This airport-related stock is down over 40% from all-time high; should you buy at current levels?

Stock market today: DreamFolks Services' initial public offering (IPO) was a hit, as the Rs 562 crore issue was overall subscribed 56.68 times. The airport service aggregator company launched its three-day IPO on August 24, 2022, and the shares were listed on the bourses on September 6, 2022. It was a good debut as the stock was listed at Rs 505, a 55 per cent premium to the issue price of Rs 326 on the BSE.

After the debut, shares continued to rise and hit an all-time high of Rs 846.75 on August 2, 2023; this implied around a 160 per cent rally from the issue price. However, after the record high levels, the stock corrected, and currently, it trades around Rs 495. 

Should you buy the stock?

Motilal Oswal Financial Services (MOFSL) has initiated coverage on the stock with a 'buy' rating. 

The analysts at the brokerage firm expect the company to benefit from the rapid growth in the Indian airline industry, driven by competitive fares, rising leisure travel, new airports, and government push. Further, the increasing adoption of bank cards (with lounge access as a key benefit) is boosting the pay-per-use revenue model of DreamFolks Services.

"This should help it deliver a strong 20 per cent revenue/ 28 per cent PAT CAGR over FY24E26E, despite a high base, near-term setbacks due to revised airport charges, and a shift to the spending-based model," the brokerage notes in its report dated February 28. 

The brokerage added, "We see venturing into international markets as a lucrative long-term opportunity carrying significant potential value. We initiate coverage on the stock with a buy rating at a TP of Rs 650, implying a 34 per cent potential upside," the brokerage added. It must be noted here that the report was released on February 28. Hence, the closing price taken into consideration was Tuesday's. (February 27).

DreamFolks (DFS) is India's leading airport services aggregator and tech platform, connecting lounges and premium airport facilities with users of bank credit/debit cards. DFS holds a 75 per cent plus volume market share in domestic airport lounges, and it is the only player with 100 per cent coverage of airport lounges. DFS is the go-to partner for banks seeking to provide complimentary access to paid airport services lounges, and this is a highly profitable and asset-light model, MOFSL highlights in its research report.

The record jump in air passengers accessing Indian lounges over the last two years (conversion rate doubled to 5.0% in FY23) should lead to near-term growth moderation as banks tweak offers to manage costs. "We expect growth to rebound post-rebasing over the next few quarters, given structural tailwinds," the brokerage notes.

"The company experienced a margin impact in FY23 from an exceptional revision in CAM (common area maintenance) charges, following a pause during the pandemic. We do not anticipate this to recur, but we remain watchful of any future changes," the brokerage added.