Further to my earlier post where i had highlighted only the critical aspects, i wish to present a more balanced view. Over the weekend, spent some time analyzing the positive things about the business / stock.
My two cents on Positive factors:
Long runway for growth with multiple growth levers: Wonderla Holidays is in a sweet spot with a long runway for growth.
Some of the Growth levers available:
New parks– In the last 16 years the company has opened 3 parks. The latest one was in 2016 at Hyderabad and has helped the company with increased footfalls. The next one is planned at Chennai for which land has been procured and is projected to be operational by FY 2020. The company has stated in their annual reports their desire to open a park every four years.
New Rides– In the existing parks to keep it fresh, new rides are planned and launched. On an average at least 1 new ride is introduced every year in the existing parks. This adds to the novelty factor as well as aids in bringing in repeat customers.
Non utilized land in existing parks– As per 2016-17 annual report the details of non utilized land available for future development:
Bangalore – 42.55 acres out of total land of 81.75 acres
Kochi – 64.42 acres out of total land of 93.17 acres
Hyderabad- 22.50 acres out of total land of 49.50 acres
There is a combined 130 acres (57% of land parcel) available for future development which is significant and can be used for expansion / new rides / new resorts in the existing parks.
Increased Non ticketing Revenue mix– Non ticket revenue sources include food, beverages, and merchandise from park visitors. Globally the revenue mix of ticket revenue to non- ticket revenue is 45: 55. In India the ratio has been 80:20. This shows the potential available for generating more revenue per visitor which is non- linear in nature.
To their credit, Wonderla has reported a 63% increase in non-ticket revenue last year. Also as per the annual report the average non-ticket revenue per visitor has gone up from INR 155 to INR 214 in FY 2017. Compared to global standards there is still room for further growth of non-ticket revenue share for Wonderla.
Increased revenue from Resort business– Wonderla operates a 3 star 84 room resort in its Bangalore Park. The resort also has a well-equipped board room along with conference facilities for targeting the corporate segment in addition to targeting the traditional retail recreational & leisure segment. As per the latest annual report the resort business generated 11.97 Cr in FY 17 with a 56% occupancy rate.
There is further scope for growth in occupancy rate as well as launch of new resorts in existing parks of Kochi & Hyderabad based on market demand.
Strong tailwinds for the Industry– Amusement parks and theme parks are part of the leisure and entertainment industry. Globally the Industry is expected to grow at CAGR of 7.5% to reach INR 3.86 trillion. The Indian industry according to research studies are expected to grow at a much faster rate than the global average at CAGR of 19% to reach INR 70 billion by year 2021 from the present INR 30 billion.
With rising per capita income, increasing urbanization and sustained focus by government on improving the physical infrastructure / last mile connectivity, the Industry as such is having strong tailwinds for growth which should be favorable for Wonderla as well.
Management – Among many other things, one of the most significant criteria an investor should look before investing is the quality & integrity of the management as well as to see if there are any actions in the past which are minority shareholders’ unfriendly.
Wonderla is run by the Chittilappilly family, the same group behind V-Guard (listed since 2008) and have a reputation for being able and prudent. Also there have been no instances of any shareholder unfriendly actions.
They have been conservative in capital allocation but forward looking with a good pulse of the trends in the Industry. The management is now investing in the next generation technologies of Augmented Reality (AR) and Virtual Reality (VR) with the first video being shot at Hollywood.
Virtually Zero debt Company– The latest debt to equity ratio stands at a very healthy 0.04. Being in a capital intensive business it is commendable that the capital allocation policy has been prudent with growth coming through internal accruals. Even if the management decides to take on debt for future parks the company has sufficient leverage leeway.
Cost savings through Internal R&D – The management has done a brilliant thing of investing in own R&D capabilities to design and build rides. This gives the company significant cost advantages as it does not have to depend fully on local vendors or foreign suppliers.
As per the annual reports the company is able to internally design and build one-third of the new rides in a park with a cost savings of around 30%. This internal capabilities also lead to faster execution of new rides as well as quicker maintenance / refurbishment of existing rides.
Please highlight if any other key advantage has been missed out.
The rest of my thoughts like the business model , financial metrics and key concerns, if you are interested can be accessed here https://www.stockandladder.com/stock-thoughts-on-wonderla-holidays/