Wonderla Holidays

Jose · May 10, 2020, 8:10am

I was following the company for some time and took a tracking position very recently. The things that I like about the company are

Promoter integrity

The promoters have around 69.52 % stake. The company is owned by v guard group family . They are not known for any corp governance issues so far. So not expecting any nasty suprises there other than MD being away for some time as pointed out in the forum already. It seems like he is already back in the business. The company is already established a brandname and has a goodwill. Promoter holding is at 69.58 % with some recent insider buying. FIIs hold around 15.39 % stake in the company.

2)Zero debt
Even when the business is considered as asset heavy, the company has managed to payoff debt prudently and is now a debt free company. However they plan to raise some fresh debt for the proposed Chennai park. The company has been very careful while raising debt.

4)The rides in the park are known to be best in safety. An incident in any other park can also be a negative for the company in the short term. Talked to a project manager at Dubai Parks and resorts some time back and had mentioned that Wonderla may probably be the only park in India where he would be ready to get on the rides. Having said that any accident can be a severe deterrent.

5)Management’s expansion strategy

The management has a good vision on growing business and expansion. To open a new park every 3 year. But due to the land acquisition and other regulatory guidelines, this may not be possible everytime. The Chennai park has lagged a lot. Now that the construction has started, management expects the park to be completed in 18 months. And company is exempted from levy of entertainment tax for a period of 5 years from the commencement of commercial operations or from 30 th September 2021. Company is also evaluating the possibility of opening an asset light model at Orissa by raising some debt and through internal accruals. I like the idea of company going forward to open up smaller parks in Tier 2 or 3 cities. Ticket prices will be lesser than what it is now which will improve affordability.

6)Large Landbank
Company is having a very large unused landbank at all it’s parks. As per last revaluation the value of land assets is higher than the market cap.

Unused land at it various parks
Bengaluru: 42.5 acres
Kochi :64.4 acres
Hyderabad :22.5 acres
Chennai: 64 acres

The land kept idle doesnot add any additional value as many in the forum has already highlighted. The current business model they have adopted requires a lot of land. These parks needs new rides to be installed every few years to improve the visibilty. To purchase new land around developed parks once the park is operational is not going to be economically vaiable. So they have to buy a land parcel in the begining itself. Whole land cant be developed together as it will entail a lot of investment which will mean higher debt and longer period to break even. So I like the way they open the park and then develop the park slowly based on requirement and using internal accruals. I think availablity of unused land is very much essential for them to take the parks to the next level. Once there is enough footfalls company may develop the land and rent out some of the properties which will be a very source of revenue. I have seen this at Dubai Parks and resorts where they have developed the land inside the park and has rented out the same to numerous hotels and restaurants. They have already opened resorts at Bengaluru and Hyderabad.

Considering the very large population we have I believe there is very good scope for the business going forward. Company is also trying to increase sales through various promotional offers like discount to groups, students etc. Iam quite positive on the Chennai park, but the commencement may get further delayed due to the lockdown

OPM is above 40 %. There is considerable increase in non ticketing revenue. One major risk cited by many is the entry of some biggy like Disney. But I believe it may take many years for Disney for land acquistion and be operational due to the many regulatory bottlenecks which is evident from the Chennai Park. Similarly Wonderla can also consider tie ups with Marvel or Lionsgate for themed rides as well as for hosting their characters. But for any large tie ups like this , I think they will need more parks and more footfalls.

ROCE goes down whenever company starts land acquisition for a new park due to large gestation period and large upfront investment required on land and machinery. Once the park starts maturing , ROCE goes on increasing due to relatively low additional capital required. I believe ROCE will start improving once Chennai Park becomes operational.

They are considering an asset light park in Orissa for the first time, so if thats successful, company may build more asset light parks from hereon. The company can hive off unused land available at the existing parks and sell them anytime they want if they dont feel that the land can’t be made to any better use at the park( company has repeatedly reiterated that they have no such intentions). With no reliable, successful business models for an amusement park to follow so far in our country , they are in the process of developing one based on models in many other countries and the business is only moving from an embryonic to growth phase.

Now with market cap at a discount to gross block the company surely looks attractive. Price is at a discount of 20% to book value and available at IPO prices.

Key risks

The current covid19 crisis will be a testing time for the company. Children being the ones mostly attracted to the parks , the company’s revenue will be considerably hit until covid 19 is totally sorted out as social distancing will not make any sense at an amusement park. We may see very muted or NIL revenue for a couple of quarters to the least.

Affordability

The ticket rates at Bengaluru park is already around 1300/*. The company may find it tough to increase the rates going forward.

Disc: invested. Around 2% of my portfolio.Views may be biased. Not a recommendation to buy or sell the company discussed

shardhr · May 12, 2020, 3:51pm

With WFH culture becoming the norm, I think the amusement parks’ and similar outdoor experiences will witness increase in demand. And increased demand might provide more pricing elasticity as well. This will lead the company into a favorable position to increase prices as well.

Dev_S · May 12, 2020, 4:25pm

China disneyland tickets sold out for opening week.

sujay85 · May 30, 2020, 9:51am

This is what @jats wrote about Wonderla in the Memo of his Advisory Company.

Let’s Brace for P&L Accidents But Not Overestimate Impact on Intrinsic Values

Starting this earning season i.e. of Q4FY20 (& beyond), we would hear a lot of exceptional items in the form of loss of revenue and profits due to lockdown, increased operating expenses, changes in the way businesses operate, etc.

For some businesses like Wonderla Holidays, the impact of lockdown is extreme - All its parks are closed and revenue will be zero until they reopen, while a significant cost base is fixed in nature (salaries & maintenance) so the company will report losses for this period. On the other extreme, there are a few businesses in our portfolio from agro-chem/pharma sectors for whom it is literally life as usual. In reality, most of the businesses will lie somewhere in the middle - there will be a significant drop in revenues however it will not be zero like Wonderla, and with some cost control they may avoid sliding into losses.

The other pertinent dimension to consider is the timeline to recovery. Again, for a business like Wonderla the recovery could take long, maybe a couple of years, whereas for some it could just take a few months or quarters. Once the economy is completely opened up, for the vast majority of our portfolio companies the normalcy should resume within a year.

Lockdown Impact on Intrinsic Value of Businesses
Before we get to impact on business values, I’ve got a small exercise for you. Let’s assume you have decided to invest in agricultural land and after considering various options around your city you have got your eyes on a particular land parcel. To arrive at a fair valuation, you have considered prevailing market price in that region but since you are a long-term value investor who wants to actually do farming on that land, you use yield method to determine its fair value. Based on the long-term average, this land produces agricultural commodities worth anywhere between Rs 40,000 to Rs 50,000 per annum per acre. You prefer to buy it at a yield of no less than 4%, and accordingly, you make an offer to its current owner of Rs 10 lacs per acre. He accepts your offer, you pay him in cash from your own pocket (without resorting to any loan), and the farmland is yours.

Unfortunately, the following year experiences a major hailstorm that destroys the crop just before the harvest, giving you zero revenues in that entire year. On top of that, you had incurred expenses on procuring seeds & pesticides and labor charges, etc. which have all turned into irrecoverable losses.

Now an opportunistic stranger walks up to you and offers you Rs 5 lacs per acre for the same piece of land which optically may look like a good offer given the gloomy environment, but is it? Think about it. How would a one-year loss of revenue affect the value of the land which has the potential to offer you farm produce for an indefinite future? The 4-5% yield also has the potential to increase if you re-invest annual surplus in farm mechanization, rotate to different high-yielding crops, deploy new technologies like drip irrigation, etc. Under any circumstances, can the capital value of your land erode by 50% just basis one year’s loss of revenue?

This is exactly what has happened in equity markets; stock prices in many cases have crashed as much as 40-50-60% even though the drop in the intrinsic value of the underlying businesses maybe just a fraction of it, of course assuming they are not leveraged a lot and have a business model that will stay relevant.

…companies to not only survive this storm given their strong balance sheets but also thrive on the other side. However, 2020 will be a year of lost harvest for some of these. We have to be mentally prepared to read horrifying P&L Statements and yet retain the sanity that its impact on intrinsic value may not be that material. We can’t panic and impulsively sell our valuable stake at a distressed price, rather this is the time to sit tight on those attractive assets.

hitesh2710 · May 30, 2020, 12:32pm

I have been following Wonderla since almost 4 years now. Mainly because I cannot figure out why this was touted to be such a wonderful business when it is not supported by numbers that a great business should churn out atleast after a couple of years of lull.

This is one company which tends to get affected by one or the other factor. If it is not heavy rains and flooding (which it seems is frequent in southern states) then it is things like Corona. One can argue that Corona is a black swan event but still over a period of 4-5 years even prior to Corona, it should have shown some consistent growth. Instead I find that topline has remained nearly static in the 270-280 crores range and net profit tends to fluctuate between 35 to 65 crores.

There are a lot of other examples similar to Wonderla where inspite of supposedly strong business models, numbers have failed to materialise because of one or the other reason. e.g ccl products, advanced enzymes. These have failed to live up to the hype surrounding them, created by market participants. Markets have over the years given long ropes to these companies but after perpetual disappointment these stocks also start correcting.

I think after a point, say a few quarters, if numbers do not start coming as per expectations, one has to re consider investment thesis and move on if an objective assessment fails to inspire confidence. These at some point become hope stocks and management keeps giving excuses for numbers not coming through.

harsh.beria93 · May 30, 2020, 1:01pm

Thanks for making this very valuable remark. It used to irk me as to how an amusement park can be touted as a secular growth story. I am sharing my insights from the numbers this company has generated since listing. I have to say that its a very easy company to analyze!

A few insights:

Footfalls tend to stagnate at 10 lacs once the park is well discovered.
Long term growth in ticketing is close to long term inflation (8-10%). In recent years, the growth in ticketing price has come down. This indicates that the company has some sort of pricing power atleast to pass on inflation to its customers.
For a mature park, the growth in revenues will be low (4-5%), might simply cover inflation in staff prices. Mature parks make close to 100 cr. With long term PBT margin of ~33%, they should generate 25 cr. profits and should be valued at ~200-250 cr. (10-12% cost of capital).
Growth comes from new parks. Now lets see if new parks actually generate ROE in excess of cost of capital. Hyderabad park required 250 cr. to setup and generated revenue of 75 cr. in FY19 and FY20. Lets say the sales will stabilize at ~100 cr. (PAT ~ 25 cr.), which gives a ROCE of 10%. Company can amplify their ROE by taking debt for CAPEX but its clear that ROE will not be >20%.

Seeing all of this, its clear that this is a business whose underlying ROCE is close to their cost of capital. Long term growth rates will probably be 10-12% (with 1 park being added every 3-4 years). Such a business should be valued relative to their tangible book value. In my opinion, the best time to buy these businesses is during recessions (like now) and sell it when economy is doing very well and company is trading at 3-4 times their tangible book value. These are my insights and I would love to get contrary feedback

Disclosure: Invested (detailed portfolio here)

Dev_S · May 30, 2020, 2:57pm

Challenge here has been that it is first to get affected and last to revive in current context.

Growth in good time was also not impressive and mkt has consistently derated it in last few years - another similar stock was quick heal in my exp.

For those invested from higher level- averaging and hoping to make some profit is simply far fetch and believe significant opportunity cost.

While I like everything about Wonderla but dont see any rerating in near term. In current context lots of other opportunities.

Invested and added in last 30 days. Hoping to exit in some bounce back.

Meet_Jagani · May 30, 2020, 7:19pm

I think the way to look at these kind of companies are their cash flows because they have a huge impact of depreciation as per the rates of companies act while in reality these assets gets depreciated much slower. So if we take a look of PAT + Depriciation from 2008 till 2019 it is Rs(in crores) 5, 20, 24, 73, 74, 84, 98, 124, 147, 83, 97, 139. I think with such a simple business model predictability of the numbers are easy. I think this business is perfect example of consistent compounding. I will explain how with my views. 1.) Wonderla has got clear moat in terms of its internal manufacturing capabilities and they have demonstrated the same by building a new park at Rs 300 crores which if we see of its competitors they have to do 3-4 times of capex of wonderla which makes the business of competitor unviable. 2.) I think this is the business with longetivity.(I have my own reasoning for the same) So in the formula of compounding ‘n’ can create a magic here. 3.) Lets see practically how this has played out it took wonderla 5 years to open a park i.e. 15 years to open 3 parks.Now they have cashflows at a level which can pemit them to open a new park every 3 years and on. 4.) Management seems to be very disciplined with regards to borrowing as they have funded all these expansions through only the internal accruals and going by their commentaries they plan to do the same even in the future.

So the parks gets on increasing(Intensity of increase also increasing) over the period of time which can provide growth. So let me show a broader picture of how this looks over a period of time. In 2000 Kochouseph Chittilappilly started theme park business (a capital intensive business) with a capital of Rs 50 Crores with no further capital infusion except IPO which was around 180 crores (IPO was in 2014 so in 14 years 50 crores was converted to 900 crores as there were already 3 theme parks giving an IRR of 25%) totalling 230 crores of capital in the business with now producing this capital every 2 years in cash flow. So this is the quantum of value it has created and again it has potential to create in future years.

So looking at the model if someone ask me following questions these are clear answers in my mind with my own thesis.
1.) Is the model of the business simple to understand?
yes
2.) Do risks gets reduced a lot with model being simple and product very easy to understand?
yes (When I compare this with a pharma company or a chemical company or a commodity I think things are much simple here)
3.) Can I find a substitute of this business which can have a meaningful impact in future years?
I dont think so (I see it with businesses which has a long history like that of tobacoo, financing or say alcohol)
4.) Are management to be trusted?
I again have a yes.
5.) Is this a business which keeps on going on its on regardless of management?
I again think yes (There are very few businesses which keeps on going regardless of management) Management just have to make sure in terms of borrowings and dont have to go for agressive borrowings which I dont think they will do seeing their history and also seeing their group company which also have no borrowing.
6.) Is compounding of money happening here with no worries?
Absolutely yes
7.) Is ROCE = Cost of Capital?
No, again we have to look this business in terms of cash flows. With 134 odd crores of cash being generated on 500 odd crores of capital employed (This figure is arrived excluding the effect of revaluation) gives the picture of ROCE.

I would also like to add here we can further see this number going up if we see more proposals like odisha (Lease model) as it saves 33% of capital employed.

8.) Are valuations comfortable at 700 crores?
Something which produces a predictable cashflows of 125 odd crores with growth added to it. Again you are getting a asset with a value of 1200 odd crores. So the compounding matrix increases drastically at this valuation. I have a clear answer of this too in my mind.
I have been personally following your posts (Hitesh bhai) since long.
Hope this helps from my side.

harsh.beria93 · May 30, 2020, 7:37pm

How are you inferring a 30% ROCE? For the Hyderabad park, they spent 250 cr. and are currently generating 70 cr. revenues. In best case, it is generating 10-15% ROCE. When looking at cashflow, you have to remove maintenance CAPEX which turns out to be ~10 cr./year for a given park. The management has clearly stated that they are generating close to 25 cr. free cashflow (after accounting for maintenance CAPEX) on their mature parks (Kochi, Bangalore). Similarly, the Chennai park is estimated to cost ~350 cr. and will require quite a few years to generate 100 cr. of revenue (leading to PAT of 25-30 cr.).

Meet_Jagani · May 30, 2020, 8:45pm

For Hyderabad park give it some time my friend . Look at the initial years of Kochi and Bengaluru Park. Also look numbers of this park when they were matured. As far as ROCE is concerned I was talking of company as a whole. 30% was a wrong figure. Its 134 crores of EBDITA on 500 odd crores of capital. (Still Hyderabad is not mature here)

mrkakade · May 31, 2020, 2:25am

Q4FY20 earnings conference brief -

Covid - 19 pandemic has hampered operations and parks are closed from 15th March. Revenue is 0 in the month of April. But management is optimistic and hope that lockdown will be opened soon and post-opening situation will come to normal soon.
Management was doing brain storming during this closure period and have stretegy around to reopen along with gaining footfall recovery. As per management they can scale the all time footfall peaks in couple of years across all the parks.
Each park has capacity of hosting 8K to 10K people per day and normally they operate on 1/3rd capacity. Management expects 2.5K people per day at each park will be easy to manage while following social distancing and snaitization norms. Company is prepared to follow needed practices like checking people at entry and sanitization of rides after each use. Cost of sanitization is calculated at Rs. 50 per vistor aprox.
Fixed cost overall is aprox. 15 Cr per month in normal sitautions. This includes salaries and ongoing maintenance. Management has worked aggressively and cut down this cost by 75% and currently they are spending 4.5 Cr per month. This includes 50% wage cut for employees. But they are maintaining min. wage of 12K per month norm and not cutting salaries below this threshhold value.
All marketing expenses has been cut down and management has strategy in place for effective marketing post relaunce of operations
Current cash balance of 125K+ is sufficient for operating expenses for period of more than one year
At relaunch management thinks government may allow only dry rides first and wet rides may need to wait. In such scenario tickets will be charged at 60% of normal ticket range. Also there will be discounted price to attract crowd in initial 15 days of reopening and prices will come to normal level post 15 days promotional offerr. But management thinks there is no harm in opening water rides as well and has given CNN reference where it was mentioned that its very less likely to transmit this disease through water.
Chennai Park - reiterated that all permissions are in place along with waiver of LBT by cheenai corp for the period of 5 years starting 1st Oct 2021. Park construction is on agenda and management is otmistic that still it can be completed by Oct 2021. Hopes to get lockdown open and construction to start soon.
Odisha park is just in conception phase and there is no concrete plan to start work or target completion date
Share buy back option - Management needs cash for ongoing capex as well as construction of Chennai park. so buy back is not on agenda even though share prices are dropped drastically.
Imagica - On question whether management will go for acquisiotn like impagica park to expand, management has clarified that they have thier own startegy to construct parks and do not go for Imagica acquistion. But if some other party acquires it and ask wonderla to operate park on revenue sharing model, that possibility can be explored.
Management thinks that amusement park is unique experience in outdoor category and people will rush to have that experience. Parks in China and SE asia have seen good numbers after reopening.
Please add for any point missed out here. Mr. Arun K. was surprisingly missing and not present. I was expecting to hear from him during this concall.
Discl: Invested and looking to add more once parks start to pick up momentum.

mskoti86 · June 16, 2020, 4:29pm

**to recover to normalcy atleast 2 years and recency effect on customer brains is too long like pandamic .A big Negative for like this business **

Satheesh Seshadri: Everybody are talking about V, W, bath-tub shaped recovery, all
type of economic rebouncing. So, I would be very conservative there.
If you ask me a conservative question, I will say at least two years to
come back to those levels. I think 2021 is gone, 2022 I will not recover
fully. We will look at 2023.

https://www.bseindia.com/xml-data/corpfiling/AttachLive/9cbe7a1f-91d6-43b8-b9d4-9453a944a0fd.pdf

harsh.beria93 · June 17, 2020, 7:17am

Wonderla ventures into food takeaway and delivery business in Kengeri, 16 km away from Wonderla Amusement Park. I guess this is more to have some sort of revenue over the next few months. Delivery is ensured through swiggy and zomato

krishnamraju07 · June 18, 2020, 7:22am

I think they opened far from the park … not sure what they are expecting out of this

India’s leading amusement park and hospitality Brand, Wonderla Holidays Limited launched
their first-ever takeaway and home delivery venture with their first “Wonder Kitchen” outlet
at Kengeri, near to satellite town Bangalore, 16 km away from Wonderla Amusement Park.

Dev_S · June 19, 2020, 5:01pm

Could be the use of ppl time on payroll, constructive effort though may not have any meaningful impact.

krishnamraju07 · June 20, 2020, 11:08am

I felt this move is out of desperation to show some revenue …
I see additional costs for the move

area which is rented out
set up cost
even if they are using ppl time on payroll–> what would happen once the op restarts

not sure if this would be good long term strategy

Disc :: i have invested in wonderla

nemishshah · June 23, 2020, 1:30pm

I think the Idea behind Wonder Kitchen is broadly to keep people engaged with the Wonderla Brand and may be later on make customers visit the park by offering some kind of coupons. I see this as a marketing move rather than a new source of revenue.

GSrikan · July 28, 2020, 7:37am

I have done some digging up on wonderla concall scripts to figure out what is the worth of the land and found some pointers (could not get as much information as I expected and other members can correct/add if I have missed any information):

Break up of cost for building a park:
Building & civil work will be 30%,
the rides willaccount for another 30% and
we have got the land for 30%,
the balance 10% will be on plant and equipment.

Hyderabad Park details from RHP:
Original Land cost: 21.8 cr (including stamp duty, registration & other charges)
Land Developement: 20.3 cr
Civil construction: 100 cr
Land Rides: (imported + indigenious): 33 + 36 = 69
Water rides: 10 cr
Water + power related components: 25.7 cr
Others (computers, furniture etc): 10 cr
Consultancy: 2 cr
Mission Interstellar: 35 cr - 40 cr (launched in 2017 towards end)

Chennai Park details:
Land: 61.87 Acres X 1.07 = 66 (Aquisition cost) [seems now its price doubled at 2019 rates]
Investment in land is: 75cr + 10 cr(for leveling & filling & compound wall)
Total Investment Done so far: 100 cr+

2.75 acre water harvesting tank built already
Park will be planned & built for high water efficiency
Investment: 105 + 260 (planned)

Bangalore Park:
Land : 81.7 acres [the present cost could be 1 cr/acre from one of the concall details (probably
2019) where he mentioned in south land rate is 1cr/acre avg]
84 room resort (probably at 30-35 cr - Depreciation worth at present rates if the planned expenditure
for Hyd resort is considered]
6 restaurants

Kochi Park:
Land: 93.17
In house 264Kw Solar plant
400Kwp : 2 cr: 1600 Kwh per day [forgot what this note meant]
Bangalore park has a tie up with solar power supplying company which supplies at half the cost of BESCOM price [not sure how much % of requirement it caters to]
5 restaurants

Hyderabad Park:
Land : 49.5 [Acqusition cost: 21 cr; Now worth 3 times more as per 2019 concall]
4 restaurants
Advantages: Lot of tech companies around it. Closer to road. 15 mins from airport.
**On both Serious & lighter note, they should actually buy double the land requirement and sell off the extra land after park is built; This way they will earn more than what they earn by running the park

275 cr begining investment
Park launched in Apr 2016
30-32 cr Hyd resort (estimated cost to be incurred)
500Kw Solar plant (caters to 25% of daily requirement)

Odisha Park:
Planned Inv: 100-110cr
If things go well it can be launched 1yr after Chennai Park is started
This “slightly lighter” asset model is both a threat and advantage for Wonderla. If works out well, it reduces the capital intensity. Same advantage goes for competition, which is a threat.

Present Covid impact:
If I am right, 8 cr costs/month (?) will be cash loss with zero business.
Breakeven can be achieved with 2400 customers/park, if allowed to run.

Ad spend:
22cr advt for 2019

Yearly Park related capex:
10% revenue for new rides
Even though this is considered as maintainance capex as it is used to attract repeat customers,
it has an advantage of increasing the capacity which is being ignored by everybody. It helps if there is a growth in footfalls due to GDP growth.

Year 2000: Cochin Capex: 120-130 cr initial capex [19 yrs old park by 2019]
Year 2004/20045: Bangalore: 150-160cr [14-15yrs old park by 2019]
Hyd: 280-290 cr

Random note: 72-75 cr FCF: 2017-18 [Expected]

MarketCap:
750 cr (@130rs)
Take the following projections with loads of Salt [crude estimates; no solid logic behind estimations]
Cash: 125 cr; After Mar2021: 29 cr (if reopens in Jan: 53 cr): (Reopens in Sept: 77 cr)
Estimated capex: 260 cr + 110 cr = 370 cr
Cash flow: 50cr 80cr 40cr 50cr 80cr 110cr 130cr
Yr1 Yr2 Yr3 Yr4 Yr5 Yr6 Yr7
Chennai Orissa
Launch Launch
Capex: 100 160 110 100
Borrowing
needed: -27 +53 123 73 53 163 297

1200 (cash profit x 10) + 297 (cash) = 1497 [PE = 10]
Replacement value: 350x4 + 210 = 1610 cr

If things don’t go very bad, conservatively, it can double in 7-8 yrs fetching us FD & PF returns.

Discl: Bought @330 > 1 yr back & slightly averaged yesterday @133

ketand · July 28, 2020, 5:16pm

It is not correct to take EBITDA for return ratios, in my opinion. First, accounting wise depreciation can be a non cash item, but for asset heavy or rather asset dependant business like wonderla, it’s a cost. Plus, this is a high maintenance cost business, and needs to be replaced after life span is over, hence maintenance capex like new rides also add to costs. And yes, as per text book formula also, roce is pbit/Capital employed.

If you see this business in this light, it would not be considered a great business, I would say.

KunalKothari · July 29, 2020, 2:58am

I also wonder if the replacement cost (after lifespan is over) of the rides would be much higher than the first time around, because of general inflation. Hence, the depreciation cost might not be adequately reflect the real cost.