Saturday, September 3, 2016

INDIA NIPPON ELECTRICALS LTD : SLOW BUT STEADY !!

Scrip Code: 532240 / INDNIPPON

CMP: Rs. 390.50; Market Cap: Rs. 441.68 Cr; 52 Week High/Low: Rs. 435.00/ Rs. 315.00.

Total Shares: 1,13,10,712 shares; Promoters : 75,09,166 shares –66.36 %; Total Public holding : 38,01,546 shares –33.64 %; Book Value: Rs. 207.63; Face Value: Rs. 10.00; EPS: Rs. 23.82; Dividend: 90.00 %; P/E: 16.62 times; Ind. P/E: 55.23; EV/EBITDA: 9.86 times.

Total Debt: ZERO; Enterprise Value: Rs. 437.67 Cr.

INDIA NIPPON ELECTRICALS LIMITED: Incorporated in 1984, and converted into a joint venture in 1986 between Lucas Indian Service Ltd, a wholly-owned subsidiary of Lucas-TVS Ltd and Kokusan Denki Co. Ltd, Japan - a group company of Hitachi Japan. The company came out with an IPO on September 1986 offering 49,50,000 equity shares of Rs. 10 each. The company has not given any splits in face value of its shares. The company gave its first bonus in May 1994 in ratio of 1 bonus for every 2 held, on December 1998 in ratio of 8 bonus for every 5 held, in October 2002 in ratio of 7 bonus for every 10 held and last bonus was announced in August 2011 in ratio 2 bonus for every five held. India Nippon Electricals Ltd is manufactures Electronic Ignition Systems for two-wheelers, three wheelers and portable engines. Over the years the company has enlarged its customer base and now supplies to most of the manufacturers of two-wheelers, three wheelers and gensets. INEL makes the entire range of 2/3 wheelers, digital and analog ignition products. The company mainly deals with the ignition units, coils, regulators, flywheel magnetos, capacitor discharge, etc. Its products include AC Generator, Capacitor Discharge Ignition & Transistor Ignition Units, Ignition coil Units, Integral Units (Combined CDI & Ignition Coil), Regulator / Rectifier Units. The company obtain certificates of recognition from BVQI for ISO 9001 in the year 1998, QS 9000 in the year 2001 and ISO 14001 in the year 2002. The company's manufacturing unit is at Hosur- Thali Road Uliveeranapalli Krishna giri District Tamil Nadu India, second one at Madukarai Road, Nettapakkam Commune Kariamanickam Village Pondicherry and third at Rewari Masani Village Rewari Haryana State India. It also has a wholly owned subsidiary with Lucas TVS Ltd and Kokusan Denki Company Limited, a member of Hitachi, Japan. And an investment arm IN Investments Ltd and helds all the 63,010 equity shares making it 100 % subsidiary of the company. INDIA NIPPON ELECTRICALS LTD is locally compared with Denso India Ltd, Minda Industries, Majestic Auto Ltd, Igarashi Motors, Remsons Industries, PPAP Automotive Ltd, Motherson Sumi Systems, REIL Electricals, Lumax Industries and globally compared with Delphi Automotive of UK, BorgWarner of USA, Federal Mogul Corp of USA, Denso Corp of Japan, Robert Bosch GmbH of Germany, SEM of Sweden, Mitsubishi Electric Corporation of Japan.

Investment Rationale:

India Nippon Electricals Limited (INEL) was incorporated in 1984. The company is into manufacturing of electronic ignition systems, auto components and other related products for two wheelers, three- wheelers and portable gensets. Offers wide range of products INEL offers varied range of products to serve 2/3 wheelers, mopeds and portable engines effectively. Its products are used in different areas such as power generation, power management, ignition management, automotive electronics and test kits. The company manufactures rotors, stators, capacitor discharge ignition and transistor ignition units, ignition coil and control units, integral units such as combined capacitor discharge ignition and ignition coil units, regulators and rectifiers. Strong client base INEL is one of established players in the auto ancillary industry. It operates in both domestic and international markets. It has strong client base which includes clients like- TVS Motor, Hero Honda Motor, Honda Motorcycle and scooter, Bajaj Auto, Royal Enfield, LML, Lombardini India, Piaggio India, Honda SIEL Power Products, Birla Power Solutions, Kokusan Denki and others. INEL has successfully demonstrated to the two wheeler industry its ability to adapt to the changing business and technological needs of customers in the areas of quality and customer service. India’s automotive industry is one of the most competitive in the world. Leading auto maker expects Indian passenger car market to reach four million units by 2020, up from 1.97 million units in 2014-15. The Indian automotive sector has the potential to generate up to US$ 300 billion in annual revenue by 2026, create 65 million additional jobs and contribute over 12 per cent to India’s Gross Domestic Product, as per the Automotive Mission Plan 2016-26 prepared jointly by the Society of Indian Automobile Manufacturers (SIAM) and government. The Indian auto industry is one of the largest in the world with an annual production of 2.33 Cr vehicles in FY 2015-16, following a growth of 8.68 % over the last year. The Two Wheelers segment with 81 % market share is the leader of the Indian Automobile market owing to a growing middle class and a young population. Moreover, the growing interest of the companies in exploring the rural markets further aided the growth of the sector. The overall Passenger Vehicle (PV) segment has 13 % market share. India is also a prominent auto exporter and has strong export growth expectations for the near future. In FY 2015-16, automobile exports grew by 15 % over the last year. In addition, several initiatives by the Government of India and the major automobile players in the Indian market are expected to make India a leader in the Two Wheeler (2W) and Four Wheeler (4W) market in the world by 2020. The industry produced a total 1.42 Cr vehicles including PVs, commercial vehicles (CVs), three wheelers (3W) and 2W in April-October 2015 as against 13.83 in April-October 2014, registering a marginal growth of 3.07 % year-on-year. The sales of PVs grew by 8.51 % in April-October 2015 over the same period last year. The overall CVs segment registered a growth of 8.02 % in April-October 2015 as compared to same period last year. Medium & Heavy Commercial Vehicles (M&HCVs) registered very strong growth of 32.3 % while sales of Light Commercial Vehicles (LCVs) reduced by 5.24 % during April-October 2015 year-on-year. In April-October 2015, overall automobile exports grew by 5.78 %. PVs, CVs, 3Ws and 2Ws registered growth of 6.34 %, 17.95 %, 18.59 % and 3.22 % respectively in April-October 2015 over April- October 2014. During 2015-16, the two three wheeler industry grew 2 % and India Nippon Electrical sales posted a growth of 4 % over its previous year despite difficult market conditions. India Nippon achieved a 54 % growth in export business and the direct sales to aftermarket recorded a growth of around 36 % with the help of expanding the dealer network and product range. The company have secured business for EGR controller for small diesel engines; company will work closely with customer to meet BS IV emission norms. The company is jointly developing other technology oriented products like ECU for Electronic Fuel Injection (EFI), Integrated starter Generator (ISG) for two wheeler and off road engines with its technical partners. ISG & EFI are two critical new technologies that will be disruptive to the industry and with constant focus on R&D the engineers along with technical partners are building newer capabilities for the future. The company has planned major investment which will be fruitful in next two years. Great R&D facility and product line-up along with the strong clientele, India Nippon looks promising.

Outlook and Valuation:

Incorporated in 1984, INEL was converted into a joint venture in 1986 between Lucas India Services Ltd ( a wholly owned subsidiary of Lucas- TVS Ltd) and Kokusan Denki Co. Ltd, Japan ( a group company of Hitachi Japan) to manufacture electronic ignition systems for two-wheelers, three wheelers and portable engines. In 1986, the company established its first manufacturing plant in Hosur at Tamil Nadu and started production to supply to TVS Motor Company for motor cycles. INEL offers wide range of products which include flywheel magnetos, capacitor discharge ignition units, ignition coils and others. Its manufacturing facilities are located in Hosur, Puducherry and Rewari. The company serves to domestic and international markets with a subsidiary viz- P T Automotive Systems Indonesia. The Indian auto component industry expects to grow by over four-fold to US$ 113 billion by 2020, as per the Automotive Component Manufacturers' Association (ACMA). The total passenger car production in the country will jump four times to reach 9 million cars in the next ten years. Although a major chunk of this will come from the fast growing domestic market, exports are likely to form around 35 % of the total market by 2020. India would be among the top-five vehicle producing countries in the world by 2020. The 40 % of the auto component industry is dominated by body and structural products, 20 % by engines and exhaust, and 10 % each by suspension and braking parts, transmission and steering parts, electronics and electrical and interiors. By 2017, body and structural will account for 35 % of the auto component industry, engines and exhaust 20 %, suspension and braking parts, transmission and steering parts and electronics and electrical will account for 13 % each and interiors 9 %. India is turning out to be an attractive destination as a global outsourcing hub and manufacturing base for original equipment manufacturers (OEMs), especially after the global economic downturn. With the finalisation of the Automotive Mission Plan (AMP) India is expected to become a preferred destination for design and manufacture of automobile. The plan envisaged an investment of US$ 40 billion and provided a road map to help transform India into a global automobile player. The AMP proposed a 25-point plan that included making India a manufacturing and export hub for small cars, multi-utility vehicles, two and three-wheelers, tractors and components. The Government has taken many initiatives to promote foreign direct investment (FDI) in this industry like Automatic approval for foreign equity investment up to 100 % of manufacture of automobiles and components is permitted, the automobile industry is de-licensed, and Import of components is freely allowed. The Ministry of Heavy Industries and Public Enterprises has envisaged the Automotive Mission Plan 2006-2016 to promote growth in the sector. It targets to Increase turnover to US$ 122 billion–US$ 159 billion by 2016 from US$ 34 billion in 2006, increase export revenue to US$ 35 billion by 2016 Provide employment to additional 25 million people by 2016. India Nippon Electricals ltd being a leader in manufacturing of Electronic Ignition Systems for two-wheelers, three wheelers and portable engines, will surely be benefitted by the increased investments in auto sector and by increase export potentials. On the financial side INEL posted good numbers. Its June 2016 net Revenue came in at Rs. 84 Cr as against Rs. 78.33 Cr YoY. It posted total expenses of Rs. 76.83 Cr as against Rs. 71.77 Cr YoY. The company posted Net Profit of Rs. 6.12 Cr as against Rs. 6.11 YoY. India Nippon is a very small company with good financials and has strong cash flow generating capacity; the company has been able to keep its debt to equity lower and also been able to expand through internal accruals. India Nippon Electricals ltd is debt free company and can remain debt free due to its huge cash flow. At the current market price of Rs. 90.50, the stock is trading at a PE of 14.04 x FY17E and 13.01 x FY18E respectively. The company can post Earnings per share (EPS) of Rs. 27.75 in FY17E and Rs. 30.00 in FY18E. 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)	327.73	339.65	368.90	400.25
NET PROFIT (₹ Cr)	22.66	26.93	31.35	34.00
EPS (₹)	20.05	23.83	27.75	30.00
PE (x)	17.57	14.46	13.25	12.25
P/BV (x)	1.79	1.62	1.48	1.80
EV/EBITDA (x)	8.43	7.14	6.05	5.70
ROE (%)	9.30	10.22	11.19	11.62
ROCE (%)	17.72	21.43	20.08	20.50

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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

As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % on every purchase. (Why Strict stop loss of 8 % ?) -