CD Equisearch Pvt Ltd Feb 26, 2015 Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance Wonderla Holidays Ltd. (WHL) No. of shares (crore) 5.65 Mkt cap (Rs crs) 1584 Current price (25/02/15) 280 Price target (Rs) 342 52 week H/L (Rs.) 355/156 Book Value (Rs.) 64 P/BV (FY15e/16e) 4.4/3.8 P/E (FY15e /16e) 29.1/24.6 BSE Code 538268 NSE Code WONDERLA Bloomberg WONH IN Daily volume (avg. weekly) 121858 Shareholding pattern % Promoters 70.98 MFs / Banks / FIs 2.10 Foreign 8.61 Govt. Holding 0.00 Non-Promoter Corp. 4.67 Total Public 13.64 Total 100.00 As on Dec 31, 2014 Recommendation BUY Analyst VIPUL SANGHANI Phone: + 91 (33) 4488 0055 E- mail: [email protected]Figures in Rs crs FY12 FY13 FY14 FY15e FY16e Income from operations 113.13 137.85 153.63 185.32 222.39 Other income 1.39 1.52 2.38 9.48 6.64 EBITDA (other income included) 57.14 64.34 73.03 98.11 113.05 Adjusted net profit 30.04 33.58 39.91 54.49 64.41 EPS- Diluted 5.32 5.94 7.06 9.64 11.40 EPS growth (%) 1.0 11.7 18.9 36.6 18.2 Company Brief Wonderla Holidays Ltd. (WHL) is one of the largest operators of amusement parks in India. It owns and operates two amusement parks under the brand name "Wonderla", situated at Kochi and Bengaluru. It has also developed a Wonderla resort in Bengaluru, a three star leisure resort next to its amusement park which has been operational since March 2012. Key Highlights The Indian Amusement Park Industry is still at a nascent stage of growth and is highly under penetrated. The country’s amusement parks industry, with 150 players, generated revenues of over Rs1800 cr in FY13. As per IAAPI estimates this will more than double to Rs 4000 cr by 2020. The main growth drivers would be rising discretionary spend on account of increasing per capita income, favorable demographic structure, lack of entertainment options and government thrust on tourism sector. The company's competitive strength lies in its in-house manufacturing facility at Wonderla Kochi to manufacture/construct amusement rides and attractions, apart from amusement rides procured from manufacturers within and outside India. As of Jan 31 2014, WHL constructed/manufactured 42 rides/ attractions. This has helped the company to reduce capex incurred on the rides; as per the management, the cost of a ride manufactured in-house is one- third of the cost of procuring the ride externally. WHL’s net sales has grown at an impressive CAGR of 20% over the last 5 years, while its net profit has grown at more than 29% CAGR over the same period. We expect company’s net sales to grow by 20.6% in FY15e and by 20% in FY16e on account of increasing per capita income and rising discretionary spending. The stock is currently trading at 29.1x FY15e of Rs 9.64 and 24.6x FY16e of Rs 11.40. However, looking at the earnings growth, strong balance sheet and the expansion plan, we assign a buy on the stock with a target price of Rs 342, based on 30x FY16e, over a period of 9- 12 months.
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CD Equisearch Pvt Ltd Feb 26, 2015
Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance
With sizeable population in this age bracket, interest
in amusement park is expected to rise. Visiting
amusement parks is a part of discretionary spending
and is perceived to be a leisure activity
The share of discretionary spending in overall
spending has increased from 30% in FY 2001-02 to 40%
in 2009-10 and is expected to increase to 50% by 2019-
20. Thus, rising discretionary expenditure along with
strong demographic dividend pans out good for the
company, which is a niche player in amusement park
industry. The rise in per capita income of the growing
middle class is also contributing to urbanization of the
country. By 2020, the urban population of India is
expected to increase to 35 % of the total population.
Due to this, the demand for entertainment options will
remain strong and instead of having to travel long
distances or even overseas to enjoy amusement rides,
people today chose to spend their earnings nearer
home.
Consolidated Footfall Break up of Visitors
Underpenetrated market and lack of entertainment options
WHL has been present in this business for the past 13 years. In India, within city entertainment options are
mostly limited to malls and movie theatres. There is considerable lack of full day entertainment avenues.
WHL is well equipped and positioned to plug this play and further penetrate the amusement park industry
which is hugely under penetrated in India as compared to other countries of the world. Over the last 5 years,
the Indian leisure industry is estimated to have increased its overall revenue by 20-25%. Malls are primarily
entertainment destinations in Indian cities. Parks in India are well positioned to attract demand from
customer segment. As per CARE Report, the amusement parks industry in India is estimated to be worth Rs
26 billion. As the Indian economy grows and industry models in America and Europe is replicated, Parks will
be able to market themselves as weekend getaways. Parks in India are still in the early stages of development.
Parks in Europe and America generate significant revenue from hotels, as trips to parks tend to be considered
as weekend getaways or holiday destinations. In India, the concept of a park vacation is still not popular.
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Source: Company, CD Research
Emphasis on tourism sector to boost leisure industry
Travel and tourism contributed INR 2,178.1 Billion to the country’s GDP in 2013. This is expected to rise by
7.5% to INR 2,341.45 Billion in 2014. The number of domestic tourist visits in India during 2012 was 1036.3
million as compared to 864.53 million in 2011, recording a growth rate of 19.9%. Tourism sector is the third
largest foreign exchange earner after gems, jewellery and readymade garments. In 2013, foreign exchange
earnings from tourism were USD 18.13 billion as compared to USD 17.74 Billion in 2012, registering a growth
of 2.2%. It is a big employment generator – every USD 1 Million invested in tourism creates 78 jobs. A
growing recognition of tourism's contribution to employment and economic growth. The availability of visa
on arrival facility significantly influences tourists travel plans to any country. During 2013 a total number of
Comparison of Parks size globally
20294 Visas on Arrival were issued, which amounts to
growth of 26%. The launch of several branding and
marketing initiatives by the Government of India such as
Incredible India! and Athiti Devo Bhava provides a focused
impetus to growth. All these factors augur well for the
company, which is a niche player in amusement park
industry. Local residents form majority of footfall (84%)
followed by domestic tourist (15%) and foreign tourist
consist of only 1%. With rising economic activity, domestic
tourism is expected to increase attracting more footfalls in
the major cities of India. CARE Research expects the
domestic tourism industry to grow at lower double digits in
terms of tourist arrivals. Source: E &Y Report, MOSL, CD Research
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Competitive Landscape of Major Parks in India
Rides Pricing
Parks Location
Size
in
acres
Dry Wet Pricing strategy Entry rate for adults
(Rs per person)
Avg
annual
footfall
(mn)
Essel World & water
kingdom Mumbai 64 Y Y
Separate entry fees
for amusement
park and water
park
Rs 560-690 (for either
amusement park or
water park)
1.8
Nicco Park Kolkata 40 Y Y
Separate entry fees
for amusement
park and water
park
Dry park package- Rs
340 Water charge
package-290
1.7
Wonder La Kochi 93 Y Y Single entry fees Rs 460-600 1.2
Wonder La Bengaluru 83 Y Y Single entry fees Rs 590-790 1.1
Ocean Park Hyderabad 20 Y* Y
Separate entry fees
for water park and
snow park
Rs 300 NA
Ramoji Film City** Hyderabad 1666 - - Single entry fees Rs 600 1.5
Adventure Island &
Metro Walk Rohini 62 Y Y Single entry fees Rs 500 NA
Entertainment City
( including
amusement park-
worlds of wonder)
Noida 44## Y Y
Single entry as well
as pay as you go
option available
Rs 450 NA
Kishkinta Chennai 120 Y Y Single entry fees Rs 450 NA
Queensland Chennai 70 Y Y Single entry fees Rs 350 NA
VGP Universal Chennai NA Y Y Single entry fees Rs 200 NA
MGM Dizzee World Chennai 27 Y Y Single entry fees Rs 500 NA
GRS Fantasy Park Mysore 30 Y Y Single entry fees Rs 395 NA
Mount Opera Hyderabad 55 Y Y
Single entry as well
as pay as you go
option available
Rs 360 NA
Athisayam Madurai 40 Y* Y Single entry fees Rs 500 NA
Black Thunder Mettupalayam 65 Y* Y Single entry fees Rs 450 NA
Appu Ghar Pune NA Y - Pay as you go Approx Rs 30 per ride NA
Fun N Food village* New Delhi 10 Y Y Single entry fees Rs 300 0.5
** Ramoji Film City is a theme park
* Ocean park, Black Thunder, Athisayam and Fun N Food Village are primarily water parks with a few dry rides.
## In phase 144 acres have been developed out of planned 147 acres.
Source: Company, CD Research
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Huge investment lined up
As discussed earlier, the rise of tourism sector augurs well for amusement park industry. A total of Rs 175
billion of investments pertaining to the 12 major projects are lined up over the next 3-4 years. The
amusement park in Surat is contributing around Rs 95-100 billion of this amount. Some of these large
projects may avail viability gap funding from the State governments. Most projects are expected to come up
in tier II and tier III cities due to difficulties faced in land acquisition. A total addition of 4500 acres of
capacity in the next 3-4 years will be one of the major drivers for the industry. As per CARE Report, 10-15%
of footfall growth is expected to be achieved over the next couple of years, which will drive the footfalls to
78-80 million.
Non Ticketing Revenue Share Also Set to Drive Growth Almost 75-80% of the total revenue of WHL comes from sale of tickets. Share of food & beverages is 15-20%,
which is significantly lower than global peers. International parks typically generate around 50% of revenue
from admission tickets. Total contribution from accommodation related revenues currently form only 2%,
which is expected to increase as amusement becomes more of a destination tourism than a single day
entertainment. The concept of integrated resorts which includes park, retail, hospitality and cultural
facilities etc. are increasingly becoming popular in India. Due to increase in disposable income, improving
life style and an increase in nuclear families, the in-park spending is expected to increase in the short to
medium term. Globally the share of non ticketing revenue is quite higher in amusement park as compared
to India. We believe the above factors will add up to the non ticketing revenue of Indian Parks.
Source: Company, CD Research
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Age wise distribution India (2011) Visitors age profile
Source: Company, CD Research
Source: Company, CD Research
Footfalls of Top 25 Amusement parks Globally
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In- House Manufacturing to Boost Profitability Innovation is an important factor for generating increase in footfalls at amusement parks. WHL regularly
develops and introduces new rides and attractions. The company conducts market surveys relating to
customer preferences and benchmarks against amusement parks in other parts of the world, before
implementation, including concept testing with visitors, in house testing of rides and attractions by
company's research and development team. There are not many parks in India which is profitable; WHL is
one of the few parks which is profitable due to its operational efficiencies, in- house ride manufacturing
capability, experienced promoters and relatively less capex requirements. The company's management has
been successful in keeping the cost efficiency, while at the same time providing a memorable experience to
the visitors. The company's competitive strength lies in its in-house manufacturing facility at Wonderla Kochi
to manufacture/construct amusement rides and attractions, apart from amusement rides procured from
manufacturers within and outside India. WHL's experience in running amusement parks and understanding
customer preferences enables the company to conceptualize and develop innovative rides. This results in cost
saving to an extent of 50-60% for imported rides and approx 30% for domestic rides. The company also sends
key managerial staff to amusement parks across the world to learn more about the prevalent market trends.
As of Jan 31 2014, WHL constructed/manufactured 42 rides/ attractions. This has also helped the company to
build its in-house maintenance capabilities, thereby reducing the cost of maintenance and down-time for a
ride. Wonderla Kochi and Bengaluru have 10 and 18 rides imported respectively. Balance is either in-house or
domestically sourced. (Please refer to chart in pg no 3)
Early Mover Advantage WHL has a first-mover advantage at its existing locations, Kochi and Bengaluru. Since it set up operations
more than 14 years ago in Kochi and more than 9 years ago in Bengaluru, the company’s cost of establishment
is considerably lower than that of new entrants, which would enable it to competitively price its entry tickets.
Even at the new proposed locations such as Hyderabad, the company is likely to have an edge over any new
entrant in the industry due to its vast experience in running amusement parks. Also, the in-house ride
manufacturing and maintenance capabilities as discussed earlier are expected to keep Wonderla’s costs lower
than that of competitors. WHL's management is highly experienced in operating amusement park which we
believe is one of the key requirements to succeed in this industry.
Strong Marketing Strategy WHL derives approximately 80% of its revenues from entry fees and thus strong marketing skills are
necessary to attract footfalls on a sustainable basis and also to attract repeat visitors. Marketing and sales
promotions are done through direct and indirect modes. Under the direct mode of marketing, Wonderla’s in-
house marketing team reaches out to the potential customer base directly by conducting activities such as
personal sales, college activation plans, kiosk activity plans at college festivals, etc. The company uses the
indirect mode to widen its reach beyond the regions of its presence. It has engaged sales promotion agents
and tour operators across southern India on a revenue sharing basis. The company also has a separate
marketing team to target schools and colleges which report bulk footfalls; according to the management, 800
out of 1,000 schools located in Bengaluru visit Wonderla regularly. Also, a number of corporates conduct their
events such as annual picnic and off-sites at Wonderla’s parks.
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WHL has come up with innovative marketing strategy by launching privilege card to ensure repeat visits. The
privilege membership card comes free with a minimum purchase of four tickets at full rate without any
discounts. On the next visit, a visitor enjoys a discount ranging from 10-20% of the ticket price. Currently, 10%
of the company’s ticket revenue comes from the privilege card.
Reserved Capacity to Absorb Future Footfalls The company has excess capacity available at both the parks to absorb future footfall growth in coming years.
Current capacity for both parks is 12000 visitors per day. Company has excess land which can cater to the next
growth phase. A new ride addition or additional food stall can be successfully added on the vacant land
without incurring extra expenditure. Thus, we believe there is enough head room for the company to grow and
expand to meet the increasing demand and increasing the revenue and profitability.
Land available for future expansion
Park No of Rides
Approx Available
Land (acres)
Approx Developed
Land (acres)
Balance
Available
(acres)
Wonderla Kochi 55 93 29 64
Wonderla Bengaluru 55 82 39 43
Wonderla Hyderabad 42 50 27 23
Source: Company,MOSL, CD Research
Strong Financials & Healthy Revenue
Visibility Going Ahead WHL net sales has grown at an impressive CAGR of
20% over the last 5 years, while its net profit has
grown at more than 29% CAGR over the same
period.. We expect WHL's net sales to grow by 20.6%
in FY15e and by 20% in FY16e as the company is well
poised to take advantage of uptick in discretionary
spend and lowering inflation. Two important factors
contributing the company’s revenue are footfalls and
entry fees. Kochi Park footfalls have grown at a CAGR
of 4%, while Bengaluru Park footfalls have grown at
more than 13% CAGR over the last 5 years.
The entry fee has been increasing at a CAGR of 10.5% over FY 2010-14 and the management is confident of
growing the same at around 10%. In addition to Hyderabad Park the company is also looking for suitable
land in Chennai to open its fourth park. The company has a strong balance sheet with debt-equity ratio of
only 0.04x at the end of H1FY15.
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Source: Company, CD Research
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Risks & Concerns High Investment Business Amusement parks call for high investment and involve long gestation periods. WHL's business requires a
significant amount of capital expenditure for setting up an amusement park and also during expansion of
existing parks, to add new rides periodically to retain the repeat visitors and also towards shut down
maintenance and civil works.
Accidental Risks Any occurrence of accidents or mishaps at amusement park may expose the company to financial liabilities and
legal proceedings which may result in adverse publicity and could affect company's expansion plans, financial
conditions and results of operations.
Dependency on Southern India The company's amusement parks are situated in southern India and it primarily caters to visitors from southern
Indian cities. If southern India experiences an event negatively affecting its economy, such as a local economic
downturn, a natural disaster, a contagious disease outbreak or a terrorist attack, or if the local authorities adopt
regulations that place additional restrictions or burdens on this industry in general, the company's overall
business may weaken.
Revenue Loss A major portion of company's revenue is derived from sale of entry tickets as compared to income from sale of
merchandise and food and beverages. If the company is faced with competition from other amusement parks
and are forced to lower the prices of entry tickets, it may adversely affect company's revenue.
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Changes in Consumer Preferences The company is sensitive to changing consumer preferences including changes in consumer taste and
acceptance of amusement park concept as it is a part of discretionary spending. Any change in consumer
preferences that may decrease demand for offerings or the acceptance of amusement park concept could cause
decrease in the number of footfalls to parks.
Failure to maintain Brand Value The company has invested significantly and will continue to invest in marketing and advertising programs to
preserve and enhance their brand. If the company is unable to successfully and cost effectively promote their
brand then the goodwill of the company and ability to compete and increase the number of visitors at the
theme park will be adversely affected.
Foreign Exchange Fluctuations The company purchases rides and equipments from a number of foreign suppliers in foreign currency. The
company does not hedge against currency rate fluctuations on account of duration of purchase contract.
Therefore the company may face a degree of foreign exchange risk which may have a material effect on cash
flows, revenues and profitability.
Seasonal Business
It must be kept in mind that amusement park business is a seasonal business, where Q1 and Q3 are the best
periods for the company and generates maximum revenue compared to the other 2 quarters. Footfalls are
lower in Q2 and Q4 owing to monsoon and examination season. Q1 and Q3 on an average contribute more
than 60% to the overall top line of the company.
Source: Company, CD Research
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Financials
Quarterly Results Figures in Rs cr
Q3FY15 Q3FY14 % chg. 9MFY15 9MFY14 % chg.
Revenue from Operations 47.36 41.02 15.4 145.41 119.69 21.5
Other Income 2.12 0.55 286.5 7.36 1.86 296.1
Total Income 49.47 41.57 19.0 152.77 121.55 25.7
Total Expenditure 26.47 21.80 21.4 75.05 63.53 18.1