Ideal PE for stocks with low SSG gr is around 10 , If parks of WONDERLA are nearing maturity - this will be low risk bet only when prices reaches 10- 12 PE vis a vis current 51 PE …
DIsc . Tracking .Look to invest around 10 - 12 PE
3 Likes
I don’t think that will happen but will be happy to increase my stake if PE comes to even 30 times. 10 times earnings for debt free, good management (IMO), growth prospect (new parks, expansion in older parks, resorts, increased F&B and merchandise sales, etc.), etc. is difficult to find.
Mr. Market may be irrational at times but not that irrational to give 10 times earnings.
3 Likes
Look at PE multiples ( 10 - 15 ) IT companies got when there Gr rate slipped down to < 10% . They too were companies with high cash generating ability ( + longer history ) , zero debt , good corporate governance , more diversified client base ( not just 3 - 5 locations ) .
In 2013 lot of mid caps with good cash generating companies with good corporate governance , zero debt were available @ 3 - 8 PE multiples . Yes will Wonderla have time or price correction I am not sure , but I will wait for my price target
well, the point is , since wonderla has the inhouse manufacturing facility it would be advantageous for them to open up new parks / add new rides to improve the footfall.
If you look closely, except the HYD park in all other parks the footfall is gradually decreasing. Yes you can bumpup the entry fee and raise the food/Bev prices but only to an extent as mostly the visitors are children n family from middle income families and for them value for money / affordability is extremely important…
2 Likes
Can you link the document please.
Also replacement value angle should be considered. They are sitting on large land parcels which are hard to duplicate. This is the reason why it has not crashed. But if cashflow were to deteriorate drastically this bottom may hold.
5 Likes
Land bank rating was at peak in 2007/08 when Real estate companies like Unitec were valued @ fancy valuation . We should be careful about such valuation . These land will never be liquidated and if done may not get best valuation as often that would be sold in distress . Only way Wonderla can increases its attractiveness is either growing earning & revenues @ 30% + rate or have price correction so that PE < 10 …
1 Like
When looking at the operating numbers for wonderla one must factor in the upfront operating costs already incurred for the hyderabad park which was launched in late 2016. Roughly parks breakeven at the PAT level every 4-5 years as the footfalls increase. Generally, after a new park gets launched there is pressure on margins as the fixed costs get spread over time and margins tend to improve as the park picks up traction. The operating margins of wonderla are in the range of 40-45% at peak so there should be a reversion to that and they will be once again under pressure as the Chennai park comes online when it does. I think the mgt has done a wise thing by focusing on cost effeciencies and remaining debt free. The hyderbad park is growing its footfalls and one can expect operating leverage to play out in the next 2 years. Ofc this operating leverage thing cuts both ways so monitoring footfalls is important as any structural reason for not going to amusement parks will cause an irreversible impairement in the value of wonderlas business.
Best
Bheeshma
4 Likes
Few suggestions.
-
If you are looking at PE based on P&L, better to avoid it and look at cash EPS
-
If one does calculations based on pure financial statement without connecting the dots of operating model, there are chances to misinterpret both overvaluation and undervaluation specially when it comes to Interest, taxes, other expenses etc. A pure simple looking at numbers can hide more than what it reveals. Let me admit that I have done this mistake on few counters like Colgate, jubiliant food (not based on price but missed the factoring in of operating leverage/margin/asset turns possibilities and looked at simple current cash profit without understanding what is happening behind the scene and why current numbers are so low and is there a possibility for it go up and under what circumstances and with what probability)
-
As Bhishma said, in this case, you need to either look at EBITDA margin and try to do a valuation based on that factoring in operating model or normalize the cash earnings post operating model understanding (capex+depreciation+interest+other expenses) before concluding the denominator part
This company has been a great learning for me in terms of going wrong on understanding of various risks and associated quantitative value to those risks in arriving at margin of safety. Disclosure: Not invested but in watch list
7 Likes
thats right @typebharat,
In the recent concall , mgt has mentioned that the replacement cost per park is 350 cr. There are other plenty of insights in the concall to further understand the business better.
Some key takeaways
-
Target to increase footfalls by 13% in fy19. Initial trends of Q1fy19 indicate that hyderabad will grow footfalls by 17% and has already beaten estimates. They are targeting a 7.5L footfall for hyderabad in fy19
-
Cochin is also showing good footfall growth. Bangalore will take some time.
-
The breakeven footfall growth is 1300 visitors per day.
-
Replacement cost for each park is in excess of 350 cr. Cochin capex was at 120 cr , Bangalore at 150 cr, hyderabad at 280 cr and finally chennai at 350 cr.
-
Plenty of land available to launch new rides and drive footfalls. Some rides require more space - they recently added a roller coaster in Cochin which requires 2-3 acres of land. Over time parks get bigger in size as more rides are added. Cochin has grown from a 10 acre park to a 30 acre park. More rides more footfalls. Cochin started with 10 - 15 rides - now there are 56 rides. Bangalore started with 45 rides and now has 62. Hyderabad currently is at 44 rides
-
Focus for next 2 years is to increase footfalls and keep pricing stable. They have recently changed their pricing philosophy and have 4 categories - peak season weekday, peak season weekend, offseason weekday and offseason weekend. All have different prices. Footfalls were impacted in the past due to unpredictable changes in the taxation structure but going forward they will keep prices stable. Expect a 7-8% increase in prices over time in line with past history. When they started Cochin park in 2000 , the ticket prices were Rs 200
-
They are developing an RFID system internally at a fraction of the cost of global players like Disney. Customers not being able to carry their wallets during rides or water parks is big issue and once this system is in place it will significantly increase revenues.
-
They currently have enough workforce bandwidth to build two parks.
-
They have reduced costs on many fronts. The power costs have been rationalized by using solar, spares & maintenance costs have been reduced, marketing costs have moved to a more transactional based approach from a brand based approach. People costs have also been normalized following a mgt rejig. Overall there is a sharper focus on costs.
-
Chennai park is currently pending deployment due to a LBT issue. At current LBT levels it is not feasible and hopefully there will be a solution in near future. All groundwork and design of the park is ready.
10 Likes
Wonderla business is not repeatable in the sense that even kids can get bored after visiting 2 3 times. Also most of rides are similar so no much entertainment value for repeat customer. Most of park in outside city area where reaching due to poor traffic conditions is time consuming and costly affairs so actual cost of visiting for a family of 4 may be around RS 10000. Movie theatre like pvr able to attract repeat customers because everytime their content is new. It seem tough for the company to increase footfalls from existing park.
Disc: No investment.
3 Likes
Although children don’t repeat more than twice every year a new brigade joins the schools so a continuity in footfalls.
Overtime foods and beverages will expand to form banquet and party halls shall contribute to profits as cities expand
There shall be hotels constructed on available free land bank
They will have to have more entertainment shows to make it interesting
Idon’t have to depend on available commentary these are strategic Imperatives
Problem. If market looses ground. These steady nonspectacular stocks could be available cheaper
Discl. Invested
5 Likes
YoY drop in footfalls in matured parks is clearly alarming.
Need to closely monitor the trends going forward.
- Bangalore : -7.3%
- Kochi : -11.8%
- Hyderabd : +3.6% ( even on low base)
3 Likes
The footfall drop is dramatic as it comes on Demon base … I think it has to with pricing .
1 Like
It is all relative … You need to see other form of software driven entertainment has become cheaper & better over time - Movies & Music on go , playing Video & online games etc … So Mass junta will always go for these freebies option . Niche audience & some audience for niche occasions will embrace relative expensive entertainment - Multiplex movies (where you cannot forward boring songs or scenes ) , gaming zones & yes rides in theme parks & watching IPL matches . This Niche audience will not mind the price hikes but the point is these audience will small in every city … beyond big metros and they too have multiple options
Dear fellow members,
I have distilled my thoughts on Wonderla Holidays into the following post:
Would be nice to hear your feedback/opinion on it.
Disclosure: Not invested, but tracking closely.
7 Likes
Good write up @harish_balani
There are also some risks to the amusement park business. The main one being that if some untoward incident happens at any of the rides - it could be disastrous for the co. While chances are slim the possibility is real.
Secondly, scaling up rapidly is going to be difficult going forward as land rates rise and ticket prices may not be able to keep up pace in an inflationary real estate environment. Maybe in the next 10 years there is scope for one more park but more than that to my mind is not possible though they have enough land in existing parks to expand rides.
The third one, is that they haven’t cracked pricing yet and going forward they may have to use different pricing models to sustain pricing because smaller parks are able to give similar experience for certain customer groups at lower prices.
The other risk I see, is that people are traveling to foreign locations more frequently now than before and amusement parks are part of their traveling experience while on vacation. So it will be challenge for wonderla to attract the same audience again.
I think wonderla is not currently a business that we can call great. It certainly has a couple of moats that are difficult to replicate but in the end they are selling experiences and experiential businesses have an inherent limitation which is the diminishing marginal utility of experiences is pretty rapid.
Best
Bheeshma
Disc - added to current position.
14 Likes
Thanks @harish_balani and @bheeshma,
Apart from the risks that Bheeshma listed, there are other concerns too:
-
Red Queen effect: Wonderla needs to do maintenance capex to add mew rides to sustain visitors interest and hope to get repeat visitors. As Bheesma says diminishing marginal utility of experiences needs to be addressed. Akin to running (spending) more to be in the same place? But as and when they scale and add new parks, and if footfalls increase in older parks this should not be of an issue.
-
Too many variables that affect footfalls: weather related (early monsoon this time so I think they will gain report lesser footfalls YoY), high taxes (18% GST plus maybe LBT than pre GST times), cauvery agitations, etc. While this may sound short termish, still there would be some reason or the other for lesser footfalls and this need not be management’s fault. Scope for many unforced errors?
I feel Wonderla is a good business. Perhaps not AAA but more AA or A+ category.
Disc: I own Wonderla