# Wonderla Holidays

(Kiran K) #44

Could you please give some details on this ?

(ashit) #45

http://www.gurufocus.com/news/137623/understanding-free-cash-flow-series-growth-vs-maintenance-capex

I think good article on FCF and depreciation and maintenance capex

Trying to learn from forum

Thanks

(c.t.sreenath) #46

Depreciation is a accounting number. Its accuracy depends on the managements ability to sufficiently gauge the useful life of an asset.

Example 1: Management has decided to write off an machinery within a period of 3 years. But it turns out that machineries useful life is 7 years. In that case depreciation number will be overstated. The maintenance capex may be far lesser than the accounted depreciation. The FCF would be actually higher than our calculations.

Example 2: Management gauges the useful life of an machinery as 10 years . The depreciation number too is calculated accordingly. But if unexpectedly the machinery breaks down at year 3 and the management has to spend a lot to get it running again, it will result in elevated capital expenditures. If we have calculated the understated depreciation as maintenance capex, our calculation in FCF would be wrong. FCF would be lesser.

The other method by Bruce greenwald is explained here : http://www.oldschoolvalue.com/blog/valuation-methods/calculating-maintenance-capital-expenditure/

As dhwanil said, We have to take a call depending on the business. As we come to know more about a business , it will help us choose the right method. IMHO for wonderlas old parks, the reported depreciation amount ( pre hyderabad numbers )can be taken as maintenance capex. Wonderla spends on regular maintenance expenditures to keep its parks fresh at all times, a key differentiator compared to similar water parks.

(c.t.sreenath) #47

For post Hyderabad numbers, we have to use bruce greenwalds method to calculate the growth capex and subtract it to get maintenance capex. The depreciation amount will be elevated for the new park, it cannot be used as maintenance capex.

(Kanwal Sudan) #48

Con-call transcript for Q2 FY17 - http://www.bseindia.com/xml-data/corpfiling/AttachLive/BCE54A79_6A0B_4874_A165_F501A1627802_105542.pdf

(Sunnytv) #49

I canât imagine anyone going to amusement parks over the last weekend or coming weekends; most will be in queues of ATMs

From a poor quarter, the next one will likely be worse or equally bad. May have a better entry point later this year or early next hear after quarterly results- likely to be knee jerk correction. With the kind of results they have had difficult to justify paying so much premium price.

#50

From what I see, Wonderla will affected for a couple of quarters. And then it might be business as usual (unless there are no unseasonal rains, change in school/college schedule, disputes, accidents, etc.).

1. Minimal Impact - Pharma, IT,
2. Temporary blip and positive in long run - Banks, Insurance, NBFC
3. Negative in short term and business as usual in long term with negative bias - Wonderla, Mahindra Holidays, PVR/Inox, luxury items
4. Negative in short term and business as usual in long term - FMCG, Auto
5. Negative in short term and uncertainty (?) in long run - Reality, Metal/Mining

Iâm surprised how Wonderla has not âcrackedâ inspite of bad results last quarter and probably bad couple of quarters to come by.

(Growth_without Debt) #51

I think pharma at bottom currently, expecting uptrend going forward due to trump policy (lower drug price by inviting more generic and ban on china) and stronger dollar

(Sunnytv) #52

Listened to the conference call
Interesting dynamics between the CEO and CFO- almost sounds like the CEO tries to tell the real story and the CFO interjects in between and puts a spiel. Multiple times - especially questions regarding Chennai acquisition, Blre numbers:

1. Dreamworld in Australia had an accident recently as mentioned above killing four people- the share price of the company is in free fall; police enquiries, allegations of poor maintenance, cost cutting etc and terrible crisis management by the company . It is real threat to these kind of companies - not a theoritical risk- winder how you incorporate this risk into your long term risk assessment for the company: itâs like the nestle fiasco, everything is going well and then you will have a30-50 % correction when an accident occurs.

2. Cauvery issue crops up every couple if years- itâs been going on for ages and will continue to occur very couple of years. Is this going to affect the company very time Cauvery riots occur- the park is situated in sensitive area in Mysore road: how do you incorporate this into the company assessment ?

(csteja) #53

Why negative bias for wonderla in long term ?

(Sunnytv) #54

I donât have a negative bias. I like the story and the people running it; great to pick holes in your favorites, like the Devils advocate or pre mortem as to what all can go wrong.
I donât have the knowledge or experience to assess risks of future accidents, how to incorporate local issues like Cauvery issues into the company. If its truly a long term investment, these do matter; for a short term trade it may not matter much.

I am just surprised that in countries like Australia and US where the occupational and safety assessment are very stringent accidents happen while none have been reported in all these years by WonderLa. If true, its great and really inspiring that they can pull it off. Recently a senators son was killed in a US theme park. There was some rumour in Kochi Park about some one becoming paraplegic but it was contested by the comp,any (Veegaland- same as wonderla) that he was drunk and jumped rather than anything of their fault; the person says otherwise. a google search will give you the details. Its very difficult to know whose version is true

Just a healthy dose of scepticism; Will wait for the right price

#55

Negative bias because I feel that way. I may be terribly wrong.

When you are facing cash crunch, leisure activities can wait. There are bank related work to take care of. In the long run, people might spend lesser due to less cash (black or otherwise). Not drastically but very gradual over time. Footfall might grow 2% instead of 3/4% and families might spend Rs 4500 instead of Rs 5000.

Curb on black money affects real estate, luxury car purchase,etc and I feel even leisure activities might be affected but to a lower extent.

This is a long term story which should do well but not so good near term prospects. Chennai land is not yet finalised, CFO leaving, Demonetisation, and in addition inherent risks in these type of businesses (rains, change in school/college schedule, Cauvery dispute, floods, accidents, fresh rides not added) are key risks.

Disc: Invested.

(Kumar Saurabh) #56

If i remember , total 9 accidents ve been reported. Will try to find where i read. Regarding another park in pune, they did try to supress the news but historically, i ve not heard such companires suffering in long run due to these one off events

(Kumar Saurabh) #57

I also feel chennai high court order was a bad news but now after chances of real estate prices falling down, i am wondering if it could turn out boon in disguise as transaction was not completed

(ritilodha) #58

i think they have realised that chennai is a bad option plus the mou expiring in a months time. moreover in con call they dint disagree for expansion in north which they have been doing in past!!

#59

I live in Chennai and it is a great place for Amusement/Theme Parks. I feel entertainment options are limited (very subjective) and Wonderla should do well if set up.

The issue could be: 1. unavailability to large parcels of land at good location, 2. High cost land, 3. legal/environmental issues (like now)

(Kumar Saurabh) #60

I would disagree, one major reason being if you are looking to set up a theme park (including water rides), 3 months of winter in north usually is not suitable for water rides (too cold) which may lead to low footfalls. So, i believe a south Indian market is much better in terms of brekeven period. Also, north would increase cost related to logistics nd maintenance since their manufacturing base is south. I do not think they would like to expand in north until and unless they do not have options in south. Chenai may not be the best option for them (not sure if chennai already has theme park, i think they have 2) but still there are other options to explore in south which is better compared to north due to reasons mentioned above.

(Bheeshma Sanghani, PhD) #61

I think that Amusement parks have great economics and in general are great businesses ( Like ice-cream parlours - I have never ever seen an ice cream parlour shut down at least in Pune where i live). Perhaps, thatâs why you see Valuequest and Catamaran as substantial shareholders in the company. Sales have grown YOY so i dont think that would be a problem going ahead. The issue is with expenses and i am sure they will figure out a way to keep them in check going forward. Besides being a play on entertainment, however amusement parks are also a play on real estate. besides being a play on real estate its also a play on restaurants. and lets not forget there is also a 5 star resort in one of the parks so its a play on hospitality as well. There are so many redundancies built into this business that it is almost impossible to not make money going forward

(Bheeshma Sanghani, PhD) #62

extract from the Q2 FY17 transcript. It looks like the Chennai MOU is going to expire in a few months. Lets hope the company is able to register before then. However,on the bright side they are looking at Goa and Gujarat to expand as well. I think Goa would be a brilliant place to have an amusement park. If that goes throughâŚ

(S Khan) #63

@Yogesh_s

Wonderla kochi is operational for 15 years and bangalore is 11 years old , company has already been through the hoops of adding new rides at regular intervals , maintaining relatively high quality standards etc and running them profitably . What additional major capex are you seeing on existing parks ? Most of the capex in last five years has been on setting up new park in Hyderabad and a 3 star resort in bangalore . Since they already started adding to revenues and soon to profitability , any growth capex if well executed should be construed as positive for an investorâŚno?

Correct me if iam wrong ,Even the best of parks in U.S range in average annual occupancy between 15% -30% depending on their geographical location .Both kochi and bangalore are already operating at upper end of the range .

Adlabls imagica is operating its theme park with its headline ticket prices at the price points you have mentioned , if you add in their water park the ticket rates are around 3000 .They were on course (pre-demon) to do around 1.4-1.5 million visitors this year. This would be around 20% of their capacity which is not too shabby for a three year old park . The point iam harbouring to make is Amusement parks in india already have the required audience across different demographics to make them profitable . Key would be for an operator to get the initial capex right , wonderla has succeeded here whereas adlabs has failed even if temporarily, by spending too much . This is true in international context as well , Disney went over budget in setting up Euro disney thanks to eisnerâs megalomaniac vision and it took over a decade to come out of red even though the park was set up in europeâs tourist capital.