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Tuesday, August 23, 2016

WONDERLA HOLIDAYS LTD: MAKING WONDERS !!!

Scrip Code: 538268 / WONDERLA

CMP: Rs. 414.50; Market Cap: Rs. 2,342.80 Cr; 52 Week High/Low: Rs. 429.85/ Rs. 245.25.

Total Shares: 5,65,00,670 shares; Promoters : 4,01,09,222 shares –70.98 %; Total Public holding : 1,63,91,448 shares –29.01 %; Book Value: Rs. 71.33; Face Value: Rs. 10.00; EPS: Rs. 9.60; Dividend: 20.00 %; P/E: 43.19 times; Ind. P/E: 51.12; EV/EBITDA: 23.79.

Total Debt: Rs. 7.49 Cr; Enterprise Value: Rs. 2,277.57 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 and 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 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'. 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. 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. India has a large pool of young population. The median age of India’s population is around 27 years. The country has 61 % of its population under the age of 30 and 29 % below the age of 14 years. According to economic survey, India is expected to be the youngest Country in the world with the median age of population at 29 years by 2020. The young population is the main driver of consumer spending and looks for different modes of entertainment. Further, the child population is the influencing factor for parents to visit theme parks and play zones. Hence, this demographic dividend will benefit amusement parks as majority of its customers are in this age bracket. India has witnessed a steady increase in its per capita income over the years. Its per capita income at the current market price is estimated to increase at a CAGR of 15 % to Rs. 1.9 lakh in 2014-20E. Apart from rising per capita income, discretionary spend is also expected to increase significantly over the coming years led by higher disposable income, change in consumer spends and up-gradation of lifestyle. The share of discretionary spend is expected to increase from 59 % in FY10 to 67 % by FY20. Within discretionary spend, the share of leisure is expected to increase at a CAGR of 6.4 % to Rs. 8,98,400 Crore in CY 24. With a higher disposable income and increase in discretionary spend, entertainment companies like theatres and theme parks have been able to increase average ticket prices and also witness an improvement in non-ticket revenues over the years. 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. Wonderla has two parks that are mature i.e. Wonderla Kochi and Wonderla Bengaluru. Both parks have been able to clock RoCE of 35 %. Both parks have been able to maintain average EBITDA margin of 45 % in FY11-16 led by stable footfall, competitive pricing and operating leverage as 70 % of cost is fixed. Robust cash flow from these parks and lower capex spend are expected to enable Wonderla to not only support growth but also help the Company to fund its Hyderabad capex and losses in the initial years. WHL has also been able to increase its blended realisation per footfall at a CAGR of 15.6 % in FY11-16. A consistent increase in realisation and stable EBITDA margins has enabled the company to reduce its payback period from nine years in Kochi to 7.5 years in Bengaluru. The payback period in Hyderabad is expected to further reduce to seven years led by higher realisation and healthy EBITDA margins. WHL has commissioned a third park in Hyderabad. The park has better Connectivity compared to other parks in Hyderabad – it is close to the airport and located outside the ring road that connects to Hyderabad city. Hyderabad has 1.2 Cr people with per capita income of Rs. 1,32,862 which is one of the highest in south India. Coupled with favourable macros like GDP CAGR of 10 % in FY06-14, the park is expected to witness robust footfall and healthy realisation over the coming years. The Company has guided for footfall of 7 lakh and gross realisation of Rs. 990 leading to gross revenues of Rs. 69.0 crore. The company aims to achieve footfall of 10 lakh over the next three years. The restaurants at the Hyderabad park are owned by Wonderla. Hence, WHL will realise higher gross margins 45 % in the F&B segment, positively impacting overall margins. 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. An improving economy, higher discretionary spend, rising footfall, better pricing power, growth in non-ticket revenues and limited competition are likely to remain key drivers of growth in FY16-18E. Given this scenario, it is expected that the Bengaluru and Kochi parks to grow at a CAGR of 13.0 % in FY16-18E. It is expected that the addition of the Hyderabad park which is operational from April 2016 and Wonderla resort which is expected to grow at 15.0 % CAGR in FY16- 18E to further drive revenues. Overall, it is expected that its net sales to grow at 30.8 % CAGR to around Rs. 351 crore in FY16-18E. Wonderla’s Return ratios like RoE and RoCE have historically remained healthy. 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. Wonderla Chennai is in pipeline and company intends to expand its business operations and develop its brand ‘Wonderla’ by setting up new amusement parks in other parts of India and thereby cater to a wider customer base. It plans to capitalize on experience and expertise in the amusement park industry and leverage the existing goodwill associated with the brand to establish and expand amusement parks in newer geographies. Hence, management is in the process of identifying a suitable parcel of land in Chennai for setting up amusement parks. Amusement parks are one-day entertainment concepts in India, whereby visitors arrive in the morning and leave at the end of day, making the parks a “one day” attraction. However, with the introduction of company’s resort, it has become more of a “destination” park. Wonderla launched its first leisure resort by the name “Wonderla Resort” besides the amusement park in Bangalore in March 2012. The resort comprises of 84 luxury rooms with amenities including banquet halls, a board room, conference rooms, a multi-cuisine restaurant, rest-o-bar, a solar heated swimming pool, recreation area, kids’ activity center and a well-equipped gym. This resort has complete facilities compared to others, 24-hour dining facility, LCD television, Wi-Fi connectivity etc. It has four banquets spread across 8,900sqft, which can accommodate 800 guests and also has a board room. Thus, the resort can host multiple events like weddings, corporate meetings, parties etc. 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. Wonderla management has maintained its guidance of achieving footfalls of 65 lakh in FY2017 from the Hyderabad Park, while it will take some time for revival in footfalls in the Bangalore and Kochi parks as price hikes will get absorbed in the coming quarters. Also, the management is planning to add two new rides in Kochi by the end of Q2FY2017 with an investment of Rs. 25 to 30 crore. Also, it is planning a capex of Rs. 90 crore at the proposed Chennai park. The commencement of work for the Chennai park will start once the project is finalised and detailed planning is done. The funding of the capex will largely be done through the internal accruals. Company would initiate extensive promotional activities to improve the footfalls at both the existing parks. Overall, the company expects its matured park footfalls to grow by 4 % to 5 % in the coming years. The non-ticket revenues would continue to support the overall revenue growth. OPM is expected to remain lower in FY2017 and is expected to improve gradually in FY2018 once Hyderabad Park attains certain scale of operations. Bengaluru resort is performing better as its revenue grew by 11 % YoY in Q1FY2017, with an occupancy ratio of 67 % as against 48 % in Q1FY2016. The average room rentals of the resort stood at Rs. 4,608 per room per day as against Rs. 5,147 per room per day. The management expects the Bangalore resort’s performance to improve in the coming quarters. It also expects gradual improvement in the profitability of the resort. In all on financial side for Q1FY2017, Wonderla Holidays revenue grew by 29.6 % to Rs. 88.9 Cr. It’s operating profit margin (OPM) contracted to 44.1 % in Q1FY2017 from 60.7 % in Q1FY2016. The commissioning of the Hyderabad Park in April led to a sharp increase in the overall operating cost as advertisement & promotional spends and direct operating expenses almost doubled YoY. Also, other expenses included Rs. 4.5 Cr provisioning toward service tax, leading to a significant decline in OPM during the quarter. Operating profit fell by 6 % YoY to Rs. 39.2 Cr and the Profit After Tax declined by 20 % YoY to Rs. 22.5 Cr. Wonderla enjoys a moat as this sector has high entry barrier due to huge capital investment and limited number of large amusement parks in India coupled with favourable demographics and rising discretionary spend augur well for WHL. It is expected it to witness a sharp improvement in footfall and realisation led by addition of new parks and Favourable demographics. Compring Wonderla with its peers on a PE basis, it appears that enough valuation headroom is left, given that larger US‐listed peers like Six Flags, Cedar Fair trade between 14x‐27x 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. Further, WHL has been able to generate higher cash flow driven by healthy margins at mature parks. As a result of high cash flow generation, the company has been able to keep its debt to equity lower and also been able to expand through internal accruals. WHL has consistently maintained an EBITDA margin of 45.0% (highest among Indian and global peers). Further, a healthy balance sheet (0.3x D/E vs. 1.46x for Adlabs), strong cash flow generation and revenue & EBITDA CAGR of 30.7 % and 37.5 %, respectively, in FY16-18E demands premium Valuations. At the current market price of Rs. 414.50, the stock is trading at a PE of 36.04 x FY16E and 25.27 x FY17E respectively. The company can post Earnings per share (EPS) of Rs. 11.50 FY17E and Rs. 16.40 in FY17E. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also.

KEY FINANCIALS	FY15	FY16	FY17E	FY18E
SALES (₹ Crs)	181.90	205.40	292.30	367.40
NET PROFIT (₹ Cr)	50.60	59.80	65.20	92.80
EPS (₹)	9.00	10.60	11.50	16.40
PE (x)	44.10	37.30	34.30	24.10
P/BV (x)	6.30	5.50	4.60	3.90
EV/EBITDA (x)	25.40	25.30	20.90	13.50
ROE (%)	20.00	15.80	15.60	20.00
ROCE (%)	37.70	15.60	23.00	29.30

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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 US‐listed peers like Six Flags, Cedar Fair trade between 14x‐27x 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 profitability. It 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 FINANCIALS	FY14	FY15E	FY16E	FY17E
SALES (₹ Crs)	153.60	178.30	202.50	264.20
NET PROFIT (₹ Cr)	39.89	47.70	53.20	67.90
EPS (₹)	9.50	11.00	12.20	15.60
PE (x)	30.40	18.00	16.20	12.70
P/BV (x)	5.50	2.40	2.20	1.90
EV/EBITDA (x)	23.30	12.00	11.40	8.50
ROE (%)	29.60	18.90	14.20	16.10
ROCE (%)	37.80	27.50	21.10	24.00

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