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Monday, February 23, 2015

TALWALKARS BETTER FITNESS LTD: AT BETTER VALUE! !

Scrip Code: 533200 TALWALKARS
CMP:  Rs. 347.55; Market Cap: Rs. 909.91 Cr; 52 Week High/Low: Rs. 373.40/ Rs. 145.25; Total Shares: 2,61,80,888 shares; Promoters : 1,39,80,923 shares –53.40 %; Total Public holding : 1,21,99,965 shares – 46.60 %; Book Value: Rs. 88.25; Face Value: Rs. 10.00; EPS: Rs. 15.40; Dividend: 15.00 %; P/E: 22.56 times; Ind. P/E: 41.57; EV/EBITDA: 10.47
Total Debt: Rs. 153.85 Cr; Enterprise Value: Rs. 1,059.59 Cr.

TALWALKARS BETTER VALUE FITNESS LTD: The Company was founded in 1932 and is based in Mumbai, India.  Talwalkars Better Value Fitness Limited (TBVF) was formerly known as Talwalkars Better Value Fitness Private Limited. The company operates a fitness chain in India. The company offers a suite of services, including gyms, spas, aerobics, nutrition counseling, physiotherapy guidance, yoga classes and health counseling under the ‘Talwalkars’ brand. The company came with an IPO on 23rd April 2010, offering 6,050,000 equity shares of Rs. 10 issued at Rs. 128 per share raising Rs. 77.44 Cr. The main object of the issue was to set up additional health clubs, repayment of certain unsecured loans availed by company and to met issue related expenses. The Company has an 8,000 square feet residential training academy at Thane. The training academy offers about 4 to 6 weeks of training program for its staff joining at the new centers.  It has 128 health clubs comprising 15 franchised gyms under HiFi brand and in 68 cities and had more than 75,000 members. Its health clubs/training centers are located in Andhra Pradesh, Gujarat, Karnataka, Kerala, Maharashtra, Madhya Pradesh, Punjab, Rajasthan, Tamil Nadu, Uttar Pradesh and West Bengal. In April 2012, Talwalkars through its subsidiary opened a health club in Gandhinagar. In April 2013, it opened its six new health club one each in Ahmedabad, Hyderabad, Kolhapur, Kalwa, Mira Road and Surat. As of June 2014, it operated 150 gyms in 75 cities in India. The company is locally compared with Powerhouse Fitness ltd, T. Spiritual World, VLCC and globally compared with Life Time Fitness Inc of USA, Town Sports International Holdings Inc of USA, Fitness First PLC of London, Steiner Leisure Ltd of USA, The Sports Club Company of USA, Viva China Holdings Ltd of Hong Kong, Tosho Company Ltd of Japan, Meqalos Co ltd of Japan, Misonoza Theatrical Corporation of Japan, Media Create Company Ltd of Japan, Social Ecology project Company Ltd of Japan and with Kaquetsuenkanko Co.,Ltd which is also based in Japan.

Investment Rationale:
Talwalkars is the dominant player with a market share of 12 % + in the Indian organized health club market which is about Rs. 70,000 Cr & is a play on growing awareness about fitness and a healthy lifestyle. It runs 102 owned Talwalkar centers, from which 15 are run through subsidiaries, 7 through franchise and 6 through trademarks; it also has 15 Hifi centers. Talwalkars has alliance with Zumba fitness - a Latin dance inspired fitness plan which has 1.4 Cr people taking weekly Zumba classes in more than 1,40,000 location across more than 151 countries. The wellness industry in India is poised to touch Rs 1,00,000 Cr (Rs. 1 trillion) by 2015 from Rs. 70,000 Cr presently showing a CAGR of 15-17 %. Despite having the world's second largest pool, less than 1 % of the urban Indian population holds health membership. This is paltry as compared to 3.11 % in the Asia-pacific and about 17.5 % in the US, which demonstrates a huge scope for growth. An IHRSA Global Report 2014 indicates that the global health club industry generated about $ 78 billion in revenues with a total club base of 1,65,300 units and over 13.8 Cr members in 2013. The same report pegs the total industry size by revenue in India at over $53.5 Cr, growing at about 5 % over the previous year, with a total base of 1,234 clubs and a shade of over 4,40,000 members. Talwalkars is the one of the top five fitness brand in India. The emergence of a new middle class which is more educated and aware of the importance of health and awareness and most interestingly, they also possesses a higher share of disposable income, this section of the society is a driving force behind the growth in the wellness segment. The importance of this demographic pool can be accurately appraised when one considers the fact that around 40 % of the Indian population will be between the age groups of 20 and 44 by 2016. The chunk of the population aged 40 years and above is expected to rise from 33 % in 2012 to 43 % by 2041. Also there’s a very low penetration level of less than 1 % of the Indian population in the fitness sector and hence, there exists a massive opportunity on headcounts to be approached by the health industry over the coming years towards raising fitness awareness and driving enrollments. With increasing disposable income and clear fitness aspirations, this set of consumers is more inclined to spend on health, fitness and wellness services. Moreover, the youth population is expected to rise to 42.7 Cr by 2015, creating a strong potential market for alternative sources of fitness like aerobics, yoga, Zumba programme and holistic dietary regimes. With increasing global and media exposure, many consumers today believe that to look good is equals to feel good and hence give more emphasis on a health care and fitness. Wellness today is not just a metro phenomenon but consumers across Tier II and Tier III cities are also seeking wellness solutions to meet their lifestyle challenges. The wellness industry is a field of healthcare focused on improving everyday health and state of wellbeing rather than simply treating a disease or curing illness. With the new government at the centre, the Indian GDP growth is expected to improve significantly over the next two to three years. Improved economic growth will lead to better lifestyle and benefit the wellness industry going ahead. Also Talwalkars plans to set up its First Recreation and Sports Club and has an existing alliance with DLL that was entered into in 2012. The Company has sustained this relationship with DLL, offering consultancy services for setting up clubs in townships and gated communities. Talwalkars has plans to set up clubs in India which will be having facilities like GYM, Sports Training, Entertainment Zone, Banquet hall, Recreation centre, Restaurant, Swimming Pool & Racquet Sports. The target audience for Clubs would be gated communities, high end residential townships, corporates campuses. For this the Company has identified land near Baner, Pune to start the first recreation and sports club. This will be part of a prestigious town ship by a reputed builder in the city. A club, if positioned at a reasonable membership cost could become a great business proposition. The capital investment for the club is around Rs. 53 Cr. It will be set up in area of 45,000-50,000 sq. feet with a built up area of 80,000- 90,000 sq. ft. and the set up time for the same would be around 18 months & will have member’s capacity of around 7,000-8,000. Talwalkars also wants to mark its presence in different geographies and so has partnered with a local partner. A separate 51 % subsidiary is set up and the Capex is shared. The partner pays royalty to the parent for the brand and management of the health club. There are 16 such clubs under operation. Subsidiary format provides Talwalkars with higher ROI due to lower capex. This 51 % subsidiary approach on a franchise basis has been proved successful by the Company’s subsidiaries, namely Denovo Enterprises Private Limited- a subsidiary of Talwalkars, is sharing 38 % of the total gym count under the subsidiaries head. Denovo’s health clubs are operational in Northern and Western India, Equinox Wellness Private Limited - is a step-down subsidiary of Talwalkars (direct subsidiary of Denovo Enterprises Private Limited). Equinox has its health club operational in Eastern India, Aspire Fitness Private Limited - a subsidiary of Talwalkars, is sharing 38 % of the total gym count under the subsidiaries head. Aspire’s health clubs are operational in Western India and Jyotsna Fitness Private Limited - though relatively new entrant in the list of subsidiaries, it is following the same quality footsteps as that of Talwalkars. Jyotsna Fitness’s health clubs are operational in Western India. These subsidiaries of Talwalkars in total, accounts for 14 % of the consolidated net sales & 13.1 % in the net profits in the books of Talwalkars. Denovo & Aspire are the major subsidiaries. Further, the company has recently floated Talwalkars Club Private Limited as its wholly-owned subsidiary company to own and manage recreational clubs by providing all kinds of sports, games, recreational and hospitality facilities. These new initiatives by Talwalkars have helped the company to leverage on its current asset and enhance the member base without incurring any major capex. Pricing for new initiatives is at a significant premium. This would help the company to improve its margins, going forward. Talwalkars has also tied up with David Lloyd Leisure: which has over 30 years of unmatched experience in the development and operation of leisure and sports clubs. The very same insights and know-how will now be available to Talwalkars for starting and consulting for sports and leisure clubs in India.

Outlook and Valuation: 
Talwalkars Better Fitness Value ltd is a play on the growing healthcare market in India. It has a strong brand name and is now capitalizing, with rapid expansion. Gym is a highly localized business in the sense it needs to be easily accessible to local population at an affordable price (at least from a mass market perspective). Talwalkars has managed to break away from its peers and now leads the scale pack with 145 gyms on consolidated basis. Talwalkar Better Value Fitness as a company is focused on addressing the fitness deficit in India. Over the years, Talwalkars has enriched its brand through a conscious positioning around fitness, training knowledge, diverse offerings and uplifting health club environment. Company has been prudently positioned as an affordable brand addressing a growing customer base with increasingly diverse requirements. This strategy of company has paid off in terms of company’s ability to reach out to a large potential customer base and attract more members. Nowadays fitness is not only about gymming; it is also about peripheral areas comprising a healthy diet, dance-based fitness program, spa, massage, aerobics and yoga and that is where company is also focusing on, since in a country like India there seems to be huge market for such services. Over the years, Talwalkars has diversified and branded these offerings, and this has helped to enhance the proportion of these value added services from 18-20 % in 2011-12 to 22-23 % in 2013 -2014, going ahead they expect to enhance the proportion of these value-added offering. The company also being able to retain its renewal rate 70-76 % at a time when there is a fear of membership attrition. The company has added overall 14 new health clubs across India (owned aswellas franchisees) during FY14, taking its total gym count to 149 (103 own gyms, 16 subsidiaries, 13 franchise & licensed gyms and 17 HiFi gyms) with around 1.4 lakh members. Going forward, the company will continue its new health club expansion by carefully choosing locations, which will yield incremental RoCE of 25 % on an ongoing basis. The company will also focus on driving profitability across the system through active marketing of value-added services and improving same-store sales from current 4-5 % to 8-10 %. With favourable demographics and volume expansion, it is expected that the FY15-17E gym count to increase at CAGR of 8.0 % to 175 gyms by 2017E. There is a vast opportunity exists for further scale building considering the fragmented nature of industry. For instance, market share of the top 5 players by no. of clubs is just 16 % compared to global top 5 average of about 40 %. Talwalkars has a decent spread-out across the North, West and South regions which together accounts for 94 % of the total gyms. It is also targeting different price segments with roll out of both regular as well as ‘low cost’ HiFi gyms especially in those tier II/III cities which may not support a full service Talwalkars’ gym. The Company plans to open 20-25 fitness centres within the next 2 quarters and 100 fitness centres over the next three years and has plans to reach 100 towns in three years. This includes the plans to expand the Hi-Fi gyms to 30 over the next three years. Under the signed master franchisee for establishing 30 HiFi fitness centres in Tier-III and IV towns over the next three years, Talwalkars would be launching soon in Aurangabad, Jalna, Osmanabad, Parbani and Udgir. Going forward fitness centres in the Franchise format has also been initiated in Bhilwara, Jagatpura (Jaipur) and Patna. The company would expand the gyms in a well measured and steady manner through ownership as well as profitable franchise route after carefully assessing the market situation, demand & the extent of profits generated from existing assets (Same Store Sales growth). The company would ensure that the fitness centres would be opened in locations which can yield a higher ROCE of 25 % on an ongoing basis. Along with new gym additions, Talwalkars is expected to continue to focus on improving its SSS growth through higher share of Value added services (VAS) and increase in membership base. Talwalkar’s priority would be to enhancing throughout from each of its fitness centres and growing the proportion of value-added services being provided. In line with this, it expects to increase same-store sales to 8-10 % (H1FY15 SSS growth already at 8.9 % annualized) from around 4-5 % in FY14. Same store sales focus give an indication that value added per store is gaining significance as a driver of sales rather than just being volume driven. Talwalkar's revenue has grown at a CAGR of 26 % over the last 3 years largely driven by volume growth of 17 %, while its net profit has grown at a CAGR of 32 % over the same period on account of margin expansion. It can be expected that company's revenue to grow by 20 % in FY15e and by 22 % in FY16e. Talwalkars maintained healthy momentum in revenues with growth of 29 % yoy in what is seasonally a lean quarter for the company. Same store sales improved to 10.2 % yoy from 8.9 % in a challenging environment for discretionary spending. During the quarter, value added services grew at a healthy pace which led to 0.50 % uptick in margins. An improved operating performance and lower tax rate led to 26 % yoy rise in PAT. Company locked in 8‐9 gym locations across Delhi, Mumbai and other locations at attractive long term rentals. It also completed land acquisition for leisure club in Pune from Kolte Patil group and approvals are expected in the next 4‐5 months. In January 2015, company opened its first premium gym of 10,000 sq ft in Banjara Hills, Hyderabad with basic membership fees of Rs. 22,000 to Rs. 24,000 as compared to the regular Rs. 15,000 to Rs. 18,000 and 80 % of existing customers of Banjara Hills have shifted to the new gym; company would look to open more such premium gyms in metros and Tier I locations with obvious positive implications from a margin perspective. These new initiatives will help the company to leverage on its current asset and enhance the member base without incurring any major capex. Pricing for new initiatives is at a significant premium. This would help the company to improve its margins, going forward. Talwalkars has also tied up with David Lloyd Leisure: which has over 30 years of unmatched experience in the development and operation of leisure and sports clubs. The very same insights and know-how will now be available to Talwalkars for starting and consulting for sports and leisure clubs in India. Improved economic growth could result in increased spending power and benefit the wellness industry going forward. It is expected that the company’s surplus scenario is likely to continue for the next three years & will keep its growth story intact for the coming quarters also.

KEY FINANCIALSFY14FY15EFY16EFY17E
SALES ( Crs)209.50256.60314.90386.40
NET PROFIT (₹ Cr)36.6047.1055.7066.90
EPS ()14.0018.0021.3025.60
PE (x)23.5018.2015.4012.80
P/BV (x)3.602.902.502.10
EV/EBITDA (x)11.208.507.005.70
ROE (%)15.2016.1016.0016.10
ROCE (%)15.8016.7018.5019.10

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Friday, February 13, 2015

INFOEDGE INDIA LTD : NEXT ALIBABA IN MAKING !!!

Scrip Code: 532777 NAUKRI
CMP:  Rs. 812.35; Market Cap: Rs. 9,765.75 Cr; 52 Week High/Low: Rs. 1015.05 / Rs. 523.70.
Total Shares: 12,02,16,159 shares; Promoters : 5,33,32,091 shares –44.36 %; Total Public holding : 6,68,84,068 shares – 55.63 %; Book Value: Rs. 64.32; Face Value: Rs. 10.00; EPS: Rs. 12.08; Dividend: 25.00 %; P/E: 67.24 times; Ind. P/E: 40.11; EV/EBITDA:41.60.
Total Debt: 0.48 Cr; Enterprise Value: Rs. 9,648.13 Cr.

INFO EDGE INDIA LTD: Info Edge (India) Ltd was incorporated in 1995 and is based in Nodia, India. Info Edge (India) Limited is an India-based company engaged in the business of providing online classifieds and certain related services. The Company operates its business principally through four different divisions: Naukri.com, Jeevansathi.com and 99acres.com. It provides recruitment classifieds and services through its Naukri.com and Quadrangle business divisions. The company came out with an IPO on November 2006 offering 53,23,851 equity shares of Rs. 10 each for Rs. 320 per share raising Rs. 170.36 Cr, the shares of INFO EDGE got listed on 22 November 2006 at Rs. 623.80 per share. The company has given bonus shares in the ratio of 1:1 in the year 2010 and second bonus shares in the ratio of 1:1 in the year 2012. Info Edge (India) Limited provides recruitment classifieds and related services to job seekers and employers and recruitment consultants through its website: www.naukri.com, as well as through its office network. Through the Quadrangle division, the Company provides executive search services to its various corporate customers in the information technology and information technology-enabled services. Naukri.com is an online job posting website that offers services for recruiters, job seekers, and employers. Jeevansathi.com provides matrimonial classifieds and related services for prospective brides, grooms, and relatives. The Company also offers a real estate classifieds service through its Website: 99acres.com and an education portal Shiksha.com. Info Edge also owns Allcheckdeals.com, an online real estate brokerage firm which is run as a subsidiary company. Company also owns naukrigulf.com in Middle East. It also operates brijj.com, a professional networking site; firstnaukri.com, a fresher hiring site; quadrangle.com, an offline executive search business site; Meritnation.com that offers kindergarten to class 12 assignment and tuitions; and zomato.com, an online food guide portal. The company’s subsidiary as on 31 March 2014 includes: Naukri Internet Services Private Limited and Jeevansathi Internet Services Private Ltd both of which is own internet domain names and related trademarks used in it business, Allcheckdeals.com India Private Ltd, Applect Learning Systems Pvt Ltd which owns and operates meritnation.com, Zomato media Pvt Ltd , MakeSense Technologies Pvt Ltd and Info Edge (India) Mauritius Ltd. Info Edge India Ltd is locally compared with HOMESHOP 18, Justdial Ltd and Globally compared with Monster.com , Seek.com, carsales.com , Truila Inc, HomeAway Inc, Zillow Inc, SouFun Holdings, REA Group, Rightmove PLC, Yelp Inc of USA, Yahoo! Inc of USA, eBay Inc of USA, Googlr Inc of USA, Facebook Inc of USA, Linkedin Corp of USA, Pandora Media Inc of USA, Shutterstock Inc of USA, Sciquest Inc of USA, Zillow Inc od USA, Monster Worlwide Inc of USA, America OnLine from USA, Bazaarvoice Inc of USA, Xo Group Inc of USA, Twitter Inc of USA, Verisign Inc of USA, Yelp Inc of USA, Carsales.com Ltd of Australila, Moneysupermarket.com from UK, XING AG of Germany, United Internet AG of Germany, Opera Software ASA of Norway, Vistaprint N.V. of Netherlands, Baidu Inc of China, Beijing 58 Information and Technology Co Ltd of China, 21Vianet group Inc of China, iProperty Group Ltd of Malaysia, Nifty Corporation of Japan, Wix.com of Israel, Ateam inc of Japan, CROOZ Inc of Japan, F@N Communication Inc of Japan, Infomart Corp of Japan, Excite Japan Co Ltd of Japan, Asahi Net Inc of Japan, Nexyz Corporation of Japan, Drecom Co ltd of Japan, Zappallas Inc of Japan.

Investment Rationale:
InfoEdge (India) Ltd operates a wide range of online websites. It enjoys leadership position in recruitment website-Naukri.com, in property website-99acres.com and is among the top 3 players in matrimony website-Jeevansathi.com. Apart from this, InfoEdge has made significant strategic investments into emerging internet companies like meritnation.com, policybazaar.com, mydala.com, Canvera.com and zomato.com. With its headquarters in Noida (NCR), the company employs over 2,460 people and operates through a network of 57 offices located in 32 cities throughout India. These offices primarily engage in sales, marketing and payment collection activities for company’s businesses. To cater to the Gulf market they have 2 offices in Dubai and 1 each in Bahrain, Riyadh and Abu Dhabi. Recently, in January 2015, its subsidiary in Restaurant listing and review site Zomato.com, has acquired its sixth & biggest overseas acquisition of Urbanspoon, a restaurant information and table booking property. The deal was an all-cash transaction worth $52 million or Rs. 325 crore. This was done from the funds raised in November 2014, where Zomato raised $60 million in a fresh round of funding at a pre-money valuation of $600 million from existing investors Info Edge (India) and Sequoia while adding Vy Capital as a new investor. This transaction instantly inflated Zomato's size by many times over across multiple parameters and most importantly it now marks Zomato's entry into the North American market which was till now dominated by Yelp. Zomato will now have a presence in 500+ cities, 1mn+ restaurant listings, 31mn app downloads, 1.4mn reviews, 80mn+ monthly visits and garner leadership in Canada, Australia and some key cities in the US. Urbanspoon, besides restaurant reviews, also allows users to book restaurant tables with integration of OpenTable to its site. Zomato also has a similar arrangement with OpenTable for certain overseas markets such as the UK. Zomato clocks 3.5 Cr+ visits a month which would rise to 8 Cr+ post the acquisition; its presence would also rise over threefold to over 500 cities against 150 currently with number of restaurants listed increasing to the same extent to over 10 Lakhs restaurants. The biggest differentiator, however, would be that the number of ratings would rise around 9x to 4.3 Cr with number of reviewers rising to over 1.4 million as against 400,000 at present. Urbanspoon is the sixth such deal by Zomato since July of 2014. Zomato also strucked its seventh overseas deal by acquiring Turkey Based resturant search service Mekanist after Urbanspoon later this month. All the Mekanist App users will be able to use the Zomato app and Zomato will cover over 75,000 resturants from the current 27,500 in Turkey and would be serving over 30 lakh user a month. Mekanist is one of the heavyweights in the online resturant search services in Turkey and is also one of the first and most successful tech startup from Turkey. It has 1,90,000 listed establishments such as resturants , cafes, bars along with over 5,00,000 reviews from its 15,00,000 strong signed up user based on web & mobile. Just last December 2014 it acquired Italy-based web and mobile restaurant search services start up Cibando Ltd. for an undisclosed sum. Over the last few months Zomato has acquired four other companies, including MenuMania in New Zealand; Lunchtime in the Czech Republic; Obedovat in Slovakia; and Gastronauci in Poland. To date, Zomato has raised more than $113 million, over multiple rounds of funding from investors including Vy Capital, Info Edge and Sequoia Capital. And definitely this deal benefits in the valuation of Info Edge India Ltd. Info Edge India Ltd, is a clear leader in key online classifieds segments and now is one of the primary beneficiaries of structural shift in ad spends towards online platforms which is clearly driven by increasing smartphone penetration and which is on the cusp of a J curve. 
India is among the world's youngest nations with a median age of 26 years. 65 % of Indian population is estimated to be below 35 years of age and India will have 7 Cr new entrants to its work force over the next 5 years. India currently has about 21.4 Cr internet users, the third largest in the world and is likely to have 33 Cr to 37 Cr internet users in 2015 which would then be the second largest in terms of incremental growth. Currently, as of December 2014 the TRAI reports that India had 85.74 Cr broadband subscribers which was 82.22 Cr - this gives a growth of 4.28 % MoM. The wired subscribers at the end of Dec 2014 was 1.53 Cr, Mobile devices users (Phone & Dongles were 6.99 Cr, Fixed Wireless subscribers (Wi-Fi, Wi-Max,Point-to-Point Radio & VSAT) subscribers at 4,30,000. Now, with declining costs of Internet access and mobile devices, nearly 55 % of aggregate user base in 2015 is expected to have an access to the internet from a mobile or tablet device in India. Economic contribution from Internet in India can be potentially doubled from current 1.6 % of GDP to 2.8 % to 3.3 % by 2015. Internet-related economy is expected to grow bigger than education and as big as healthcare sector in terms of current GDP share. Internet’s effect on the Indian economy goes well beyond iGDP. The Current levels of internet-related expenditure are estimated to create about 60 lakhs direct and indirect jobs. As the direct impact of the internet on India’s GDP has the potential to treble by 2015, an additional 1.6 Cr jobs could be created. Info Edge Lts is a long term play on the internet space in India. With lead in the online recruitment market (through Naukri.com) and presence in the online classified space has the potential to establish a market leading position and grab large pie of increasing online adoption. As various businesses come out of the recent slowdown it is seen that the recruitment industry to grow significantly as it is highly correlated to the economic health of the growth of domestic corporate sector. 

Outlook and Valuation: 
Info Edge (India) ltd is India’s one of the largest leading online company with its strong brands and sustainable growing businesses. It has a very excellent and experienced management team. The company have invested in several internet start-ups ventures. Info Edge’s Naukri has garnered higher market share in this slowdown, also its innovative products helps naukri to combat threat against Linkedin.com, naukri continues to invest in its brand, sales team, customer service, tech and product innovation and support. Info Edge’s 99acre.com is benefiting from the increase in the real estate advertising and has increased its market share. 99acres.com have improved its site by improving user experience- pricing trends, photos and videos, android Apps and the site is now have spread its sales coverage across cities, this has helped 99acres.com to bring in more traffic, 99acre.com soon plans to launch a verified listings. Info Edge’s Jeevansathi.com has leveraged its IP built over last 5 years through investing in brand building. Management will continue to invest its analytics and algorithms. Info Edge’s other brands like Shiksha, FirstNaukri, naukrigulf continues to perform well. Management is committed to invest in potential big businesses of future like zomato, meritnation, policybazaar and is vouching for potential start-ups and M&A’s. On financial side Info Edge posted revenue growth of 18.1 % to Rs. 145.7 Cr on the back of healthy increase of 19 % YoY in recruitment business and mere 15.5 % YoY the lowest in last 20 quarters growth in other verticals. Operating profit declined by 14 % YoY, as A&P expenses increased by 55 % YoY while employee cost was up by 30 % as headcount increased by 32 % YoY. Though operating margin in the recruitment vertical was at 49.8 %, other verticals posted operating loss of Rs. 18.4 Cr including Rs. 14.4 Cr loss in 99acres. PAT was up by 20 % on the back of high other income. Management has guided for 18-20 % revenue growth for the recruitment vertical for the next 2 years. It is believed that with the upturn in the economy, new product launches and client additions will spur growth. While IT sector has grown at a healthy pace, and so it can be safely believed that the other sectors will follow suit in the near term. With market share of 65-70 %, the company can maintain margins in 50 % range. Revenue growth in 99acres slowed down to 20 % YoY which is lowest in past years during the quarter as key cities including NCR, Mumbai, Chennai did not show much activity in the real estate sector due to uncertain market conditions. At the same time, hyper competition from recently funded portals resulted in higher client acquisition cost impacting operating performance wherein operating loss was the highest ever at Rs. 14. 4Cr. However, with market share of 30-35 %, new product launches such as listings verification, new UI design, analytics and focus on mobile phones with 30 % traffic will help the company in the medium to long run. Zomato is focusing on expanding business and this could result delay in breaking even however, Urbanspoon, acquisition is a stepping stone for Zomato in US market giving it a foothold in the US, where Urbanspoon enjoys number two position. Zomato has learnt from the tough experience in the UK, where it found it difficult to expand organically. In terms of business, Urbanspoon serves three million unique monthly visitors or 1/12 of Zomato’s user base. Its valuation of US$52 mn needs to be seen in this context versus US$670 mn valuation of Zomato based on the recent transaction. Info Edge had expected the Zomato business to break even at a top line of Rs. 40. Cr to Rs. 50 Cr. This is in contrast to the current losses at projected topline of Rs. 80 Cr to Rs. 90 Cr in FY2015E. It believes Zomato will leverage its recent acquisitions to cross-sell products and establish a presence in new markets. Presently most of the revenues of the portal come from India and the UAE. However, given that Zomato will need additional funding, there is a chance that INFO EDGE might not be able to retain its 50 % stake in Zomato unless it decides to raise further capital or divert some of the $125mn raised from the recent QIP towards Zomato. The QIP money was raised by Info Edge with the intention of investing into 99acres which is the real estate classified business. Post the last round of fund infusion into Zomato which was in January 2015, INFO EDGE would have Rs. 1060 Cr in cash of which Rs. 750 Cr is earmarked for investment into 99acres. There is a high growth potential of Infoedge to unlock the actual value of the stock over the years to come. Listing of its subsidiaries can also be supporting to the company’s valuation. On SOTP (sum-of-the-parts) basis, the value of INFO EDGE alone comes at Rs. 505.00 per share valueing 29.70 x its FY17E EPS of Rs. 17. The valuation of the Investee comapnies - the value of 99acers comes at Rs. 167 per share, Zomato Media valuing it at 10x to sales having 50 % stake comes to Rs. 178 per share; Applect Learning Systems valuing 6x to sales having 56 % gives Rs. 13 per share; Canvera Digital Technologies valuing 6x to sales having 33 % stake gives us Rs. 35 per share, totaling this gives us the value of its subsidiaries at Rs. 332 per share. And valuing the whole gives us the value of INFO EDGE of Rs. 986.00 per share. It is expected that the company’s surplus scenario is likely to continue for the next three years & will keep its growth story intact for the coming quarters also. 

SOTP VALUATIONS :
Business Subsidiary 
Value Per Share ()
InfoEdge Standalone
505.00
99acres (Non-Listed)
167.00
Zomato (Non-Listed)
178.00
Applect Learning Systems (Non-Listed)
13.00
Canvera Digital Technologies (Non-Listed)
35.00
Other Investments
88.00
TOTAL
986.00

KEY FINANCIALSFY14FY15EFY16EFY17E
SALES ( Crs)505.09604.70736.50891.70
NET PROFIT (₹ Cr)128.50155.70203.80251.70
EPS ()11.8013.0017.0021.00
PE (x)74.0062.3047.6038.50
P/BV (x)11.606.005.505.00
EV/EBITDA (x)47.9044.1034.4026.60
ROE (%)18.4013.1012.0013.50
ROCE (%)14.309.308.309.50

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Tuesday, February 3, 2015

WONDERLA HOLIDAYS LTD : WONDERFUL STOCK !!!


Scrip Code: 538268 WONDERLA
CMP:  Rs. 313.10; Market Cap: Rs. 1,769.03 Cr; 52 Week High/Low: Rs. 355.50/ Rs. 152.20.
Total Shares: 5,65,00,670 shares; Promoters : 4,01,00,222 shares –70.97 %; Total Public holding : 1,64,00,448 shares –29.03 %; Book Value: Rs. 29.10; Face Value: Rs. 10.00; EPS: Rs. 9.00; Dividend: 15.00 %; P/E: 34.78 times; Ind. P/E: 56.15; EV/EBITDA: 27.81.
Total Debt: Rs. 18.59 Cr; Enterprise Value: Rs. 1,784.75 Cr.

WONDERLA HOLIDAYS LIMITED: Incorporated in 2002, Wonderla Holidays Ltd is one of the largest operators of amusement parks in India. The company came out with an IPO on April 2014 offering 1,45,00,000 equity shares of Rs. 10 each for Rs. 125 per share raising Rs. 181.25 Cr. The object of offer for sale was to set up an amusement park in Hyderabad and for other general corporate purposes. Wonderla Holidays Limited (Wonderla) is an operator of amusement parks in India. The Company owns and operates two amusement parks in Bangalore and Kochi under the brand name Wonderla. The Company also owns and operates a resort beside its amusement park in Bangalore under the brand name Wonderla Resort. The Company’s amusement parks offer a range of water and land based attractions catering to all age groups. Wonderla Kochi is located just 15 kilometers from Kochi city, is home for approximately 55 amusement rides. The dry rides at Wonderla comprise of land rides, sky rides and hi-thrill rides. Currently, Wonderla Holidays is in the process of setting up their third amusement park in Hyderabad. They also own and operate a resort beside the amusement park in Bangalore under the brand name 'Wonderla Resort' which has been operational since March 2012. Wonderla amusement parks offer a wide range of water and land based attractions catering to all age groups. They have 22 water based attractions and 34 land based attractions at Wonderla Kochi, situated on 92.95 acres of land and 20 water based attractions and 33 land based attractions at Wonderla Bangalore, situated on 81.75 acres of land. Wonderla Resort is a 'Three Star' leisure resort located beside their amusement park in Bangalore comprising of 84 luxury rooms, with amenities including banquet halls, a board room, conference rooms, a multi-cuisine restaurant, a solar heated swimming pool, recreation area, kid’s activity centre and a well-equipped gym. Wonderla Holidays Limited is locally compared with Nicco Parks & Resorts Ltd, Galaxy Entertainment Corp Ltd, Cineline India Ltd, Delta Corp Ltd, H.S India Ltd, T. Spiritual World Ltd, Oriental Hotels Ltd, B.L. Kashyap and Sons Ltd, Viceroy Hotles Ltd, Mahindra Holidays & Resorts India Ltd, Sterling Holidays & Resorts Ltd, EsselWorld, Appu Ghar, Queens Land, Vismaya, Tikuji-Ni-Wadi, Funtasia Water Park, Snow World, Jalavihar, Aquatica, Adlabs Imagica, Ramoji Film City  globally compared with The Walt Disney Company of USA, Twenty First Century of USA, Dreamworks Animations Plc of USA, Cedar Point of United states, Europa Park of Germany, Port Aventura of Spain, Six Flags Great Adventure and Wild Safari of USA, Blackpool Pleasure beach of United Kingdom, Everland of South Korea, Canada’s Wonderland of Canada, Ocean Park of Hong Kong, Efteling of Netherlands, Dreamworld on the Gold Coast of Australia, Busch Gardens of USA, Wisconsin Dells of USA.

Investment Rationale:

Wonderla Holidays, promoted by the Chittilappilly family. Wonderla is one of the largest amusement park companies in India and currently operates two amusement parks – one in Kochi and another in Bengaluru along with a resort adjacent to its Bangalore Park under the brand name 'Wonderla Resort' which has been operational since March 2012. Amusement parks offer a wide range of water and land-based attractions catering to all age groups and Wonderla has 22 water-based attractions and 33 land-based attractions at Wonderla Kochi which is 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. Wonderla recorded total footfalls of 23,40,000 in FY13 and 22,90,000 in FY14 across the two amusement parks in Kochi and Bangalore. The Total Footfalls across the two amusement parks have posted a CAGR of 7.42 % from FY11 to FY13. The resort operated under the name, Wonderla Resort, is a ‘Three Star’ leisure resort located beside the amusement park in Bangalore comprising of 84 luxury rooms, with amenities including banquet halls, a board room, conference rooms, a multi-cuisine restaurant, a solar heated swimming pool, recreation area, kids’ activity centre and a well-equipped gym. Company has also acquired 49.57 acres of land for setting up the proposed amusement park in Ranga Reddy district of Andhra Pradesh. Wonderla promoters launched their first park in 2000 in Kochi under the name Veegaland, and then they successfully launched the second park in Bangalore in 2005. The promoters have experience of over 14 years in operating an amusement park. There are only 15-16 large players in India who operate large parks and Wonderla is one of them. Wonderla enjoys the first mover advantage in Kochi and Bangalore where there are only few medium and small parks but not a single large park. Wonderla has excess land available in both the parks for future expansion. Wonderla is coming up with its new amusement park in Hyderabad which is spread over 49 acres of land from which 27 acres has already been developed. The park is expected to be operational from FY17 and part of the IPO fund will be used to fund this park development. Development of a park takes 20-24 months post approvals and 8-9 years for pay-back. Company is now aggressively expanding business with the addition of two new parks in Hyderabad and Chennai (proposed) which will drive long term growth. The Indian amusement park industry is still at a nascent stage, the size of amusement park industry in India is estimated to be Rs. 2,600 Cr ($0.4 billion) with 150 amusement parks in India and globally the amusement park industry is of size of Rs 1,62,500 Cr ($25 billion), and this gives a huge opportunity for this industry. Indian amusement park industry got started with Appu Ghar in 1984. In late 90’s other large players like Essel World and Nicco Park started their operations in Mumbai and Kolkata respectively. Indian amusement park industry is growing in terms of footfalls though still at a very nascent stage compared to its global peers. It witnesses an annual footfall of 5.8 Cr to 6 Cr. The primary drivers to attract footfalls are size of the park, proximity of location and innovative offerings. Water parks are more popular in India due to the hot and humid weather. This Industry is broadly categorised into Large Parks, Medium Parks & Small Parks. Capex required for large parks are more than Rs. 70 Cr with land size of more than 40 Acres and can have annual visitors of around 5 lakhs. Large parks are usually located in Metros cities and in outskirts like Essel World of Mumbai, Nicco Park of Kolkata, Kishikinta of Chennai, Wonderla of Kochi & Bangalore, there are 16 t 18 such Large Parks in India. Medium Parks: Capex required for Medium parks are between Rs. 30 Cr to Rs. 70 Cr with required land size of between 10 to 40 Acres and can have annual visitors of around 3 to 5 lakhs. Medium parks are usually located in Outskirts of metros, Tier 1 Cities like GRS Fantasy Park of Mysore, Ocean Park of Hyderabad, there are about 40 to 50 such parks in India. Small Parks: Capex required for Small parks are about Rs. 30 Cr with required land size of around 10 Acres and can have annual visitors of around 3 lakhs. Small parks are usually located in Tier II cities, small towns, outskirts of metros and Tier 1 Cities like Fun N Food Kingdom of Dehradun, there are about 85 to 95 such parks in India. The domestic spend on tourism in India is expected to rise significantly which is the one of the biggest growth driver for the industry. Domestic tourism industry has clocked 13 % CAGR in past six to seven years. It is expected to increase from $7,700 Cr in CY11 to $8,900 Cr in CY20. With rising income levels, Indians are spending more on tourism related activities. Holidaying, leisure and recreation related tourism constitutes major part of the domestic tourism. Local residents form majority of the footfall of around 84 % followed by domestic tourist, which forms 15 %. Foreign tourism constitutes negligible part of less than 1 %, of total visitors in the park. One of the biggest growth drivers for an amusement park is increased footfalls. Wonderla has been successful in increasing the footfalls at 9 % CAGR over the last five years from 16,10,000 visitors in FY10 to 22,90,000 visitors in FY14. Bangalore Park’s being the new park in the market its footfall growth is higher compared to Kochi. Bangalore market has grown from 7 lakh in FY10 to 11,90,000 in FY14, marking a CAGR of 11 %, while Kochi has grown from 8,90,000 to 11 lakh during the same period, marking a CAGR of 4 %. Attractive location and its proximity to a city ensure footfalls addition for Wonderla and its three parks - Kochi, Bangalore and Hyderabad are situated in the proximity of the main city. Wonderla Kochi is located in Pallikkara, 15km from central Kochi, while Wonderla Bangalore is located off the Bangalore-Mysore highway, 28km from central Bangalore. Wonderla Hyderabad is in the Ranga Reddy District, Andhra Pradesh which is 27km from central Hyderabad, 33km from Secunderabad Railway Station and 12km from Hyderabad Airport. Also Wonderla has a flexi pricing policy for peak season and offseason to ensure continuity of footfall in offseason. As amusement parks attract larger crowd on weekends, prices are at 25 % premium than weekday prices. Rates are also differentiated based on the festive season. Festive season rates quote at 8-10 % premium than regular weekend rates. Festive seasons for Bangalore are Onam, Dussherra, Christmas and New Year’s Eve, while for Kochi they are Onam, Ramzan, Christmas and New Year’s Eve. Wonderla also offers discounts ranging from 10-30 % for group bookings and corporate booking. It books revenue “net of discounts” and “net of taxes”, thus reflecting prudent accounting. Another innovative pricing used by Wonderla is “Fast Track” pricing strategy, which commands 100 % premium over regular prices. Also Company issues 250 tickets per day as fast track tickets, which reduce the average waiting time for a visitor substantially. Even though average realization is high in Fast Track prices, Wonderla is also planning to limit the number of tickets to 250 per day. Wonderla has set-up in-house capabilities in Kochi to design, develop and manufacture rides. This reduces the capex, maintenance costs and the down-time for a ride for Wonderla. The Management claims to manufacture rides at 1/3rd of the cost of procuring externally. Around 1/3rd of rides are manufactured in-house. As of January 31, 2014, company constructed 42 rides, of the total 55 attractions, Wonderla Kochi and Bangalore has 10 and 18 rides imported respectively. Balance is either in-house manufactured or domestically sourced. In-house manufacturing benefits Wonderla with certain cost efficiencies such as saving on import duties and other costs, besides improving the efficiency in rides maintenance. Wonderla has relatively low ticket price base, management expects 5-7 % and 8-10 % growth in footfall and ticket price respectively over the medium term at existing parks. From existing parks, management guides operational cash flow of about Rs. 40 Cr to Rs. 45 Cr pa. Wonderla is setting up its 3rd park in Hyderabad which is spread across 50 acres and is expected to be operational in 1QFY17 this project has a capex of Rs. 250 Cr and which is partly funded through IPO proceeds of Rs. 180 Cr. Wonderla also plans to set up a park in Chennai and is currently looking for suitable land. Management plans to open more parks every 3-4 years in other tier-1 cities as well. Setting up a park requires high upfront capex and thus margins and return ratios would be under pressure in the initial years of commencement of Hyderabad Park, after which management expects improvement once the assets reasonably depreciate and asset turnover picks up. Management guides the new park to be cash/PAT break-even in the 1st/3rd year, with full payback in 8-9 years. Wonderla’s existing business enjoys robust and more importantly, sustainable EBIDTA margin in excess of 40 %. Wonderla’s Return ratios like RoE and RoCE have historically remained healthy though a large upfront capex on Hyderabad project would impact return ratios in the near term; however, eventually it is expected that these to trend higher once the park starts contribution in a meaningful manner. Wonderla enjoys RoCE of more than 30 % supported by free cash generation from amusement parks as they attain maturity due to high EBIT margins, lower incremental capex and improved revenue mix.

Outlook and Valuation:
Wonderla Holidays Limited is a part of the Kochi based V-Guard group. Wonderla Holidays is a very unique in business model with inherently strong profitability at an attractive valuation. Wonderla has high operating margins; high ROCE, niche & ambitious expansion plans make it an attractive stock to pick. Wonderla is a large park and there are only 15-16 large amusement parks in India. As there are no large amusement parks in the locations where Wonderla is situated, it is a huge advantage for the company. Though there are few small and medium sized parks in Kochi and Bangalore respectively, they cannot compete with Wonderla. Management believes that an amusement park is not a price sensitive market and has been taking 10 % price hike every year for the last five years, signifying the brand equity. The new park coming up in Hyderabad may face competition from already existing large players like Ramoji Studio. However, as Ramoji is a film city, it caters to a different set of attraction and thus is not a direct competitor to Wonderla. Amusement parks are targeted to attract young generation. India, being one of the youngest countries in the world and enjoys demographic dividend with the median age of 26.5 years, has majority of its population between 15-59 years, which will be the biggest growth driver for this industry. Countries like the US, Japan and China have older population with median age of 37.1 years, 45.4 years and 35.9 years respectively. As per the study conducted by E&Y, in India, children are the key influences for amusement and theme parks visits. They generally come to parks in school groups or with families. But they constitute only 25 % of the park visitors and balance 75 % are adults. In India, around 28.50 % of the population lies in the age group of 0-15 years, 63.40 % in 15-59 years and 8.10 % in 60 years and above, respectively. Ticket sales form the major source of revenue stream for amusement parks in India. In India, the parks revenue constitutes areas like Food & Beverages merchandising which contributes 18 % as against global average of 34 %; Entry fees contributes 20 % as against global average of 33 %; Resort rentals and others contributing 2 % as against global average of 33 %. Globally, entry fee, food and beverages and resorts and rentals contribute similar proportion to revenue. For Wonderla, Food and Beverages contribute 3-4 % of the total revenue. There are two sources of revenue in F&B segment. First revenue is from its own operating restaurant and second is the revenue sharing model with other outsourced restaurants. At both the amusement parks, Wonderla has seven operational restaurants which offer various cuisines, including South Indian, North Indian, Chinese and Continental etc. Of the total seven restaurants each in Kochi and Bangalore, company has taken over the operation of one named Waves Restaurant at Bangalore and Kochi Park since November 2012 and April 2013 respectively. Company follows a revenue sharing model with other six contractors for the operation of restaurants. Wonderla has entered into a revenue sharing agreement to receive 25 % of the revenue as its share, which directly improves earnings. Outside food is prohibited in the park, though all food items are sold at maximum retail price inside the park. Food and Beverages revenue is expected to grow at 15-17 % over next three years. F&B realization per visitor has increased from Rs. 12 in FY09 to Rs. 37 in FY14, clocking in 21 % CAGR. The new rides and offerings ensures growth in total realization per visitor from Rs. 414 in FY09 to Rs. 652 in FY14, marking 10 % CAGR. Based on management guidance, Wonderla can register 5- 7 % footfall growth and 8-10 % annual ticket price increases which imply 15 % plus revenue growth. The Commencement of the Hyderabad park in 1QFY17 is expected by the company to further boost footfall and revenue growth. Management expects that with limited incremental capex and negative working capital, growth in cash flow generation is expected by the company to be healthy. Wonderla has a healthy balance sheet with a total debt/equity ratio at 0.14x as of FY14. Wonderla operates on a negative working capital business model and typically requires low incremental capex which amounts to around Rs. 2.5 Cr- 5 Cr annually. Over FY09-14, Wonderla registered Revenue CAGR of 20 %, EBITDA CAGR of 21 % and PAT CAGRs of 29 % with a 5-year average RoCE of 39 % & RoE of 33 %. Based on post IPO diluted equity, it is expected that its FY15 EPS to be t Rs. 11.00 & its FY16 EPS to be at Rs. 12.20. Comparing Wonderla with its peers on a PE basis, it appears that enough valuation headroom is left, given that larger USlisted peers like Six Flags, Cedar Fair trade between 14x27x on CY14 basis. Amusement parks attain maturity; they can throw up significant cash flows since they require only maintenance capex: for instance, in FY10 and FY11, when there was no large ongoing project, capex/sales was just 5 %7 % which helped generate large free cash flows. Given attractive valuations, robust growth prospects and inherently strong profitabilityIt is expected that with the company’s surplus scenario is likely to continue for the next three years & will keep its growth story intact for the coming quarters also. 

KEY FINANCIALSFY14FY15EFY16EFY17E
SALES ( Crs)153.60178.30202.50264.20
NET PROFIT (₹ Cr)39.8947.7053.2067.90
EPS ()9.5011.0012.2015.60
PE (x)30.4018.0016.2012.70
P/BV (x)5.502.402.201.90
EV/EBITDA (x)23.3012.0011.408.50
ROE (%)29.6018.9014.2016.10
ROCE (%)37.8027.5021.1024.00

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Disclaimer
This is a personal blog and presents entirely personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. These informations are sourced from publicly available data. By using/reading this blog you agree to (i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible.
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*Dear Reader friend, if you enjoyed this article, please do share it with your Friends and Colleagues through Facebook and Twitter, and drop in your valuable thoughts in comment box..

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