Company Name – Wonderla Holidays Limited (Wonderla) Current Share Price – INR 425 (April 03, 2023) Market Cap – INR 2,405 cr |
1. What is interesting about the stock?
People of all ages visit amusement parks to have fun, experience thrills, and excitement and spend time with family and friends away from the daily grind. Additionally, visiting amusement parks can help people overcome their fears, foster bonding with friends and family, and provide a sense of nostalgia.
Wonderla Holidays (Wonderla or Company) is India’s largest amusement park chain with over two decades of successful operations. It currently has three parks in Kochi, Bangalore, and Hyderabad, and is in the process of adding more in the next two and half years.
The current market size of amusement/theme parks in India is estimated at USD ~0.5 billion compared to USD 49 billion worldwide in 2021. Given the expected increase in the per capita income in the country, the young demographic, and the almost doubling of the upper middle class by 2030, it is fair to assume that the 2-3% annual spend on entertainment is likely to move up closer to 11% in China and 16% in the USA. Therefore, it can be estimated that this market is likely to grow 3-4x in the next 6-7 years.
Wonderla is likely to do well because of the following reasons:
Growth plans – the Company is adding an amusement park in Bhubhaneshwar, which is likely to be operational in 2024. The second one planned in Chennai is facing delays in getting approvals and is currently on hold. The Company has also opened a resort inside Bangalore park that is seeing good uptake. It is keen on setting up 5 more parks to have a total of 10 parks by 2030. The Company is also making efforts to grow footfalls from ~3 million in FY23 to ~5 million in FY26. The Company is also encouraging higher spending per user with a consistent increase in ticket prices and higher food & beverage spending within the parks.
Asset-light model going forward – the Bhubhaneshwar park is the first one where the Company has received land from the Government of Odisha so that the state can boost tourism. This reduces the cost of setting up a park significantly (~40% cost reduction) improving the return metrics for the Company. Using this model, the Company is already in talks with other state governments like Madhya Pradesh, Uttar Pradesh, and Punjab.
Lower capex due to in-house ride manufacturing plant – the Company has a dedicated manufacturing facility for rides, where ~25% of the rides in the existing parks have already been manufactured. This facility is also used to refurbish second-hand rides from around the globe, which reduces costs by 50-70%. It also does in-house maintenance which reduces downtime, expenses, and operational costs.
Shift to digital marketing – Wonderla spends between 8-12% of its sales on advertising and marketing. The Company is seeing significant improvement in its return metrics from this spend through the effective use of digital media – improved social media content, use of influencers, and technology solutions that encourage user-generated content and buzz.
Low threat from international players – Given the dependence on ticket revenues (~75%) in India and overall lower ticket prices, it is infeasible for large international players like Disney and Universal Park to set up an amusement park in India which could even be considered a threat to Wonderla.
Efficient and proven management – The Company is promoted by the V-Guard Industries family. Arun Chittilappilly is the Managing Director in charge of the business and is actively involved in running the business and strategizing and conceptualizing the new parks. He has been responsible for the growth of the Company and developed the Bangalore and Hyderabad parks.
2. Key Historical Financials
Company revenue and profit were severely impacted by COVID-19 in FY21 and FY22
Revenue and margins have recovered sharply in 9MFY23 aided by a sharp increase in tourism and entertainment expense after COVID in line with the global trend
Debt-free balance sheet
Cash flow conversion (CFO/EBITDA) was 100% in FY22
3. What is my view on company valuation?
The Company is trading at a P/E of ~20x as against the 5-year median P/E of ~28x on account of EPS growth in the last few quarters and the markets being volatile. There are only a couple of other listed players like Imagica Entertainment (which recently underwent a promoter change) and Nicco Parks, and hence, the sectoral comparison does not make much sense. Long-term investors can look at acquiring shares in the Company given its good long-term growth prospects.
4. What are the risks to the investment analysis?
Risks to the analysis are:
Another pandemic and lockdowns can shut down the business significantly
The growth of other amusement avenues like 3D gaming and play zones can affect the share of wallets attributed to destination amusement/theme parks like Wonderla
High inflation can cause a slowdown in discretionary spending by the customers
About the Author
I have over 18 years of experience in private equity and public markets. I am an engineer by background and MBA from a premier institute in India.
Disclosure
I have no stock, option, or similar derivative position in any of the companies mentioned in the last 30 days, and shall not initiate any such positions within the next 5 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.
I am not a SEBI registered advisor. This article is purely for educational purposes and is not to be construed as investment advice. Please consult your financial advisor before acting on it.
I have used publicly available information while writing this article.