New amusement park at Hyderabad to boost footfalls: We expect Wonderla
Holidays to report a healthy growth in footfalls (~18% CAGR over FY2015-17E)
with it setting up a new amusement park in Hyderabad, which would be
operational in FY2017. The company also has plans to venture across other parts
of India to cater to a wider audience. In its first year of operation in Hyderabad,
we expect the company to achieve ~7 lakh footfalls with lower utilisation of
~19%. Going forward, we expect the company to be able to report strong
footfalls growth on back of increase in utilisation. Further, we expect the existing
parks in Kochi and Bengaluru to post a ~4% CAGR over FY2015-17E. Moreover,
the company has a proven track record and is expected to consistently increase its
average realisation (realisation CAGR of ~10% over FY2009-15). The company is
expected to incur strong cash flows and achieve higher assets turnover due to lower
capex requirement, as most of the rides are manufactured at the in-house plant.
Huge potential for F&B segment to grow: Apart from ticket sales, the company
also generates income from food and beverage (F&B) sales, and product sales at
its amusement parks, which contribute by almost 25% to the company’s total
revenue. As per a report by CARE Ratings, global amusement parks draw 60-65%
of their revenues from other segments (non-ticket sales). Since FY2009, the
company’s revenue from other segments has increased from 15% to 25% and we
expect such contribution to rise further.
Company to benefit from higher occupancy rate at Wonderla Resort and
turnaround at the operating level: Over the last three years, Wonderla Resort’s
occupancy rate has increased significantly from ~30% to ~45%. Also, Wonderla
Resort has turned around at the operating level in FY2015. Increase in footfalls at
the Bengaluru park is likely to further boost growth for Wonderla Resort.
Moreover, we expect occupancy rate as well as profitability to rise, going forward.
Outlook and Valuation: India’s young demographic profile and increasing
discretionary spends are expected to benefit the entertainment industry in the
country. Also, the addition of a new park in the company’s portfolio and expected
increase in contribution from other segments like F&B, resort, etc will drive growth
for the company, going forward. Further, the company has negative working
capital and negligible debt on its balance sheet. With the company’s stock price
having corrected by 20-22% from its all time high, the company now poses as a
good buying opportunity in our view. At the current market price, the stock trades
at a P/E of 21.3x its FY2017E EPS. We initiate coverage on the stock with a Buy
recommendation and target price of Rs322 (25x FY2017E EPS), indicating an
upside of ~17% in the stock price from the present levels.
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