Wonderla Holidays

Hi, I like your perspective, following are my thoughts -

-they have spent close to 80 cr on land purchase + levelling. approx 250 cr capex expected to setup the park.
-regarding your earlier comment, i’d say moat exists in the form of high barrier to entry & their operational efficiency. they are debt free & cash rich in a capital intensive industry.
-I believe that a highly respected promoter & superior corporate governance also deserves credit, as we have seen recently that almost half of India’s listed firms have governance issues.

disclosure: tracking & hold small amount

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A low ROE is not always indicative of a no moat. Sometimes Low ROE means presence of a well capitalised equity structure - kind of base for future growth. Refer to Amit Wadhwaney/ Marty Whitman’s writings for the same. Below is a link explaining similar examples:-

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This barriers to entry argument is much flogged. What is the use of this barrier to entry when you yourself cannot make enough RoE to cover your own cost of equity. Despite the barrier if you increase price of tickets majority of the people will stop coming.

Also what is the use of their operational efficiency when they cannot make reasonable RoE?

Please note Wonderla has competition not just from people who want to start an amusement park, but also from other sources of entertainment and time pass (like watching a movie or doing time pass in a big mall)

BTW I am not saying it is a bad business. It is just not as great as it is made out to be by the likes of “Jatin Khemani” and “Professor Bakshi”. So basically the stock has to get a lot cheaper before it becomes investable. It is an okay business with a clean promoter running it.

Just to give you an alternate example. NTPC has great barriers to entry in utilities (largest power generator in India). It makes slightly higher RoEs than Wonderla. It trades at 1.2x P/BV

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Add to it water issues in both Bangalore and Chennai so they will have to do dry rides in the future plus the traffic of Bangalore , reinvestment required in new rides to only maintian same amount of volume, doesn’t look a rosy picture from the point of the valuations it commands . Hence never could invest in the stock

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The low roe is because they revalued the land. The gains on account of land revaluation were not routed through the p&l but were a direct adjustment to equity portion.

For the new parks the return on capital is around 12-13% but for the older ones its quite high in the 18%-20% range. The operating margins are back to the 40% levels and are expected yo stay the same.

The business needs to maintain all the riding equipment so maintenance capex is quite large.

The other cons ike water problems , traffic, limited leeway in raising prices etc are all genuine concerns. Not tracking the co as closely as earlier but I think the MD took a leave to spend time with his family overseas and am not sure he is back as promised.

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Like I have already mentioned, this revaluing land and IndAS changes is not a great argument to justify valuations. For one last time please see this “If IndAS or revaluation has inflated networth which deflates RoE, it has also inflated book value when you value using P/BV. So you get benefit of inflated book in P/BV valuation”

You cannot use old RoE on old networth (pre revaluation) to justify higher P/BV and use it on new networth (which has been revalued) to calculate value. Chose one and stick to it.

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The comparison of a ride to watching a movie or simply killing time in a mall is not valid. Going on a ride is an experience, both physical and mental. You cannot substitute the feeling of going on a ride with a movie or talking to a friend. I may not ride again considering the price or citing any other reason but I would choose an amusement park if it is my first time and is available. Physical activity is both captivating and relieving while entertainment is purely for the mind.

Certain feelings and emotions are location-dependent, we cannot visualize everything. From that view point I guess people will always visit for the first time, second time, I don’t know the feeling may have worn out but to spend a day with family and friends in such a park once would always be a thing to consider.

So I am not sure of the increase in footfalls unless they add new rides or new attractions and the current valuation is still high to me, if it comes down more combining with the promoter and the long runaway it has, this could be considering as an investment despite its obvious seasonal nature of the business.

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His(Arun’s) , Son is having a heart issue and he has moved to Japan for his treatment, thats what I could gather from people who are linked with Wonderla. Right now father is looking after all the day to day operations.

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Do you mean Arun Chittilappilly himself or his son has a heart issue?

Can anyone pls guide as to why the ROCE is so low since last 3 years ? While I understand it’s a capital intensive business , but still it’s quite low . And it was much higher 3 years back but has been continuously decreasing since last 6 years. At what levels is it expected to be going forward ? Would such a low roce not be value depreciating?

Came across this statement somewhere?

In 2015 Disney started its park in Shanghai with an investment of USD 5 billion (yes , you read it right) and if Disney or any other global player is going to open a new park in India, will Wonderla be able to defend its market share without the business getting impacted at all?

Will Wonderla be able to defend itself. Reading this statement made me think the moat of Wonderla

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Yes when the per capita income of indians going to br like that of Chinese, wonderla parks ain’t going to attract anyone. Disney might jump in to cash the real consumption.

I don’t understand why it sells so expensive.

People compare it with how well theme parks did in u.s i.e, Wonderla going to be a large cap 10-15 years down the road but nobody is thinking when theme parks grew in U.S people had no Netflix, no VR no AR no Instagram no facebook etc.
Right now consumer has 24 hrs and so many companies are competing for their attention.

I don’t know if future of theme park going to be captures by VR and AR , who knows ?? On the top of everything we don’t have water. Its an bigger crisis in itself.

There are just too many things that could go wrong not just Desney but your point is valid like Amazon come in when FlipKart , SnapDeal of the world created markets, same can happen with Wonderla.

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Q1 results are good.
Income increase seen in unallocated segment.

disc: invested 2% of PF

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Very good results indeed. All round improvement in topline ( an increase of 14% yoy), operating profit ( an increase of 24% yoy) as well excellent operating margins of 51% and net margins of 35%. They have managed the cost control very well over the painful period.

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Concall Notes

Revenue growth of 13% led by all-round growth in Footfall (8%) and ARPU (up 5%).

Company had taken 5% price hike across all parks in earlier this quarter which has let to increase in ARPU.

EBITDA increased 22% due to operating leverage and on account on cost rationalization initiatives by the company. Subsequently PAT increased by 27% yoy.

Company’s CEO, Arun Chittapali, is still on leave.

Not much impacted by consumption slowdown, despite footfall falling in other theme parks.

Kochi Park

Revenue grew by a robust 19% led by 12% footfall growth albeit on a low base (as last year was disrupted by floods and nipa virus).

Have tied-up with a five start hotel and made a resort like arrangement as in Bangalore

Hyderabad Park

Revenue increased by just 7%, due to sever high temperature leading to lower footfall growth.

Has planned to setup a Resort in Hyderabad, similar to one in Bangalore (30cr of capex). As the location is closer to Airport and the city, occupancy will be higher.

Bangalore Park

Revenue grew by 13%

Had a small accident last month, where 1 rider was injured.

Bangalore Resort

Revenue increase by 33% yoy on the back of increased occupancy (up to 62% vs 45% last year).

Chennai Park - expected to be operational after FY21 (~18 months)

No positive development from govt’s end about reducing Local Body tax (for 10% to Nil), so have decided to start the construction work.

Don’t expect much impact on water shortage, as adequate step will be taken on water conservation and rain water harvesting.

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@desaidhwanil, request if you could help with your current view on the Wonderla . Many thanks in advance

Hello,
Great analysis on previous comment. But I have a different opinion on this one. People don’t often visit the parks and when they do, they will visit the one which is larger in size and more fun. Disney will be preferred given the audience they cater to and also they money they could spend. The scale of Disney is unparalleled in comparison to WonderLa. Hence Disney coming to India will not be good news for WonderLa.

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Unable to open link . Is there any alternative link ?

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However, couldn’t find the revaluation reserve entry in the last three annual reports. Or am I missing something. Can you help with this? Thank you