Bang on! This is a consumer discretionary business and prone to economic cyclicality. I have tried valuing this business using three different approaches:
- Long term PBT margin: 33%. Lets say the company is able to do sales ~280 cr. in FY22 (assuming FY21 is a wash-out). That will translate into a profit ~280*33%*75% ~ 70 cr. Current market valuation implies this business is available at P/E ~ 10 (implying almost no future growth).
- Replacement cost for 1 park is ~350 cr. (as per FY2018Q4 concall). They have three operational parks, replacement cost ~ 1050 cr., along with ~125 cr. in cash & equivalents. (Replacement value > 1175 cr.)
- Maintenance CAPEX for the three parks combined is ~20cr. They generate operational cash of ~100 cr. per year, so that makes FCF ~ 80cr. (which is then used for growth CAPEX). The company is available at ~10 times FCF (if management doesn’t reinvest their earnings).
Long term sustainable growth is ~12-15% (10% price increase + new parks). For higher growth (>20%), the company would need to dilute equity or raise debt. Investors were quite bullish in 2016-17. With this cyclical downturn, this reasonable growth company is available at no-growth valuations.
Cheers
Harsh