@Yogesh_s One of best piece of advice I have ever received. Delight . Hooked up with professional stuffs. Will incorporate this and come back soon. Thanks again
After re-reading this wonderful post by the Prof titled -
i have a feeling ( unsubstantiated but based on the post above ) that that was the basis of his investment in Wonderla. In this post he draws the functional business equivalents of a toll bridge . He says -
“What other business models require customers to pay the toll to use something that has no alternative in the mind of the users — something that involves movement of traffic and where the owner of the metaphorical toll bridge is the owner of a gateway?”
Have a look at the Wonderla toll bridge!
For those who haven’t read this particular post of his, please do take out time to go through it. It is exceptional.
Wonderla Q3 FY17 results:
As expected not an earth shattering result. Rising sales suggest that it’s not the demonetisation that affected the quarter. For all the talk of moat and all, valuation appears stretched for a company with falling profits year in year.
Agree. The idea of Wonderla as a toll or hedge to recession is overstated IMO. Incremental sales comes with incremental expenses and I believe the company will not be able to expand margins even when te assets are depreciated fully. . It’s well run, but such high valuation is uncalled for. Wondering why Catemaran would pick stake at such levels. .
Doubling of depreciation is an accounting treatment .advertising cost is high due to hyderabad park.the load of new park on accounting profit n initial manpower ramp up n advertising would be visible on cash profit . Earnings might be subdued for few more quarters .
I was wondering how slowdown in IT earnings and slowing urban consumption will impact wonderla. A large part of loyal customers would be coming from IT industry. Now reports suggest they are going to get 2% hike. This will hurt sentiment for sure. Another thing I notice is that lot of folks having multiple apartments are feeling negative wealth effect due to weak real estate especially in metros. Will be interesting to watch consumer behaviour in this case.
Yes slowdown in any sector which results into lowering of purchasing power might hurt Wonderla. So best metric is to look for per capita GDP and per capita income levels and distribution of income across levels.
I think in the long run , the slow down in a particular sector will not have much negativity impact as long as the economy as a whole is doing fine.
I think IT sector slowdown will be bad news for companies focused on cities like Bengaluru, Hyderabad, Pune etc. It is more so for discretionary spends like amusement park companies. Considering the entry charges, going to amusement parks is still not in the reach of common man.
Wonderla is a superb business but looks very expensive at CMP. Have been waiting for long to enter at right price. I am aware of the fact that some businesses always trade at a premium throughout their lifetime (or for very very long time) for their inherent quality of growth (e.g. Page, Eicher) but Mohnish Pabrai helps in being patient.
“Ben Graham will go into a supermarket and he’ll look for what is the most heavily discounted item, deeply on sale, and then he’ll buy that and come out. Charlie Munger will go into a supermarket and look for the things that he loves, and then he keeps going back every day until what he loves has dropped in price, and that’s when he buys it. The Munger approach, in my opinion, is more superior to the Graham approach, but the Munger approach requires patience and it requires you to understand what you truly like.”
Recent events of Kaveri water dispute (which led to disturbances in the Mysore road area where the Bengaluru park had 50% drop in footfalls) and Demonetization had little impact on the stock price. The free floating shares seems to be closely held with serious investors who believe in the long term story. I am hoping the months before the school exams will see some reduction in footfalls which might possibly throw up an opportunity to buy this.
September was a pretty much a washout for us, actually for two of our parks which is the Bengaluru obviously because of Cauvery issue and all the unrest was happening on Mysore Road where our park is situated, so people were reluctant to travel and that obviously affected our footfalls. Therefore, just for the month of September we lost 50 percent of our footfall and that is what has translated to that 28 percent reduction in footfalls for the quarter and all of it was contributed only in September. However, a similar situation happened in Hyderabad because they had very unusual rain patterns and floods during September, as you were aware, and that also again dropped our footfalls. In fact, we missed our targets for Hyderabad as well.
“The great business at worst price ( i mean without margin of safety) and worst business at great price” is injurious to wealth!!
In stock market people normally get long term returns/ multibaggers due to patience compare to chasing market price of great business! You might get time to buy at 30% discount but need to wait!
Even Apple was crashed in April 2016 ( http://www.cultofmac.com/425313/apple-stock-plummet-erases-40-billion-in-market-cap/) and now at all time high!!. (During this crash Parag Parikh PPFAS bought!!) Is Wonderla better than Apple? If Apple stock price crashes, any company’s stock price could crash,just wait for bad news!!. Hence, to buy better business patience is the most important!!
Well, again the estimated size of opportunity could be useful in getting a handle on the future prospects. About 1/5th of indias population lives in south india. Indias population is 120 cr so 24 cr roughly. lets say about 10% of them plan to visit amusement parks. So 2.4 cr. lets say Rs 800 per person is the average spend. So Rs 800 * 2.4 Cr = 1920 cr per year which is somewhat equivalent to the valuation the company is at now.
However, the following 3 things are bound to happen
- The population of south india is going to be more tomorrow than it is today
- The % of people visiting amusement parks is going to be more tomorrow than its today
- The income levels are going to be more tomorrow than today
So the size of the opportunity is going to be much more tomorrow than it is today. Of course, all of this depends on whether you agree with this thesis!
That looked optimistic sizing, apologies in advance for ignorance if any.
But how many live within approachable distance of a wonderla property?
How many can afford to go there basis their average income (average income per capita state of telangana - best of the lot is 12,000 rs per month)?
All valid questions with no quantifiable answers! However, i do believe that the size of opportunity is very large in a populous ( and growing ) country like ours.
~50% of their land is not utilized yet and they have 112 Crs in cash+investments and 158 crs as CWIP.
Wonderla can in my opinion easily put up 2 additional amusement parks by selling the excess land and using part of the cash. High income areas like Gujarat & Goa would be tailor-made and its only a matter of time before they start expanding their footprint thus increasing the size of opportunity.
As far as affordability goes - i would look at household per capita consumption expenditure as the relevant metric. Wikipedia lists India at $3,149 - but it seems high to me so need to verify it
However, if you have PE as a valuation tool in your assessment it would certainly look really expensive. It would be pertinent to mention Prof Bakshi outstanding article on paying up for quality.
If you haven’t gone through it already here is the link. Even if you think Wonderlas expensive it is still an interesing read https://dl.dropboxusercontent.com/u/28494399/Blog%20Links/October_Quest_2013.pdf
Here comes some trouble…
If this really happens, it will be a bad news for India’s secular Consumption growth story. Especially bad news for IT Hubs like Bangalore, Hyderabad & Trichi.
Selling additional land sh/would not be the course of action, as surplus land has more important play in the long term game - land for expansion. IMO, if the management sells any surplus land, it will be construed as a negative rather than a positive step. Land is a rare commodity for business like Wonderla and they would not get anything nearby once (today’s) surplus land is sold.
I agree with decent opportunity size though.
Disc: Waiting for a good price to enter
Investment gurus are pretty confident themes like leisure spending and discretionary consumption are going to work in an economy, where the per capita income is projected to cross Rs 1 lakh in FY17 from Rs 93,231 in FY16, Rs 86,879 in FY15, Rs 79,412 in FY14 and Rs 71,050 in FY14