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• Report date 21-April-2014
• Small Cap – estimated market cap Rs 706 crores post IPO
• Pricing range: Rs. 115-125
• Issue Period: 21-23 April 2014
• Advice: Buy for 2-3 years

Summary:

• Wonderla Holidays is the first IPO offering in a high potential amusement park industry of India
• Impressive financials with Income, EBITDA and Profits growing at 21.7%, 22% and 26% over 5 yrs
• Good Promoter track record 
• Exciting growth plans for Hyderabad and Chennai

Here is a note on Wonderla Holidays Ltd IPO.  (WHL).

IPO Highlights 

• IPO opens: 21-23 April’14 with Issue Price band: 115-125 per share
• Minimum lot size: 100 shares and apply for multiples of this.
• Shares offered to public: 1.45 crores of Face Value: Rs.10 per share
• Shares offered of  post issue equity: 25.7%
• Amount proposed to be raised: Rs.190 crores maximum at upper end of price band
• IPO proceeds: Rs. 178 crores in setting up an amusement park in Hyderabad and the rest amount will be utilized in general corporate purposes.
• The P/E of WHL is 15.7 – 17.1 times of Lower – Upper price limits, based on est. FY14 nos.
• News – Wonderla raises Rs 27 cr. from anchor investors ahead of IPO, a positive for this IPO.

Introduction

• WHL is an Indian amusement park firm based in Bangalore.
• It has a 14+ year track record of setting up and operating parks at 2 locations, Kochi and Bangalore.
• Revenues in FY13 were Rs 139 cr and Profits 33.7 cr. It has a total of 706 employees.
• The firm also manufactures some of its rides at Kochi, saving significantly on costs.
• The promoters of WHL are Mr Kochouseph Chittilappilly and Mr Arun Chittilappilly.
• WHL is a sister company of V-Guard Industries, an electrical appliance maker. This Rs 1500 cr market cap firm has been a multi bagger for investors over the last 5 years.

• Kochi and Bangalore are uniquely placed parks with strong brands and high popularity.
• WHL also set up in 2012 a Resort at its Bangalore park, to tap into a Holiday + Park theme. This project contributes 4% of revenues, see Fig 1.
• Future projects are new parks at Hyderabad (by April 2015) and Chennai (land search phase).

V-Guard Industries Snapshot

• V-Guard Industries is a sister company of WHL, with the same Promoters.
• It had its IPO in 2008, and the share has performed very well, appreciating 7 times from its IPO level.
• The Income, EBITDA and Profits have grown at 44%, 34% and 38% CAGR respectively over the last 5 years.
• Investors are well rewarded for their shareholding in this firm. This is a great positive for this new offering from the same promoters.

Financials of Wonderla

• The Income, EBITDA and Profits have grown at 21.7%, 22.1% and 26.4% CAGR respectively over the last 5 years.
• The margins are excellent with Operating Margins and Profit margins at 45.9% and 24.3% for FY13.
• The business has been Cash Flow positive for the last 5 years.
• The EPS, adjusted for the IPO has grown by 26.3% CAGR over 5 years.

• While 86% of the revenues are from Ticket sales, the rest are from the resort, food & beverage and merchandising activities.
• RoCE and RoE metrics are quite impressive, see Fig 4.
• The firm has repaid debt, so the D/E reduced from 0.9 in FY10 to 0.2 in FY13.
• Cash and Bank deposits on hand are low, at Rs 3 cr.

Business and Industry Notes

• The nature of the amusement park business is of a large initial capital investment in land, rides and marketing/ promotions. This results in growing footfalls and thus revenue.
• WHL is setting up amusement parks in Hyderabad and Chennai. The Hyderabad project is spread across 46 acres and 29 km away from city which is expected to be operational by April, 2015. The company also plans to set up a park in Chennai and is currently looking for a suitable land.
• Footfalls at the amusement parks of WHL are seasonal with maximum number of visitors during April-June and October-December holiday periods, while the monsoon months are a lean period.
• Demand drivers: India’s per capita income has grown at a five-year CAGR of 16%. Also, the share of discretionary spending in overall expenses has increased rapidly from 19% in FY1981 to 45% in FY12. This has led to higher spending on leisure and entertainment activities such as vacations, visits to multiplexes, restaurants and amusement parks.
• The amusement park industry is estimated at worth Rs 7,000 cr and has grown at 15-20% CAGR.
• WHL thus appears to have only a 2% market share of this industry in India.
• Other Current players include Ocean Park Hyderabad, Essel World and Water Kingdom Mumbai, Fun n Food Village Gurgaon, Adventure Island Delhi, Nicco Park Kolkata, Entertainment City Noida, MGM Dizzee World Chennai and Ramoji Film City, Hyderabad. Globally it’s a very massive industry with the likes of Disneyland and Universal Studios of USA dominating.
• Like many others this sector could also see the entry of MNCs and foreign investments in future. Any such event will raise the valuations for WHL.

 Positives for the IPO

• Rating agency CRISIL has rated Wonderla IPO at 4/5. This is an excellent rating.
• Demographics. India is one of the youngest countries in the world with the median age of 26.5 years, compared to USA (37.1), Japan (45.4) and China (35.9). This means potential demand is high for amusement parks. (Source: CIA, The World Factbook /CARE Research).
• Income Levels. In the last decade, Indian economy has grown rapidly and per capita GDP (constant price) has gone up from 32,037 in ’05-’06 to 46,555 in ’11-’12, fueling a consumption boom in the country. (Source: CARE Report).
• Urbanization. The census of 2011 has seen equal increase in rural and urban population over 2011 in absolute terms as both grew by around 90 million over the decade. Level of urbanization increased from 27.8% in 2001 census to 31.2% in 2011 census. (Source: CARE Report)
• Increased Spending on Tourism and Leisure Activities. In the last 6-7 years, there had been a steady growth in domestic spend on tourism, growing at a CAGR of 13.7% to USD 73.4 billion in 2011. Holidaying, leisure and recreation related tourism constitutes major part of the domestic tourism.
• Amusement parks are primarily driven by domestic tourist as foreign tourists constitute less than 1% of the visitors to amusement parks. CARE Research expects the domestic tourism industry to grow at lower double digits in terms of tourist arrivals. (Source: CARE Report)
• WHL has over 13 years become a strong brand. With addition of new rides, affordable entry charges and by maintaining high safety and hygiene, the company has been able to generate repeat footfalls and attract organized visits from schools, colleges and corporates.
• Experienced promoters manage the operations, while independent directors from strong and diverse backgrounds, like Mr. G. Joseph (previously CMD of Syndicate Bank) and Mr. R.P. Moothedath (founder/CMD Jyothy Labs Ltd).

Internal Risks

• Rider Safety: The safety of amusement park visitors is important, and it is an ongoing challenge to keep up high maintenance and well-marked safety regulations for visitors, to prevent mishaps. WHL has a good record on safety so far.
• Expansion plans may not be implemented in a timely and efficient manner due to factors beyond the control of WHL which could adversely affect the business performance.
• Changes in consumer preferences could adversely affect the business. Typically a repeat visitor may like to see new rides and innovation in amusement, this is an ongoing challenge for WHL.
• The resorts project at Bangalore has not yet turned operationally cash positive due to low occupancies. The challenge for WHL is to promote this park for outstation visitors, and also sell the concept of a weekend amusement getaway for locals.

External Risks

• Litigation on Hyderabad land. A part of the land for the Hyderabad park (14.70 acres) is under litigation. WHL has started work on the rest of the land (27 acres) and hopes to win the case and extend the park in the future.
• A slowdown in economic growth in India could cause the business at WHL to suffer.
• Competition from existing and new players. A slew of new projects are in the pipeline.

Benchmarking

As there are no listed companies in India that are directly comparable to the business of WHL, we are benchmarking the firm against asset oriented entertainment firms like PVR, INOX and Eros International.

Based on Fig 5, we come to the following conclusions:

• WHL appears to be available at reasonable valuations
• Low D/E is a positive. It also offers scope to take loans in future for asset creation.
• Margins, RoCE and RoE are the best in this group for WHL.

Overall Opinion

• The WHL offering is a first time listing from a new and high potential industry of amusement parks. India is deprived on a full-day entertainment avenues and the country largely thrives on malls and movie theatres. Amusement parks are well equipped to bridge the gap.
• This offering is in the category of consumption oriented new industry small IPOs such as Jubilant Foodworks, Talwalkars Better Value Fitness and Specialty Restaurants, all of which had fair to good listings.
• The promoters have a good record of providing returns to shareholders as seen in V-Guard Industries.
• WHL has a strong brand in its current markets, and is innovative and cost conscious in its operations.
• The timing of this IPO is good as the listing will happen before the Indian general election results. The market currently is in a pre-election rally, and this is expected to sustain till mid-May.
• WHL is a good growth stock available at fair valuations.
• Buy with a 2-3 year perspective.

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This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Either JM or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com