot of services that we are adding. And not every client is ready at this moment to really absorb that, so it is very important for us to ensure that the consumer know that what are the kind of services that we are adding, point number one. Point number two, I think the membership offers a contemporary services as a package to the consumer. All these services may not be offered in totality by any of the clients, so this allows us an opportunity to actually bundle it and offer it as a membership for the consumer. Third one would be to, of course, tap all those consumer cohorts which currently do not use any card. I mean whether it is debit card or credit card. So the fundamental idea was to actually achieve all these 3 objectives. And honestly speaking, I -- we do not have any number in our mind as to, this is the kind of sale that we are expecting out of this membership. The whole idea is to drive these 3 points, as opposed to really making the consumer buy these kind of membership plans.

Got it. So just to put it other way around. So I mean, in terms of scalability, probably this would be more of a value-added service or for those people who don't have cards, primarily for them. Is that the right way to look at it?

One of the -- I think I gave you 3 reasons. One of the reason is, yes. You're right. Quite a lot of consumers are there who do not carry or not comfortable with carrying a credit card or debit card, especially senior citizens, I think, yes. I think -- and a few people as well.

Got it. Got it. I have a couple of more questions. I will jump back in the queue.

The next question is from the line of Mukul Garg from Motilal Oswal Financial Services.

Good quarter on the top line side. I just had one question from my end. You mentioned about the potential impact on volumes in the near term. Any sense you can share with us qualitatively on how and when this will play out? Have you already seen a portion of your credit card base migrate to the newer way of kind of looking at the business? And is that something which should kind of start becoming visible in this quarter, or is that something with -- which you anticipate could play out over next few quarters? And I know it's difficult to quantify, but any sense you can give on the potential reset?

So Mukul, I would say that we have already started seeing that change, okay? And if I will say that it's not that across all the clients or all the issuers have started implementing, but the top one have already implemented this. And there is an impact which has been seen in Q3 as well. And as and when the other issuers would start implementing the spend-based model, this will further start adding to it, but I will say that it is not going to be across all the cards or like going to be across all the banks who will be taking this decision. So what we have seen is that, yes, there is an impact, but however, we have also seen that there are -- there is an increase or incremental in other small issuers as well. Because that's what the trend is going on, right? So if there is a downfall in one of the card base, there is an increase in the other segments. So that is already being seen in past -- in the last quarter, and I will say that this will happen in next few months as well. However, in terms of the growth, I will say that it's not that the growth will be completely impacted because, if you actually see that we have grown by 50% in Q3, okay? Maybe the impact was, I would say, a few points for us. However, in -- overall thing, I will say that it would not be that huge impact because, as I told, that if there is a downfall in one of the segments, there are segments which are picking up. And that is the trend which will be going on in next couple of months as well.

Perfect. I think that's super helpful. I'll get back into the queue.

We have the next question from the line of Imran from Longbow India Capital.

Just a very simple question. I don't know whether you guys track it or not. I wanted to understand, if you have tracked this number, right, unique lounge basically visitors per quarter or per year, if you have that.

Unique number?

Yes. Unique users are there. Typically, it would be in the range of about 4% to 5%.

4% to 5%, right. And since only 4% to 5% of the people are using this benefit, I am sure there are a lot of people having cards who are not coming to lounges, but despite that, I have -- at least in my experience, not seen any advertisement or whatsoever either in airport or somewhere else that you tell -- you guys tell people, "Hey. Look. Your debit card or credit card comes with this facility. Have you tried it?" a basic simple ad. I have at least not seen it. Can you throw some light on it, why it has not been done; whether you guys can do it? Or maybe you can ask lounge -- basically lounge guys to do it from their P&L or maybe a 50-50 ratio you and they do combined. Can you throw your thoughts on it?

So if you actually see these benefits have been initially given by the banks or by the network provider, which is Master, Visa or Amex or RuPay, right? So the thing is that it is their product. It is their benefit, and we are not authorized to do any such advertisements on their behalf because it's their product, so -- or whether it's just not Dreamfolks but even at the lounge end. The only thing what we have tried doing is like having a signage at the lounge entrance. And now, as you have actually seen, that we have also installed a self check-in kiosks which are a little away from the lounges as well, which also helps to talk about that, which are the cards which can have the benefits. So the consumer or the end user can actually directly go and check on their card details. But as such, we cannot do any such marketing from our side because it is completely restricted. And I think it is also a compliance thing because it is a benefit which is there on a credit or a debit card which needs to be provided by the bank. And I think the banks are doing this at the time of issuance of the card. So this is one of the reasons that why you don't see any such communication at the airport or anywhere else.

So help me understand why this number of 3%, 4% only using the facility would increase if basically it is not communicated in a proper way. See banks would -- definitely would not want people to take this because it is a loss for them, right? If they even put a simple banner on an ATM, let's say, or on their website. So how would this increase, only through word of mouth? Or what do you think would be the reasons this percentage will go up?

So I will say that the percentage is growing because, from the time when we have started this business and now, if I have to say, that -- the percentage has grown. The awareness is growing. I mean, when we started, I will say that the conversion rate was less than 1%. Today, if you actually look at it, the conversion is around 5%. So I would say that, yes, the awareness about the lounge, the awareness of the lounge benefit is growing. And not only that, there are customers who are actually going for a credit card, looking at if there is a lounge benefit provided on that particular card. So I will say that, that is growing. And that's a trend what we have seen in past 10 to 11 years. So I will say that -- it is more word of mouth, but I would also say that I'm sure, if you have seen at the airport as well where you have this credit card kiosk which keeps selling the credit card, the first thing they also announce is that you get a lounge benefit complementary on this particular card. So I think the advertisement is also going on well about the card benefit. So I will say that there's nothing much more or anything what Dreamfolks could do about it. But yes, I will say that there are things like self check-in kiosks or the web access model which we have actually implemented, these are something which will actually create more and more awareness in the market.

Right. And operator, shall ask one more question? Or you think there are a lot of people. I can move in the line.

You can ask one more question.

Okay. I think I have been listening to the con calls from the last 6, 8 quarters. And you have constantly spending, I think, more than 50% of your time explaining the new things that you are doing, whether it is technology related or some other partnerships or something like that, right? Just to understand it better: what percentage of your revenues as of now come from the nonbank cards and through some other means?

So largely, you can see our business is from the lounges and from the bank cards right now. So the thing is that the reason why we are trying and adding more and more services is because we also see the high demands coming up from the client side as well as the consumers. And that is one of the reasons that's why we have added different services. At present, if you ask me, I would say the majority is from here, but over the period that is, I would say, next 4 to 5 years, I will say that these services would contribute around 20% to our top line.

And this will be negligible, right, 1% or 2%, maybe 3%, right now?

Yes, it's negligible right now.

[Operator Instructions] We have the next question from the line of Keshav Bagri from VT Capital.

Am I audible?

Yes.

Ma'am, my question is related to the long-term revenue growth which you are seeing [indiscernible] And I think [indiscernible] FY '24 INR 1,100 crores of revenue. [indiscernible] for FY '25...

Sorry to interrupt, but your voice is not clear.

Not clear.

We're not able to understand, it's echoing.

Ma'am, is it clear now?

Keshav, the line is not very audible for you. We request you to please use the handset while you're speaking.

I think it's perfect now.

This is better.

Ma'am, my question is related to the long revenue growth which you are seeing in the business. Because if we've seen FY '23, we have seen FY '24. So these 2 years have been a period of very high growth for the company. For FY '24, we'll be closing at around INR 1,100 crores of top line. And recently, you have also said that banks have shifted their model to spend-based thing now, so what is the kind of the moderation? Or what is the kind of the constant revenue growth that you're seeing in the business for FY '25 and FY '26 to come?

See the driving factors for us, I mean for the business, is airport traffic and the credit card penetration, right? And we have always mentioned that, the way the market is growing, we will be growing in line with the market. So I would say that the way these 2 drivers are growing, we will be aligned with the same.

Ma'am, any quantitative number would have really helped us. Like I know, from qualitative point of view, that's a very nice answer, ma'am. But anything on the quantitative side would have really helped us.

I would really like to give that, but we have certain restrictions. I will not be able to quantify that.

Sure, ma'am. And ma'am, my second question would be on the margins. Like we -- as a business model, we have seen like operating leverage plays a very minimal role in our portion -- in our business specifically, so what will be the top line growth for the company is something which will follow up in the bottom line as well. So the reason for my question was, ma'am, do you see more moderation in margins? Or you -- do you expect margins to improve from the rock-bottom levels which you have hit now, like, for FY '25 and FY '26?

So as we mentioned, that going forward, we will try and maintain the existing margins what are going on, but yes, the other services, which we are adding on, which will have a better margin. So that will actually improve our margins as well.

The next question is from the line of Divya Sethi from Electrum PMS.

So I just wanted to understand. In the last quarter, you mentioned that you've started -- partnered with Visa service provider and also started Golf Club Services. So how is that fairing for Dreamfolks so far.

So Golf, yes we have already initiated and there are clients which we have onboarded and there are few in pipeline and hopefully this quarter we will also be onboarding for the golf program as well. Coming to the Visa at doorstep is also in process. And very soon, we will also start the program for Visa at doorstep for a few of the banks.

So ma'am, like, both these services are the high-margin services or like how -- what is the arrangement basically?

Sorry, I couldn't hear you.

I just wanted to understand from the margin perspective. So are these high-margins contributing verticals?

Yes. I mean, as I mentioned, that all these other services, the margins are relatively better compared to the lounges, yes.

Understood. Also just another question. I recently...

Sorry to interrupt, ma'am, we request you to please use the handset mode while you're speaking. It will be a little clearer.

Just as a second, yes. Is it better now?

Yes.

Yes. So I just wanted to understand, I mean, if you could throw some light on the arrangement for partnership that has happened with Healthians and My Flower Tree for lab test and plants and flowers delivery. So is Dreamfolks going to act as an aggregator? Or what is the arrangement, if you could please throw some light on that?

Yes. So it is very similar to the arrangement we have for, let's say, a lounge or a golf. So these are services that will be offered to consumers of our clients, who will be the end users. It could be a bank customer or it could be an enterprise as Sandeep was mentioning. And with the same Dreamfolks channel and the technology and the services and the membership, the consumers will be able to access. So very similar to way that today, let's say, one of our clients could be offering 2 lounges per quarter, as an example. Similarly, it could be 2 pet care services or 2 -- 1 health checkup per year or something. All these could be considered, and that's the potential which we are enabling for our customers.

Understood. So majorly will be acting like an aggregator for them, for Healthians and MyFlowerTree?

Yes.

The next question is from the line of [ Angad Katari ] from Sameeksha Capital.

Congratulations on the good set of numbers. Most of my questions have been answered actually. One small bookkeeping question. Can you comment on the receivables and payable days for the Q3? That would helpful.

Sure, [ Angad ]. It's in the same line of September which we reported, in the range of 100. And it has been consistently in the same normal scenario of 100 days.

Okay. And one small observation. If I look at the conversion rate, it has more or less stabilized in the past 2 quarters. So going forward, how do you see this trend? Will this trend towards spend-based model -- see this trend reversing? Or if you will just throw some light on it, that will be helpful.

See, like we mentioned, it is still early days, so we are also observing. We have seen a couple of interesting patterns where we are seeing consumers either migrating to a different product within the same portfolio within the same issuer. And then we're also seeing that in some cases the traffic is moving from one issuer to a different issuer. So these are some early trends and patterns that we are observing which we are doing it very closely, but as of now, I don't know if we can come up with a hypothesis as to how it would be in a couple of quarters. So maybe we will observe it for a few months, and then we'll be able to share something with you.

Sure. And one last question, on the employee expense. The employee expense Y-o-Y has increased substantially. Will you see a similar trend going forward? Or what could be a reason?

Yes. So there has been a growth Y-o-Y in that. One major factor which is driving the growth is definitely the ESOP expenses, which is 20% of the total employee expenses, which was not there earlier. And second, as we are growing up and expanding in terms of our service lines, in terms of our diversification with respect to clients, we're also spending on building up the team, which is in future going to contribute to the top line.

The next question is from the line of Depesh Kashyap from Invesco Mutual Fund.

I have just one. If you can just give me the cash on the balance sheet at the end of December. And how do you plan to spend it going forward?

Okay. So this is the cash in the balance sheet in the month of December, as on 31st December, was actually INR 49 crores. And as we have always reiterated, that we do have a capital allocation policy well approved by the Board which actually devices a mechanism of allocating it for the future investments, for any opportunities in terms of any takeovers or acquisitions and also as far as our business expansion is concerned outside India as well. And definitely, larger focus also goes in the form of return back in the form of dividends. So as we end the year, this discussion would be taken care by the Board, and we will announce accordingly how are we going to spend in the future years.

Got it. Just so -- clarify. So your international expansion is largely led by the OpEx cost, right, the marketing and the employee cost. It's not only CapEx-related segment.

It would have a mix of OpEx as well as CapEx. When we go out aggressive in those regions as well, there would be a certain amount of CapEx also involved in that.

The next question is from the line of Darshil Jhaveri from Crown Capital.

A lot of my questions have been answered, so I just wanted to ask like in terms of our guidance that we are saying we'll grow as per air traffic and credit card penetration. So I would just like to ask. Like how would we be able to analyze how does the credit card penetration maybe help us? Like as you were saying, the conversion was 1% and now 5% of credit. So the kicker of an additional percentage of credit card would maybe contribute how much to our revenue, could we get some flavor on that?

Yes, Darshil. So it's actually the way we see the drivers is a mix of both, as Liberatha was also explaining. It's a mix of both credit card industry growth as well as the travel industry growth, right? Now definitely, quantifying it and dividing the percentage of growth driven by the credit card industry vis-a-vis driven by the travel industry is mathematically also becomes difficult because somewhere some plays a larger role. And in some periods, the other plays a larger role, right? But mix of these 2 factors driving our growth as well, combined with the awareness which has increased over a period of time with respect to availing these services.

Okay. Okay. And like you're saying, that our client base, you need to analyze for a few months. So just like what kind of environment do you see for FY '25? Like maybe is this the right way to look at it, that H1, we will see how the spend-based model is going? But as what retail observe is, maybe that air travel and the credit card awareness will only increasing, so maybe H2 would be bang on what we are tracked. Or you're seeing business or something like how would you -- maybe not exactly quantify it, but qualify how you see the year progressing?

Yes. I think, long term, we believe it will stabilize because today our hypothesis is that multiple users have -- users who got multiple cards. And they are sometimes doing spends on one card while the benefit might be availed on a different card. And at some stage here, I think, when this kind of all settles down, the expected pattern of behavior is that the users are using predominantly 1 or 2 cards, in which they're using the -- on which accumulated spends are happening. And that is the card that is used on which the benefits are also there. So we are right at the beginning of this process where users will migrate, will choose, will select and will be smart about which card they use for which transactions. And therefore, they can avail the benefits of that spend-based. So realistically, a user who's used to, let's say, availing a lounge service will not go without using a lounge service because the air traffic and the air travel will still continue to happen. So our hypothesis is that, in the very short term or near mid-term, all this would actually stabilize to what it was at, very similar to what it used to do before, that's all.

Okay. And that would be -- that would take a year or 2, maybe right? Like that what is -- do you think? And just wanted to ask just a small clarification, but margin wise you were saying was gross margin, right, 11% to 13%?

Yes, it is gross margins.

We have Shreyans Mehta from Equirus with the next question.

My follow-up question is for Balaji. So Balaji, I just wanted to understand what proportion of the large market share credit card players will be on this platform of spend-based either with us or probably on their own platform.

I don't know, immediately a number comes to mind, but a lot of the large players have already moved to this model.

Okay. Okay, sure. And this for Giya, ma'am, one clarification. You indicated 40% growth. So that's for FY '24?

Yes, that's for the entire year.

And because if I just do a "back of the envelope" calculation. So are we expecting fourth quarter degrowth year-over-year as well as quarter-on-quarter?

So quarter-on-quarter is actually always not consistently growing, right, because the seasonality factors also play an important role. If you see, Q3 is always higher for us.

Correct, Correct. Ma'am...

Just to add on. We spoke about the spend-base and the impact which is there. And as mentioned, that the impact has already been seen in Q3. So we will also see a further impact coming in Q4 because not all the issuers had actually migrated to this model, but there is a migration which is happening in this quarter. So that would be one of the reasons that's why we would see -- I would not say a degrowth, but I would say less, I would point, compared to the previous quarter.

Got it. So should I put it this way, it's on a very conservative side that we are guiding for this?

Yes.

Definitely, yes. Yes.

The next question is from the line of Siddhant Punjabi from Way2Wealth.

Am I audible?

Yes, you're audible...

Not clear.

Okay, is this audible now?

Siddhant, you have background noise coming from your line.

Is this better?

Better.

Okay. So ma'am, just a quick clarification. You guided for a gross margin of 11% to 13%, but if I look at FY '23, throughout the quarters, you were doing about -- close to about 16% to 17% gross margin. Then of course, the issue about the CAM came in, which is why we had to take a hit. But now that the banks are also shifting to spend-based lounge access and benefits. So going ahead, why -- what is really stopping us from going back to the 16% to 17% gross margin or even 14% to 15% maybe in the coming years? I understand that, Q4, you said that it's still in transition phase, but in FY '25 or maybe even the latter half of FY '25, what's really stopping us from going back to those numbers?

So if you actually see that -- the way we are -- actually forecasted; and what we were talking about, adding different services as well as different clientele where we know that the margins will improve, right? So it was -- I mean the thing is historically, yes, we have always maintained around 14% to 15% of margin. However, it is a few points down now, but in a couple of months, I will say, or a few quarters later, we would actually get back to an -- I was saying, a stabilized range as and when the other services and the client base would increase. So I would not rightly comment about which year or from when it would start doing it, but the focus is completely on adding or building of other services and adding a different client base which is enterprises. And we are also working closely with the airlines and the OTAs. So I will say that, as and when the business would pick up for these segments, of course, the margins will get better.

Right. But ma'am, we had these segments earlier as well. And like If I'm not mistaken, in the previous questions, you also said that 80% of our card-based lounge access will continue to remain, while 20% will come from the other services that you're planning to improve on. And so I believe that even that 80% -- and that is also you said after 4 to 5 years. And currently we are still looking at about 98% or 97% of our revenue coming from card-based lounge access, so even if I take these new services in hand, considering the growth base and the pace that you're seeing, it -- I don't really understand why we can't really take things ahead. Because clearly we do have the infrastructure. We do have the technology and everything in place, so what's really stopping us from going there?

So I would say that there's nothing which is stopping us. I was just trying to mention that the focus is not just improving on the margins, but the focus is also on adding different services and working on a different client base, right? And yes, as you are rightly mentioning, I would say, as a management, we are reworking on our price structure. I think -- Giya, do you want to add something?

Sure, yes. So in terms of -- like when we scale up as well, we'll also have to see that -- how in terms of new additions which we can bring into our clientele which help them get much more involved and much more deeper integrated, as far as these services are concerned. So as we scale up, definitely there will be some amount of services which would provide us higher margins. However, there would be some wherein we would want to get market share. There would be existing competitors also staying over there. So a lot of such factors play a role in making us decide about the gross margins. However, as we have always said, that -- the newer services, we would see in next 3 to 5 years, contributing a significant part to our total businesses, so that would definitely have a positive impact.

Okay. And ma'am, so just...

I'm sorry to interrupt. We request you to please rejoin the question queue for follow-up questions. The next question is from the line of Dipesh Sancheti from [ Manya Finance ].

Am I audible?

Yes, sir, you're audible.

Okay. I just wanted to know. What is the price point of the cards which you are offering?

So there are 4 variants and it ranges from INR 6,999 to INR 1 lakh, so INR 99,999. And so there is a very good spread of benefits between the 4 variants, and the idea really is to have a template or a starting point. As Sandeep mentioned, so while these are the 4 variants that we have launched. And somebody could just go or you could go and purchase these today on our website. These -- this is also to kind of bring awareness of the services. So when you go to an enterprise or any other large client of ours, they can use this as a starting point. And we are quite happy to customize it for them. That's really the thought process of launching these cards.

So how are you going to market it? Are we going to go B2B for the larger enterprises? Or are we going to go for any of the customers who want to just buy the card from the website and use the services?

So yes, both. So we are definitely targeting consumers. As I told you, one of the cohorts, important cohort is that a lot of people do not want to really have a credit card, debit card. For those, why not access all these facilities when they are not [ given ] the credit card or debit card. So that is one, for sure. Yes, but the large picture definitely is actually go to B2B. So these all services, we want to make them discoverable so that they also -- and I'm sure the banks will also start seeing the usability of the services, while currently they may be a little slower in terms of adopting this. But as consumers -- more and more consumers use them, obviously it will put a little pressure also on them in terms of being in line with all these contemporary services so that they become the part of the CVP of the client itself, yes. So the large picture definitely is to drive B2B. So the idea of going to B2B2C is to drive B2B business largely.

Okay. And how is it going to be say -- I just wanted to know, what is the revenue model in this? Because right now banks are paying for all the services which you are offering, right, to their own customers. Now we are trying to acquire customers and selling them the same services. Wouldn't that affect our margins in the short term? I mean, of course, it's going to be a great data bank which we have, but how are you seeing the margins with the acquisition of new customers?

See, in fact, on the contrary, it will have a positive impact on margins. I'll tell you the way currently the lounges are sponsored by clients called banks, we are expecting these all services which are contemporary services to be sponsored by enterprises. So for example, if you are a large, say, tech company where there is a large -- sorry, a huge employee base, what if I were to give my consumers, in the form of reward and recognition, all these services? This could be just one of the reason. I mean, what if I onboard the employees and give them Dreamfolks card and we ensure that all these services are actually consumed or used by the newly joined employees. So this could be one. And there will be other, channel partner incentives. Or for that matter, there could be a consumer value proposition for some other enterprise. So these are all targeted towards this. And we are expecting that these enterprise in order to drive loyalty for the brand, drive preference for the brand, drive loyalty among all their stakeholders would use or rather sponsor these services in order to achieve what they want to achieve.

So is that the vision of the management to get into also this pathology and gifting services to expand the service bouquet so that these cards will have larger service offerings? And in future, what is the revenue model which you are looking from airports and from these additional services which you are offering?

So yes. These -- I mean health services is just one part of it. Gifting solution is other part of it. Because as we go and increase or accrue a lot of clients, other clients, other than the bank, a lot of other clients would probably want very contemporary services which currently banks may not be adopting. So we want to be in that race and we want to be well ahead in the race. And that is why we are going and keeping ourselves abreast of what is happening. So we are acquiring and aggregating all the services which the consumers of tomorrow are going to like. Or for that matter, some of the enterprises currently are going to like these services. To answer your second question. Liberatha has already guided. All these services will contribute close to 20% of our revenue in the next 4 to 5 years, so we definitely expect both. It could be mix of which are existing clients, which are banks; as well as enterprises. Both put together would probably consume 20% of these services -- additional, I mean the newly launched services. That's the expectation.

Okay. So just understanding your B2B concept -- just for -- this is a follow-up of the same thing, if you can allow me. So just to understand the B2B concept of offering your cards. So let's say if we are giving this to a Cognizant. They will have this card available for its employees, depending on the grade, of course. And they will be able to -- so it will be similar to -- we'll be tapping a completely different -- a new segment for all these things. Is that what the company is planning?

Yes. And you know what, I think we already did that. I mean there is nothing that we have actually started new. It is just that we are accelerating this. I mean we were always there. We always had a client impacting our presentation. If you were to go, even for that matter, last year presentation, there were always enterprises as a part of our client base. It is just that we are accelerating, seeing the kind of the potential that these enterprises tomorrow will have. We now feel that, yes, there is -- we need to really push the button and push it a little harder. We are just -- we are not changing anything. We are just pushing it and pushing it harder.

The next question is from the line of Nitin Gandhi from Quest Financial.

Can you share some thoughts on risks which you perceive with the cannibalization due to your launch B2C product of credit cards which will be pursued by your existing B2B clients?

In fact, it is the other way around.

So just to clarify. We are not really going for a direct B2C, right? Because, if you notice, we are not doing any spends. We are not tracking typical metrics like customer acquisition, what is the lifetime value. These are -- we are not going in that direction at all. All we've done is that we've launched 4 price points at which a bundle of services is available. This is used more of a marketing tool or a starting point for conversations with our enterprise customers. So this is really the thought process of launching it. So Sandeep already kind of mentioned it, but the idea is that we are not really going after the B2C market. This is purely additional tool by which it will help us bundle and sell services. So today, we sell services in an unbundled form and now we are bundling it. And that is the option that we are showing to our clients. So that is all we are doing.

No. I get that point, but will you not be going for website login [indiscernible] portal-based selling to direct whoever logs in and...

Yes, yes, yes. If somebody wants to come in...

Of course, you can do that, but that is not really our focus. Today, you can go and buy this. You can try it on our website.

Yes. So that sort of thing. It's partly B2C is digital sell, but if it picks up, then will not be the perfect enterprise, will be pursuing because...

Because what?

Well, it could be -- you're approaching the same database which you -- own your cards and other things, right? You are not going to...

So actually, if you look at the packages, the way we have built them, okay, it is not just travel related, but it is travel and lifestyle. And most of the benefits which are also not part of the card benefits which is the credit card benefits. The reason of doing and the way Sandeep and Bala were trying to explain is that we are not trying to get into that segment. The reason of getting this membership is primarily to enter into the enterprise segment because we see and we understood that, yes, there is a demand where the enterprises would want to give it as a loyalty to their consumers or to their employees. And it is not focusing on just the airport lounges. The focus is more on the lifestyle services as well, so this is where it is. Secondly, if -- the way we are also talking about the way the banks have started restructuring on the benefit, which is now instead of giving a [ blanket ] offer, now they've started doing spend-based. So it is but very obvious that not everyone were to get a lounge benefit today the way it has been there, but however, if someone is used to it and would want -- still want to have the right package can also go for it. As a company, the model we would want to keep it the same, we would be a B2B company only because we do not want to enter the segment of B2C where we will have to spend on the marketing or the customer acquisition. We would not want to actually get into that model. The model is very clear, that we would still stick to a B2B. However, if any customer would want to still take a membership directly through Dreamfolks, they can go on our website and get it done. Secondly, in terms of the pricing, we have very clearly structured our pricing that we would want to maintain. And we would ensure or see that our pricing would never be competitive with our banking clients or any other clients in that way.

Thank you. Ladies and gentlemen, we will take that as the last question. I would now like to hand the conference over to Ms. Liberatha Kallat for closing comments. Over to you, ma'am.

Thank you for joining us today. 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 relationship team at EY. Have a wonderful day, and see you all again in the next quarter. Thank you.

Thank you. On behalf of Dreamfolks Services Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.