I would like to add a few points which could be useful to readers here:
An increase in ATP will mostly flow to the bottom line. As costs are somewhat semi-fixed. Now, with inflation both ticket prices and costs will increase but just imagine who could afford to spend 2k-3k/day on a full-day adventure? Especially when other adventure costs are growing crazy and there is a rise in per capita income.
F&B offerings will experience higher income along with a higher proportion. As footfalls increase, the increase in number of restaurants will be at a lesser pace. Also, if space is given for rent then the company can easily charge higher rent.
There are optionalities in terms of how many agreements they do in the asset-light model. Goa, Gujarat, MP, etc. all are ready to give out leased land. Imagine, Odisha took 100cr. to build a park with potential footfall of 5-6lkh i.e. on 800/ticket it goes to 40-48cr. Now tweak the assumption and add F&B offerings. Give comfortable margins as well here. Even if 30% OPM is achieved in Odisha it can generate decent ROI.
Chennai Park has very high CAPEX and I think this could only be a concern as ROI will be lower for years. So, temporarily (maybe 2 years) we have to face the pain of worsening return rations.
For years, the company had only 3 parks. Now it will soon have 5. If at all the pace of park addition continues this itself will be a trigger for sustaining valuation either at current levels or slightly higher valuations from here. (I have no comment on valuation as it is always subjective).
Hope it helps.
Invested at lower levels and hence following momentum-based approach to protect gains, so might not remain invested if price falls!
I have been invested with my first buying at around 205 levels, at that time I anticipated 750-800 would be an ideal price. Although fundamentally it performed way better I don’t want to give up gains in case the market turns bad and this company falls more.
So, I am riding the momentum currently, and if the price reverses or breaks the support zone. I would exit and protect my gains. This is how I am looking at it, although there can be many perspectives from different investors.
Wonderla is entering the high ROCE capital light phase now. Their competitive advantage keeps increasing in size. They manufacture their parks much cheaper than anyone else. At the moment is fairly priced for 12 % growth in price but undervalued for 20 % plus growth. Multiple are reasonable. It is played on a consumption theme. They can maintain single-digit footfall plus a 5 % (inflation) price increase that gives an easy 12 to 15 % cashflow increase. Plus growth will come from Bhuvaneshwar and Chennai. We are also underestimating the pricing power that Wonderla has (even management is underestimating ). The ability for people to spend is way higher.
I was buying at 200 and had no competition last year. Of course, at this price, you need to get growth assumptions right but in my view is still not expensive.
Disc: Invested from 2017 at 250 Rs, so my views can be biased.
This is based on the assumption every park going forward will be on leased land. Might not be the case for every park (As acknowledged by the management. They would prefer the asset light model, but are prepared to buy the land outright if necessary)
Fairly priced is based on an estimate that profit will grow at 12 % then multiple can be 24 times earnings ( 2 times growth rate ). So now if your profits grow 15 % for 5 years and multiple (price to earning or better price to cash per share ) stays the same in 5 years market cap will double and your stock price is expected to follow it. However, this is maths but in reality, your return can be higher or lower based on the mood of the people who are buying and what they think will happen in the future.
Wonderla was always a high ROCE business you should look at the unit economics of a park. ROCE was 40 % when parks were out of the investment phase and were buying expensive lands in Kochi, Bangalore, and HYD. now it will get even better if land which is 50% of capex is given free.
How exactly are you calculating the ROCE? Return ratios for the business have always been meh because of the asset heavy nature of the business. Even the management says they don’t look at return ratios because of that. IIRC, they said they would be happy with 12-14%.
(Presumably, the work on new parks will begin immediately after Orissa & Chennai parks open. So, they will still be in investment phase for a long time. Chennai & Orissa parks will take time for operations to stabilize. Even the mature parks are getting new rides at significant cost. So, ROCE to be considered should be 3 or 5 year average)
Accounting does not show real profits, you will need to build your own unit economics and cashflows per park normalized. I did the same in Narayana Hrudalaya and found out it was so cheap in 2018.
You also know that they assemble most of park rides and then buy cheap rides from abroad to save cost. No one in India can do this.
They are also one of the biggest restaurants/fast food businesses with 2 to 3 M customers eating every year.
Good work Saurabh. Just on ramup of footfalls it takes time to go 6 lakhs so you can prune inital year down a bit. Footfalls also degrow but anyways it can be managed by growth in non ticket spending
Do you think Imagicaa can be a threat to Wonderla? I believe currently it is fairly priced(Wonderla). And 2 more parks are in pipeline. I am holding the stock and planning to increase my exposure.
i have studied Imagica early but not done much research after they went bankrupt. But i avoided that company purely as it looked debt was way higher for them to manage. Just avoiding high levraged companies helped me avoid a disaster. But recenlty some one asked me it was cheap and on pure mathematics it was way expensive then Wonderla. You can check on Imgica thread. Adding new parks is not very simple so we need to see if new management has some exp in executing such projects. Wonderla has unique strenghts which makes it win. Please see parks business is not new there were so many water parks in each city so it how to execute.
short term stock can go anywhere so do your own research.
