Ayush, Donald, Hitesh,
What is your view onWonderla Holidays?
The company is owned by V-Guard group and its director chairman & managing director, Kochouseph Chittilappilly, is a provenentrepreneur from Kerala.Promotergroup owns ~70% of the share holding.
Wonderla operateswater theme parks and amusement parks in Cochin and Bangalore and planning to setup next one in Andhra Pradesh by 2017-18. Wonderla Resort in Bangalore is also part of the group!
Concern isvaluation and is untested…
Thanks
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signs MoU with Tamil Nadu government to set up a amusement park at Chennai
I would like to revive this old thread by posting some numbers. Today after seeing Adlabs Management on KYC segment of CNBC Awaaz decided to take a look at Adlabs and realized that Wonderla is better off in terms of financials.
It is almost debt free, is making cash profits and has good ROE. You can check the numbers on screener for more if interested.
What attracted me to Adlabs and eventually to Wonderla was the operating leverage inherent in the business. Once the park has been built and the capital invested, it takes very little to run a park operationally. It is mostly operational maintenance expense, employee salaries and the like. So as long as the revenue keeps increasing, the marginal revenue keeps on flowing straight to the bottom line if there is no debt as is the case here and once the park building expenses are amortized.
The growing revenues year on year is a big assumption but it is something that depends on management quality and competence.
Growing revenues could be due to:
The company is setting up a new park in Hyderabad which will be operational by April 2016 and there is planning going on of opening a new park in Chennai.
Kochi and Bengaluru are the two well established parks since 2000 and 2005. The funding for the two parks in Hyderabad and Chennai are to be meet from internal accruals arising out of the two established parks along with the resort at Bengaluru.
The opening up of the two parks along with growth in visitors/ticket prices at the established parks will help revenues grow over the years.
There is novelty for this as outdoor activity and adventure tourism picks up in India. I remember many years ago my cousins used to come to Mumbai and all they ever wanted to do was go to Essel World in Borivli and enjoy there.
Even though the locations are south centric, the fact that they are in different cities and states unlike Adlabs which is hampered by being in a single location.
One should have a look at the Half Yearly Results presentation which has very good data on the company and its business:
As one can see from the report, there is plenty of land available at both Kochi and Bengaluru to expand and build more rides.
The footfalls have increased by 2% as of 30 Sep 2015 on a YOY basis but the average revenue per user has increased 15%. This has resulted in 13% revenue growth on YOY basis from H1 2015 to H1 2016.
Over time the non ticketing revenue/product revenue is going to marginally increase against ticketing revenue/service revenue.
I am making an attempt to compare EV/Ebitda of both Adlabs and Wonderla. Adlabs is profitable only at the operational level and hence P/E based comparison is not possible.
All figures in crores
Market Cap Debt Minority Interest Preference Cash EV Ebitda
Shares
Wonderla 2152.68 8.14 0 0 8.09 2152.73 55 39.14
Adlabs 1035.48 911.41 0 0 42.69 1904.2 18.48 103.04
As per EV/Ebitda Wonderla is valued 39 times while Imagica is valued 103 times.
On Market Cap to Sales it tells a different story:
Market Cap Sales Market Cap/Sales
Wonderla 2152.68 181.87 11.84
Adlabs 1035.48 189.42 5.47
The CEO of Adlabs on KYC program of CNBC mentioned that it took them around 3 to 4 years to turn cash profitable after commencement of operations. I read from Wonderla’s research report by ICICI that it took them 7 years to be cash profitable so either the adoption rate has increased well or Adlabs is doing something remarkable.
I would certainly look at the company on corrections for it appears to be a good business with inherent operating leverage and revenue drivers in place.
Disclosure: Not invested but interested. I may take a position in this in the near term. This is not a buy or sell recommendation for any company. Do your own research before deciding to buy or sell.
Sharing an interesting note on Wonderla Holidays. Ofcourse the valuation could be on the higher side now, but it gives an interesting perspective on the business model and the management vision.
http://stalwartvalue.com/what-makes-wonderla-holidays-an-amazing-business/
Arun Chittilappilly interview - http://economictimes.indiatimes.com/opinion/interviews/amusement-park-industry-has-huge-scope-for-growth-in-india-arun-chittilappilly-wonderla-holidays/articleshow/52650887.cms
I had missed the negatives while writing the initial thesis. As pointed out by the Stalwart advisors report an injury or death to a visitor while on a park ride due to non maintenance/problem with the rides will have very serious implications. Not only will it be a PR disaster, the media outrage and the extended news coverage will deter many prospective customers from visiting the theme parks.
This is a key monitorable for the company.
Other factor is novelty. Over the years the appeal of Essel world here in Mumbai has gone down drastically and it is now a me too destination. It has to engage in substantial advertising and promotion to attract people. recall the various ads seen for it on various zee group channels. The company will have to bring in something new every few years to keep the interest of the people in the parks. This is where the extra land available can be easily used for expansion.
Another risk though not major is the south specific location of the theme parks. An act of nature like the Chennai floods can cause major revenue loss to the company.
IMO the current valuation offers no margin of safety. I would wait for a decent correction to enter.
@nelsonite : I agree with your analysis. So my question to you is (and this is also something I am wanting to learn) - How are you going to decide what is fair valuation for the stock ? Or can you be little bit more specific about ratios and numbers that will make you believe that decent correction has taken place.
May not be right to compare Essel world and wonderla. The difference is seriousness of the promoter to continue with passion and interest. Essel world has stale rides and aging infra. They are under investing as it seems they thought people will always come just because they need some place to get away from Mumbai. In comparison Wonderla keeps innovating and bring new rides at reasonable costs to bring repeat visitors.
Disc: No holding but on watchlist
The bottomline growth for Wonderla will be flat to negative for 2 years atleast . Accounting for depreciation in Hyderabad park. The land purchase for the new chennai park may be debt funded. This period may provide attractive price points to accumulate WLA.
But the market can start pricing it on the upside based on top line and EBITDA growth .
Discl- Invested
As Lynch fan mentioned that bottomline growth is likely to be subdued for some time. A slight miss on analyst estimates on either top line/bottom line may lead to a correction.
This is a company with good management/good economics in place so if you buy around 335 onwards that will be around 32 times TTM EPS which IMHO is fair valuation for the stock. If your holding period is 3 to 5 years you will possibly get decent returns.
The above is just for illustrative purposes and not recommendation to buy or sell the stock. Please do own research before committing to it.
I really like this business and there have been many things that make me feel this way:
@desaidhwanil sir, with all due respect you being a much senior member, who has a position in this script, as seen in your 'portfolio post’so would really appreciate if yu could share your thoughts.
Many thanks 
Issues with the stock
Regards,
Dr. Tarun Deep Singh
Disclosure: tracking position, interested but still developing conviction
Q1’FY17 CONCALL UPDATES:
Q1’FY17 Results:
• In Q1 FY 17, revenue grew by about 32% to Rs 88.87 crores driven by 18% growth in average revenue per visitor and 12% increase in total footfalls. The Q1 EBITDA declined by 2.71% YOY to about Rs 39.2 crores. EBITDA margin declined by 1584bps to 44.1%. The EBITDA margin got impacted mainly because of our overall increase in operating expenses on account of the addition of Hyderabad Park.
• PAT margins got impacted mainly due to higher depreciation, due to the addition of Hyderabad Park and also due to the decline in other income during this quarter as Q1 FY 16 other income largely included dividend from our IPO proceeds.
• The overall footfalls of course increased by around 12% to 7.92 lakhs from 7.06 lakhs last year. This is mainly because of the increase in footfalls by 2 lakhs from Hyderabad. Overall revenue grew by around 31% roughly around from Rs 68 crores to Rs 90 crores that is also mainly banking on Hyderabad.
Hyderabad Park Updates:
• 200,000 visitors visiting the Park during 2.5 months of opening.
• Spread over 49.5 acres of land with Current development on 27 acres of Land.
• The park initially comprises of 43 rides which includes 18 wet rides and 25 dry rides.
• The park boasts of India’s first ever reverse looping roller coaster named RECOIL, with maximum height of 40 metres and with 6 inversions per ride, imported from the Netherlands.
• It is also the first park in India with Cashless RFID based transactions facility
• Hyderabad has given total revenue of close to Rs 19.5 crores.
• Average ticket revenue in Hyderabad collected net of taxes is around Rs 650 and sale of Food something close to Rs 110and sale of product is highest among the three Parks at Rs 163. Overall per head revenue at Hyderabad is now close to Rs 948.
• Rs4 crore was the Hyderabad opening marketing expenses probably and another Rs 4 crore in next two quarters together.
• Hyderabad Park is around Rs 92 higher in term of Non-Ticket revenue mainly due to sale of merchandise.
Bangalore Park Updates:
• Bangalore Park witnessed roughly 25% increase in average ticket Price and 18% increase in average Non-Ticket revenue.
• Coming back to the most important part of the footfalls break up for Bangalore and Hyderabad, of course Bangalore has shown a 12% decline and general footfalls have gone below from 4.17 to 3.67 lakhs.
• Out of the 12% decline around roughly 10% decline happened in the area of Adult and Child that is the full paying customers.
• But despite this, the revenue of Bangalore has shown an increase of 8.5%. This is mainly because of the increase in average revenue.
• Most significant thing is that the Coming to the Resort part, the first quarter clocked around 67% occupancy vs 48% occupancy during last year so the acceptance of Resort is improving among the local public as well as the Corporate.
• Bangalore Park there was around 50,000footfall reduction out of which around 35,000 was Walk-in customers, 8,000 was Corporates and balance from Schools. With respect to Corporates that was mainly because of the shift from Corporates to next quarter. We don’t feel the business is moving away from us. Bangalore last year had 11,000 students which was only 9,000 students this year, so the only difference is 2,000.
• Over a period, you can see that in Bangalore there is average increase in the Restaurants revenue of 30% compared to 10% increase in the ticket revenue. So Food. Of course Food revenue will be increasing than rest and next quarter you will see the difference in Bangalore which is following the Hyderabad way and in Q3 or between the Q3 or Q4 you can see the same in Cochin.
• Average food revenue in Bangalore is Rs 88 and that in Hyderabad is Rs 105
Cochin Park Updates:
• Cochin Park saw a 21% increase in average ticket Price and 32% increase in average Non-Ticket revenue. Footfalls in Bangalore decreased by about 12% and Cochin Park declined by about 24%.
• Kochi had a sharper decline in footfall as it showed around 24.5% or around 70,000 reduction in footfall. Out of 70,000, 50,000 footfall reductions were in the core category of the full paid customers which included 40,000 reductions in Adult category and 10,000 reductions in Child category. So this being the case, Cochin had a negative growth in revenue by close to around 8%.
• Our entire Summer Campaign Advertising and Marketing campaign was based on Water Park and we have to withdraw that campaign because we fell that it might raise too many eyebrows especially during a drought situation
• Cochin specially we also feel we have done lot of research on this there is a slight issue of product mix also I think we need to change, we need to refresh the Park little bit and we working on that.
• As per our Market Surveywe will have to concentrate on an area of 100 km to 125 km rather than 250 km to 300 km were we able to do in Bangalore and probably in Hyderabad. So Cochin had 2-3 issues one is price hikes and the other issue that came up was that our Park is lightly seen as an old Park. It’s already 16years old. So it need a bit of refresh. I don’t think we become late in doing that infact in any kind of investment for e.g. in Cochin we have to do a Roller Coaster it’s a 25 to 30 crore investment so unless it really needed we don’t want to do it. we already bought some property extra which is done last year but that conversion and this integrating into our Park area is happening now. So now is the good time to add Rides to Kochi which for example there was no space for us to add a Roller Coaster until 6 months back, we never had the space for it. So those constraints are also there in place like Kochi. And then on to top of that we have issues you know like compute and things like that.
• The Roller Coaster that we are thinking of buying it will take us at least another 6 months and we will be able to open it only by the end of this financial year. So this year, in addition to that we are adding two more attractions we should be ready by October. So I think that will help us creating a new Marketing Campaign and reinvigorate the
Growth, Capex, Cross-Sell/Upsell Guidance:
Growth:
• The existing Park of course I expect 3 to 4% considering the present situation in the next five years. You take a five year CAGR growth, I think the footfall can grow by 3 to 4% only.
• The new Parking Hyderabad can contribute around average of 10 to 12% for the next five years and by the time I expect Chennai also to functional from FY19 with a footfall something better than Hyderabad.
Capex:
• Chennai property, we will have an average CAPEX of around 170 crores in the coming year FY 17. That depends on when we are closing the Chennai property and existing Park Hyderabad probably we will spend around Rs 30 to 40 crores and around Rs 30 to 35 crores we expect to spend in Kochi.
• 150 to 170 cr. will be the average spend of this year FY 17.
• In Hyderabad, we are investing Rs 250 crores and we spent only Rs 225 crore so far. So those two will continue and Kochi we are investing around Rs 30 crores that we expect to regain the footfall of around 1.5 lakh which will give an additional revenue of Rs 15 to 18 crore to us
Cross-sell/Upsell:
• Hyderabad has around 71% in the collection from ticket and 29% from Non-Ticket.
• So, in next 2 years, when we takeover all the Restaurants in Kochi and Bangalore and we will be looking for a mix of something close to 30% to 32% from Non-Ticket revenue.
Online Digital and Marketing Plans:
• We have no track of absolute repeat customers. We are tracking them through the loyalty program that we run and we have around 1.3 lakh cards in circulation and that card when used that is the area where we get exact number of repeat, but what we have we feel Bangalore we have around 40 to50% repeat customer. Repeat I mean not in the same year but those repeat after 3-4 years.
• In immediate future we don’t want invest in biometric and similar kinds of things but currently now we are first trying to make maximum bookings through online. Because you look at Parks outside there are maximum bookings is online Ticket. So we have not reached that level that is our identification on that.
• That is where we can offer to the plan where we have online available now we are promoting the online booking and digital marketing are on the high priority for us. These two will enabled us to get more Mail ids and communication possibility to those customers. Currently we have very limited in that probably we will have mail box of close to around 2 lakhs customers only.
Personal Views:
• Future growth numbers of footfall need to be revisited
• There is tendency of footfall reduction once parks are 10 year old
• Price Elasticity Impact assessment is required
• Cross-sell opportunities looks good and may give better feel to valuations
• Still, there is scope for incremental revenue as current efforts does not involve any sort of major CRM, digital or analytical based marketing focus
• Hyederabad initial footfall may be due to buzz and as Hyderabad already has multiple parks, future numbers may set long term trend
• A friend of mine visited Hyderabad park and liked overall location of park and the rides
• Going forward, for next 2-3 years, there might be slight stretch in debt equity ratio, though, it should stay under comfortable limits
• Disney is known for data driven customer management. Seeing current fll in footfall, may be time has come for wonderla to do an intelligence based customer management, pricing management
• Growth assumption numbers and cross-sell/upsell assumption numbers in valuation models may need a re-look
Disc : Invested with 2% of portfolio. The views are not meant for recommendation in any sense. Use your own discretion
Wonderla Holidays Limited has informed the Exchange regarding a press release dated September 20, 2016 titled “Going Green! Wonderla Hyderabad installs 500kw solar plant”.
Yes, Wonderla is part of my portfolio. You have already covered some of the points in investment rationale but few additional important points in my thesis are
World over, even for mature parks (Disney, Six Flags, Sea World etc), the foofall have seen growth of 4-6%. As compared to that, Indian market is still at early stage of the maturity cycle and hence getting 4-6% increase is doable.
If we look at past track record, they have been able to increase ticket price above inflation rate. Typically at 10%+ CAGR. Now a decent part of their P&L cost does not increase (fixed asset depreciation), but on that cost too, they get 10% higher realization. So, margin improvement or at least margin maintenance on steady state basis looks reasonably certain for existing park.
So if we combine above two points (And connect them with few below), it is reasonable to assume 15-16% growth from existing parks on normalized basis. Then the additional kicker will come from new parks which means 20-25% growth is achievable in medium term on steady state basis.
The most likable feature to me- they increased prices last year by whopping 25%, and the retail foot fall only marginally declined. You don’t need any other proof for pricing power! This to me is a clear reflection of price in elasticity of demand - or in other words pricing power. When you can increase prices without affecting demand substantially, you have found true pricing power.
They generate super cash flows and Return on Capital employed. Though the current return ratios look higher due to depreciated asset base, even on new asset they will generate 25% ROIC. And to top it due to expansion they can keep on deploying this capital and generate such decent returns on additional capital. It is not easy to find such business models where businesses can deploy large capital at high rate of return.
One of the ignored part of the story is their own manufacturing capacity for rides which brings down the Capex and Opex both for them. Consider a Hyderabad park that is set up 2 years after Adlabs set up Imagica with almost similar number of rides. Wonderla spent 300 odd crores on Hyderabad park while Adlabs was set up with 1200 Crore + Capex two years ago. Though the scale may be bigger for Adlabs Imagica- the cost differential is disproportionate. More importantly, it is not coming at the expense of customer experience- as is amply evident from the Tripadvisor ratings. Just imagine the headway wonderla as company has over peers where they have 30-40-50% cost advantage in one of their biggest cost items
By nature, large amusement park is a natural monopoly business- because it involves assets that are inflationary. So, it is extremely difficult for new player to enter the same market and compete. Let’s say Adlabs wants to enter Bangalore market today, it will have to spend almost 3-4 times the capital that Wonderla spent 10 years ago. And to top it, they will have to spend large sum of money on advertising/promotion to snatch away customers from Wonderla. Now, even if we assume they can take away 50% of the visitors from Wonderla, the economics will just not work for them because of higher fixed cost and higher operating cost structure. Thus, any company that enters a market first, has a big headway. Here, wonderla has an edge because they have carved out a business model that is replicable- and is expanding rapidly. So in next 10 years if they become 7-8 location company and corner some of the choicest markets, they have a substantial competitive advantage and pricing power!
To top these all, this business is run by a management of high integrity and competence.
Disclaimer: I am not a research analyst of Investment advisor and this post should not be taken as buy/sell recommendation. Please do your own due diligence or consult your investment adviser before making an investment decision.
Thanks. Very good analysis.
I think RFID will be extended to all the parks in a years time (It was told in the last AGM) also they do have enough space (40+ acres) in Bangalore and Kochi for further expansion
Disc: Have a small tracking postion
wonderla is available at about 2300 crs as of now. what caught my attention in the annual report is the 350.49 acres of land that it has of which 126 acres is lying unutilised - “…Our Company has large land parcels at Bangalore (81.75 acres), Kochi (93.17 acres) and Hyderabad (49.57 acres) within the proximity of the city. It has 39 acres, 64 acres and 23 acres land for future expansion at Bangalore, Kochi and Hyderabad…” which in my opinion is worth at least 2000 crs.
People in the amusement park business typically buy 3x-5x the land they require, so that when they start operations the real estate prices in the neighborhood go up dispropotionately. They can then sell pieces of this land for capex needs. Thats why wonderla has negligible debt on its books. In fact, it can expand in other areas without taking on any additional debt whatsoever because it can do this land arbitrage.
Secondly, again quoting from their annual report - amusement parks require an average investment of 70 Crs ( 0.70 billion) and need to be spread across 40 acres. It generated a cash of precisely 74.34 crs in a SINGLE year (2015-2016 ) which it used promptly to buy land ( Purchase of fixed assets 147 .01 crs of which 137 crs is capital work in progress).
This company is a land buying machine. It buys land , increases the value of the land it owns and the surrounding land ( that it has already bought by its cash flows), through its amusement park business (which on its own is worth at least 1000 crs). It is a self sustaining feedback loop like none other i can think of. I cant assign a value to this company but i am 100% sure that it is ridiculously more than 2300 crores.
Another advantage stems from competition. Businesses like Wonderla benefit from competition. Its not a big threat in my opinion. Lets say Disney opens a big theme park in direct competition to Wonderla. This will make more people want to go to amusement parks for entertainment & as a result increase the footfalls in existing amusement parks ( wonderla etc). In fact, the bigger the competition the better for Wonderla. While the market share of wonderla would surely decrease but since the category itself will grow outwards, the footfalls are sure to increase. If an additional restaurant opens in your neighborhood, you tend to eat out more often. People are buying more online now than before Amazon setup in India. In fact, this throws up more opportunities than ever before.
@bheeshma,
People generally do not go again after they visit the park (atleast not immediately). Unless there are newer attraction it may be difficult to keep getting repeat customers. Disney/Universal can of course set up parks here but it will be difficult for them. Plus we are not like HK or Singapore ours is a more diverse country.
If at all Disney comes to India, I feel they are much bigger brand with good recall value. People will surely go there only unless there is a huge price difference.
Another example is with Royal Enfield. When BMW, Triumph, Kawasaki, Benelli and Harley Davidson came to India, it helped RE and we have a whole new leisure motorcycle culture and we are slowly moving away from the mass segment.