Wonderla Holidays Ltd(WHL) -Emerging Business with good long term potential

Content Index

•Wonderla Holidays Limited – Investment Snapshot :- Slide #3

• Amusement Park Industry – An Overview:- Slide #5

• Investment Arguments :- Slide #15

•P&L - Slide #28

• Concerns & Reasoning :- Slide #29

Wonderla Holidays– Investment Snapshot (as on Oct 08, 2015)

Recommendation :- BUY

Maximum Portfolio Allocation :- 2%

Investment Phases & Buying Strategy

1st Phase (Now) of Accumulation :- 80%

Current Accumulation Range :- 300-305 Rs

Wonderla Holidays is our typical Multibagger stock, which is a

Good Investment due to the enormous growth opportunities in

sector primarily due to increase in high disposal income which

will result in increase in discretionary spend. The business

model is robust with good pricing power which will deliver

superior returns in the long run. This is a good investment from

a three year perspective.

Core Investment Thesis : The company is in Amusement parks space which has been

growing at a fast clip due to rising footfalls which has been

preferred as an entertainment destination not only in India but

also globally.

Current Market Price – Rs. 300

Current Dividend Yield – 0.50%

Bloomberg / Reuters Code –WONH. IN/

WOHL.NS

BSE / NSE Code – 538268/ WONDERLA

Market Cap (Rs. Cr) – 1689

P/E - 31

Face Value – Rs. 10

52 Week High / Low – Rs. 348.50 /

Rs.240.20

Pro oter’s Holdi g - 70.99%

FII - 9.13%

DII - 1.98%

Other Holdings -17.90%

Key Investment Highlights

1.) Presence in a growing segment :- Company caters to the Entertainment Industry which has been

growing rapidly which provides immense opportunities to the companies in the sector.

2)New venues to drive growth- Company currently has presence in Bangalore and Kochi and is all set to

enter Hyderabad in FY17 which will enable the company to drive growth.

3.) Strong Pricing Power :- Despite Company has strong pricing power with prices increasing at a CAGR of

10% due to its presence in cities where there is no major competitors.

4.) Growing Footfalls:- The companies footfalls has been around 23.4 mn which is higher than the footfalls

registered by their competitors.

5) Scope for higher ticket prices :- The company charges Rs.754 per head as against Rs.2000/- charged by

competitors like Adlabs Imagica.

6.) In-house Manufacturing :- Company has an in-house manufacturing facility located at kochi which

manufactures /constructs rides and attractions for both the parks.

7.) Wide range of products:- Company a wide range of water and land-based attractions of22 water-based

attractions and 33 land-based attractions at Wonderla Kochi and 20 water-based attractions and 35 land-

based attractions at Wonderla Bangalore.

8) Increase in Disposable Income:- The company is likely to benefit from rising disposable income due to

implementation of pay-commission recommendations and strong GDP growth.

9.) Management/ Corporate Governance :- The company has a good management and adhere to strong

corporate governance norms. The company is run professionally by a team of professionals who have a

strong understanding of the business and have a strong vision about its business.

10.) Valuations :- In spite of so many advantages, the company is quoting at reasonable valuations for the

Quality of this stock which has a strong operating performance and provides revenue visibility.

Industry Opportunity & Potential

- An Overview

Global Amusement Park Industry

Revenue Share of Various Geographies

•The global amusement park industry is valued at about USD 29.5Bn in 2015 and is expected to reach about

USD 32Bn in 2017.

•The global theme park industry recorded good growth in 2014 with top amusement parks recording a

growth of about 4%.

•The majority of the amusement parks are located in the US and Europe which has about 330 mn and 165

mn visitors per annum respectively.

•Asia is the fastest growing geography and is expected to outpace the major players in US and Europe due to

favourable demography and fast growing economies.

Footfalls of top global Amusement parks

Industry Segmentation

•The amusement park industry is primarily divided amongst large, medium and small parks depending upon

various parameters like capital investments, annual revenue, number of rides, land area, ticket price etc.

•India, amusement parks and water parks dominate over theme parks. Among the amusement parks, large

parks are considerably smaller in number compared to medium and small parks.

•Amusement parks across India offer varied experience to users ranging from dry rides, wet rides, snow

parks, resorts, shopping malls etc, though most of the rides remain similar in nature.

•Some of the Indian amusement parks are coming out with a resort to provide facility for overnight stay

replicating their global counter parts.

Products and Services

Competitive Landscape in India

Rapid Urbanization to drive growth

• The number of people moving to bigger cities is increasing rapidly which has resulted in more and more

people looking for entertainment.

•Currently the Indian cities have limited outdoor entertainment options and amusement parks is one of the

major entertainment which can address their needs.

requirements from its existing customers

•The proportion of population which is residing in urban areas has increased from 11.4% in 2001 to about

28.53% in 2001 and this is expected to increase to 40.76% in 2030.

•The focus of the new government towards revival of growth in urban cities further provides philip to the

urbanization rate in India.

Favourable Population Demography

Indian Population segmentation based on age group

•India has about 61% of the population below the age group of 30 years who are the main drivers of

discretionary spending.

•The consumer discretionary spending as % of consumer spending to increase from 55% in 2007 to 61%

2020.

•The a e age age of I dia s populatio i is e pe ted to e ea s hi h is the lo est i the o ld.

•The demographic factor plays positive role in discretionary spending which is positive for entertainment

industry like amusement parks.

Increasing Tourism Spend

•The domestic tourism in India is growing rapidly at a CAGR of 13% which is the biggest growth driver for the

Industry.

•With rising income levels, Indians are spending more on tourism related activities which is likely to increase

number of people visiting amusement parks.

• Holidaying, leisure and recreation related tourism constitutes major part of the domestic tourism.

•The local residents form majority of the footfall at 84% followed by domestic tourist, which form 15% while

Foreign tourism constitutes a negligible part, <1%, of total visitors in the park.

Ticket Sales dominate Industry

• Ticket Sales dominate revenue stream for Indian amusement parks with 80% share while it forms only 33%

globally.

•The Food and Beverages segment contribute just 18% of revenues in India it contributes about 34% globally.

requirements from its existing customers

•The resorts and rentals in India contribute just 2% of revenues while it contributes 33% globally . This trend

is expected to change in India as visitor preferences change and amusement parks become more of a

destination tourism than a single day entertainment.

•As footfalls begin to improve AD revenues are possible growth drivers apart from wedding receptions and

social events held at amusement parks though these are miniscule at present.

WHL – Investment Arguments

Company Snapshot

•WHL was founded in 2002 and is one of the largest amusement parks in India which operates under the

brand Wonderla.

•WHL also owns and operates a resort besides an amusement park in Bengaluru under the brand name

Wonderla Resort.

•WHL has 22 water-based attractions and 33 land-based attractions at Wonderla Kochi, situated on 93.17

acres of land and 20 water-based attractions and 35 land-based attractions at Wonderla Bangalore, situated

on 81.75 acres.

•WHL is in the process of setting up the third amusement park in Ranga Reddy district of Andhra Pradesh,

Wonderla Hyderabad.

Top ranking and strong brand recall

•WHL is ranked among the top 25 Amusement parks in Asia and best amusement park in India to visit,

according to Trip advisor.

•WHL currently ranked at the eighth place in Asia has given the company the strong brand recall and visibility

for the management to expand into newer. Territories.

• With WHL expanding in Chennai and Hyderabad couple of parks are being opened in next few years and

total of 4 parks would be operational by 2018 .WHL also is planning to enter north India and become a pan

Indian player.

Rising Footfalls - A major positive

•WHLs t o a use e t pa ks at Ko hi a d Ba galo e has lo ked footfalls CAG‘ of . % o e the past fi e years between 2009-14.

•WHLs footfalls has ise f o . M i FY to a out . Mn in FY14 with 5 year CAGR of Bangalore

park recording 13.3% while the Kochi park recording steady footfalls growth of 6-7% YoY.

•WHL s clocks high footfalls in Q1 due to summer vacations, low footfalls in Q2 due to monsoons, high

footfalls in Q3 due to festive season & school picnics and low footfalls in Q4 due to exam season.

•WHL s derives major revenues during the summer vacation period of April and May, and in December if

there are no rains.

Rising Average Ticket Price

•WHL Ko hi pa k s a e age ti ket p i e has i eased f o ‘s. i FY to a out ‘s. i FY a CAG‘ growth of 11%.

•WHL Ba galo e pa k s a e age ti ket p i e has i eased f o ‘s. i FY to a out ‘s. i FY a CAGR growth of 6%.

•WHL s blended average ticket prices increased from Rs.342 in FY09 to about Rs.530 in FY14 a CAGR growth

of 9.1%.

•WHLs le ded a e age ti ket p i es is likel to ise % pe a u a d the a age e t has also indicated that it is possible to raise ticket prices by 10% per annum.

In-House Manufacturing

•WHL is immensely supported by its in-house manufacturing which not only cuts downtime but also saves

cost of procuring and importing a new ride.

•The cost of an external agency for designs and rides of a park will be about Rs.10 to Rs.20/-Cr and WHL

saves this amount on account of its in-house expertise.

•About 30% of WHL s rides are manufactured in-house which helps the company to save about 30% on

customs duty on imported rides and spare parts.

•WHL incurs about 4-5% of its revenues on maintenance compared with other parks which incur 15% of

revenues on maintenance as WHL uses its own technical team for maintainance.

Upcoming Hyderabad Park

•WHL is setting up the Hyderabad amusement park with an investment of about Rs.250 Cr for which land

has already been acquired.

•In the initial stages the park has the capacity to handle upto 10000 visitors per day and the total number of

rides is expected to be 42 with 24 land rides and 18 water rides.

•The park is expected to have a footfall of 0.75 mn in the first year and is expected to touch about 1mn in the

subsequent years.

•WHL is expected to price the tickets as in Bangalore and expects to increase ticket prices by 10% per

annum considering the per capita income of Rs.132862 which is the highest in South India.

Upcoming Chennai Park

•WHL is setting up the Chennai amusement park with an investment of about Rs.300 Cr and is expected to

commence operations in 2017.

•WHL is likely to fund most of this project through internal accruals from the free cash flows being

generated by other amusement parks and the remaining through debt.

•The park is expected to have a footfall of 1 mn in the first year because of the larger market and the

footfalls is expected to rise by 4-5% every year.

•WHL s Che ai pa k is e pe ted to ha e diffe e t ides to ithsta d o petitio f o e isti g pla e s su h as MGM Dizee world, Kishkinta and Queensland which have been in operation for many years.

Holiday season witnessing higher footfalls

•WHL generally has footfalls of 3500 per day and this increases during weekdays and peak season which is

during holidays.

•WHL is currently handing 29% of its capacity and the existing parks can handle upto 12000 visitors per day

which is most likely in the holiday season.

•The Amusement park business is seasonal with Q1 & Q3 to be strong because of more number of holidays

and festive season.

•The Q3 is a strong quarter because more number of festivals come in during the quarter such as Dussehra,

Diwali, Christmas & New Year.

Conservative Food & Beverages Charges

•Unlike multiplexes and other amusement parks where Food and Beverages are sold at far higher rates

than the MRP, WHP charges such items at MRP.

•WHP has about 7 restaurants in both Kochi and Bangalore parks, out of which the company owns Waves

restaurant in Bangalore and Kochi park in Kochi. For the remaining restaurants the company follows a

revenue sharing model wherein it receives 25% of revenues as its share.

Turnaround in Wonderla resort to aid margins

•WHL started the Wonderla resort in 2012 to enable visitors to stay longer at the park, which would lead to

increased spends on their part and also enhance visitor experience.

•The resort has 84 luxury rooms, 4 banquet halls / conference rooms, totaling 8,900 sq ft with a capacity to

hold 800 guests and has a well equipped board room.

•During the past 4 years the resort is making losses at both the EBITDA and PAT levels due to lower

occupancy rate and high fixed cost.

•During the year FY15 the company reported profits of Rs.2 Cr at the EBITDA levels as occupancy rates

improved from about 35% levels to about 45% during the current year.

Addition of new rides

Historical no. of rides at Wonderla

•WHL consistently adds about a new ride for every two years to keep pace with competition and also

improve the footfalls in their parks.

•WHL pla i g to add a i te esti g olle oaste ide i Ba galo e hi h ould e I dia s fi st e e si g roller coaster and will be open to public by year end.

•WHL is flexible in adding new rides as seen from the Chennai park where it is adding new rides to take on

competition from existing as well as new players.

Flexible pricing strategy

Pricing at Kochi and Bangalore parks respectively

•WHL has opted for flexible pricing strategy to activate footfalls by offering lower prices during weekdays

where the footfalls will be lower.

•WHL footfall is likely to be around 6000 per day compared to 3000 during weekdays and ticket prices are

tickets are priced at premium of 25% to the weekday prices.

•WHL tickets are priced at premium of 10% to the weekend tickets and during the peak season which is

generally during holidays & festive season parks witness footfall of 8000 per day.

Earnings Projection – P&L Account

• WHL revenues are expected to

grow by 18.5% and 20% in FY16 &

FY17 driven by increase in footfalls

and average ticket price.

• WHL has EBITDA margins in the

range 44-45%.We estimate EBITDA

margins of about 47% and 48% in

FY16 and FY17 driven by

breakeven of their resort business.

• WHL is likely to report PAT of

Rs.56 Cr in FY16 and 69 Cr in FY17

with an EPS of Rs.9.86 and

Rs.12.19 in FY16 and FY17

respectively.

•WHL s EPS is likely to record a

growth of about 10.04% and

23.63% in FY16 and FY17

respectively.

Particulars(Rs.Cr) FY14 FY15 FY16E FY17E

Net Sales 154 182 216 259

% Chg 11.45 18.18 18.5 20

Total Expenditure 83 102 114 135

% Chg 19 40 21 17

EBITDA 70 81 101 124

EBITDA Margins(%) 45.45 44.51 47.00 48.00

Interest 1.63 1.67 1.71 1.77

Depreciation 13 16 19.41 23.29

PBT 58 73 80 99

PAT 40 51 56 69

EPS 9.5 8.96 9.86 12.19

Concerns & Reasoning

1.) Accidents and Natural calamities to impact footfalls :

Accidents or natural calamities will affect footfalls, resulting in lower revenue. Not only will accidents lead to

negative publicity, affecting footfalls, but it will also expose the company to possible financial liability and

legal proceedings.

2.) Slowdown in consumer spending :

With anticipated recovery in the economy due to policy changes, consumer spending is expected to recover.

However, if the economy does not recover, it may adversely affect consumer spending. Amusement parks

are affected by consumer discretionary spending and any adverse event in the economy will result in fall in

footfalls.in lower footfalls, affecting revenue

3.) Seasonal nature of business :

Q1 and Q3 are the best quarters for the amusement parks business. In other quarters, schools have exams

affe ti g footfalls. Q a d Q o t i ute ~ % to the o pa s e e ue. Ho e e , due to a ad e se easo s, if the pa k e ai s losed du i g peak ua te s, WHLs o e all pe fo a e ill e affe t.

4.) Failure to acquire land :

WHL has acquired land for its amusement parks in Hyderabad and Chennai. Going forward, it has plans in

othe ities as ell. Ho e e , i a ilit to fi d la d i those states a affe t the o pa s g o th st ateg , which will again result in flat revenue growth and profitability.

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