Wonderla Holidays Research Report By ICICI-Direct

Wonderla Holidays

New park addition leads to higher revenue…

• Wonderla Holidays (WHL) reported a mixed set of Q1FY17 numbers. Revenues increased 32.2% YoY to Rs. 88.9 crore (above I-direct estimate of Rs. 82.5 crore) led by 17.9% YoY increase in realisation and 12.2% YoY increase in footfall on account of addition of the new park at Hyderabad

• Bengaluru park revenues increased 9.0% YoY to Rs. 44.4 crore while revenues from Kochi park declined 7.5% YoY to Rs. 22.0 crore mainly led by 24.4% YoY decline in footfall. Hyderabad park reported revenues of Rs. 19.3 crore. Resort revenues increased 11.3% YoY in Q1FY17

• EBITDA margins declined from 59.9% in Q1FY16 to 44.1% (below Idirect estimate of 52.4%) led by higher other expenses

Improving macroeconomic factors to drive growth…

With a higher disposable income and increase in discretionary spend, WHL has been able to increase its blended realisation at 15.6% CAGR in FY11-16. Further, with an in-house technical team and controlled cost structure, the company has maintained average EBITDA margin of ~45% in FY11-16. Consequently, WHL has been able 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.

Hyderabad park to witness healthy traction in coming years

The new Hyderabad park became operational on April 20, 2016. The park has witnessed good traction in footfalls with 3000 visitors per day to 2.1 lakh in Q1FY17. Further, the park reported healthy revenues of Rs. 19.4 crore and EBITDA margin of ~23.0% during the quarter. Going forward, the company has guided for footfall of 7 lakh and gross realisation of Rs. 990 leading to gross revenues of ~ 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.

Margins to improve led by increased contribution of non ticket revenues

WHL’s non ticket revenues per visitor increased 38.7% YoY in Q1FY17. We believe there is significant scope for non-ticket revenues to increase as the company charges for food & beverages (F&B) at MRP unlike other amusement parks that charge way above MRP for F&B products. Apart from reasonable F&B charges, conservative pricing of merchandise by the company has kept its non-ticket revenues at ~22.5% of overall revenues vs. 24% from non-ticket revenues by Adlabs. Further, the addition of fully owned restaurants and compulsory nylon swimming suits will further drive non-ticket revenues over the coming years.

Unmatched leadership in domestic amusement industry; maintain BUY

Although in the near term, footfalls at Kochi and Bengaluru have been impacted by higher realisation, we believe the price hike will be absorbed in the coming quarters. In addition, healthy monsoons, an improving macro environment, addition of new rides and new park at Hyderabad will lead to robust growth in footfalls in coming years. Apart from this, the company’s focus on increasing non ticket revenues is expected to drive margins. Further, we believe that leadership in the amusement industry, 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. We have arrived at a DCF based target price of Rs. 460.