Wonderla Holidays Limited Opening up, eyeing gradual recovery
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3R MATRIX + = - Summary Wonderla Holidays Limited (WHL) didn’t clock any revenue in H1FY2021 as parks were shut Right Sector (RS) ü during the lockdown. Yet, cost control was at its best with the company saving Rs. 15-20 crore. Right Quality (RQ) ü Now, with the government allowing entertainment parks to open with a limited capacity and standard protocols, the company will open its Bengaluru park with a 50% capacity on weekends. Right Valuation (RV) ü Opening of some international amusement parks (in France and China) on a limited scale also received an encouraging response. This offers WHL hope to achieve gradual recovery + Positive = Neutral - Negative in footfalls in the near term. Stock has corrected by ~14% in the last three months (~43% in last one year), trading at an EV/EBIDTA of 10.8x its FY2023E. We maintain our Hold recommendation on the stock with revised PT of Rs. 174. Reco/View Change H1FY2021 performance was affected by closure of amusement parks during COVID-led Reco: Hold lockdowns. However, what stood out during the period was the stringent cost savings, which helped the company save Rs. 15-20 crore. The company has reduced costs (related to payroll, CMP: Rs. 160 advertising & marketing overheads) and undertaken rationalisation measures including deferral of avoidable operating costs (~70% of operating cost is direct cost). Monthly expenses Price Target: Rs. 174 á fell to Rs. 3 crore in July from Rs. 3.9 crore in June and Rs. 10 crore in March. During the lockdown phase, the company developed new revenue streams to sweat some of its existing assets - Wonder Kitchen (delivery food model; opened four outlets in various cities) and Upgrade Maintain Downgrade á â Wonder Garden (a plant nursery; first one was opened in the Kochi Park). These initiatives are getting an encouraging response. Under the Unlock 5.0 phase, the government has given Company details permission to open amusement parks with a 50% capacity under standard protocols. Sensing this as a new beginning, the company will open its Bengaluru Park from November 13 at Market cap: Rs. 903 cr a 50% capacity (only on weekends and holidays). The company expects to break-even in terms of footfalls of 1,350 per park per day. Opening of some global amusement parks on a limited scale also suggest an encouraging response (Shanghai Disney Park increased its 52-week high/low: Rs. 293/105 capacity from 30% to 50% within three months). Considering this, we expect a good recovery in FY2022 (turning EBIDTA positive with OPM of 20.5%) and expect growth momentum to NSE volume: 0.3 lakh sustain in FY2023 (expect of OPM of ~32%). A faster-than-expected recovery would aid a (No of shares) significant rise in margins in the coming years. On the balance sheet front, the company had cash & cash equivalents of Rs. 100 crore as on September 2020. The number has reduced by BSE code: 538268 Rs. 120 crore since March.
NSE code: WONDERLA Key Positives Stringent cost saving measures helped company reduce operating cost to Rs. 3 crore in July Free float: from Rs. 10 crore in March. 1.7 cr (No of shares) The company’s Bengaluru park is opening with a capacity of 50% in November; other parks likely to open in subsequent quarters with standard safety measures.
Key Negatives Shareholding (%) H1FY2021 performance was affected by complete closure of parks during the lockdown phase. Promoters 69.8 Our Call FII 11.9 View: Retained Hold with revised price target of Rs. 174: With people globally opting for open entertainment parks over enclosed options, we expect a steady recovery in footfalls for DII 0.9 WHL in a stable environment. We expect revenues to reach close to pre-covid by FY2023E with substantial improvement in the footfalls in all the parks in the post pandemic era (with Others 17.4 OPM reaching close to 38%). The stock has corrected by ~14% in the last 3 months (~43% in last one year) trading at EV/EBIDTA of 10.8x its FY2023E. With strong assets under kitty and stable balance sheet, WHL’s long term growth prospects are intact. We maintain our Hold Price chart recommendation on the stock with revised PT of Rs. 174. Key Risks 350 300 Any sudden spike in the COVID-19 cases from the current level would act as a key risk to our near-term earnings estimates as the government might reinforce stringent lockdown norms. 250 200 150 Valuation Rs cr 100 50 Particulars FY19 FY20 FY21E FY22E FY23E 20 19 20 20 - - - - Revenue 282 271 33 118 222 Jul Nov Nov Mar OPM (%) 40.5 38.4 -92.2 20.5 37.0 Adjusted PAT 55 46 -54 -14 29 Price performance Adjusted EPS (Rs.) 9.8 8.1 -9.5 -2.4 5.2 (%) 1m 3m 6m 12m P/E (x) 16.3 19.7 - - 31.0 P/B (x) 1.1 1.1 1.1 1.1 1.1 Absolute -3.5 16.3 25.7 -43.8 EV/EBIDTA (x) 7.2 7.6 - 38.2 10.8 Relative to -7.7 8.5 -2.3 -44.6 Sensex RoNW (%) 7.0 5.5 -6.4 -1.7 3.6 RoCE (%) 9.7 8.0 -7.3 -1.5 4.6 Sharekhan Research, Bloomberg Source: Company; Sharekhan estimates
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NIL revenue due to closure of amusement parks: For Q2FY2021, WHL reported NIL revenue as all amusement parks and the Bengaluru resort remained shut throughout the quarter due to the pandemic. Operating loss stood at Rs. 9.1 crore in Q2FY2021 as against a profit of Rs. 5.5 crore in Q2FY2020. Loss before tax stood at Rs. 20.3 crore. Adjusted loss after tax came in at Rs. 15.8 crore in Q2FY2021. Measures undertaken to open parks with safety: With the government announcing the Unlock 5.0 guidelines, it has allowed amusement parks to operate at 50% capacity from October 15, 2020 with strict safety guidelines. Accordingly, the company’s Bengaluru park is scheduled to open from November 13, 2020 with enhanced hygiene protocols. The company has trained its staff and increased safety and hygiene measures at parks. Every ride will be sanitised frequently. The park will operate only on weekends (from Friday to Sunday) and on public holidays at a special price of Rs. 699 per person. Only the dry park will be functional as the government has not yet allowed operations of the water parks. The capacity will be capped at 3,000 visitors per day. Bookings would only be available on digital platform. The sanitisation and hygiene cost will be included in the ticket price. WHL expects to break even at 1,350 visitors per park per day. Approvals are yet awaited for the Hyderabad Park and some parts of Kerala are still under lockdown. As and when lockdowns are eased and approvals are received, the company will restart the remaining parks. Moreover, the Bengaluru resort has already reopened from October 03, 2020 with offers and stay packages. New initiative Wonder Kitchen gaining good traction; launched Wonder Garden: WHL’s F&B initiative - “Wonder Kitchen”, started in Bengaluru on June 17, 2020, is gaining good traction. The company has opened three more Wonder Kitchens at Rajarajeshwari Nagar in Bengaluru, Vanasthalipuram in Hyderabad and Kakkanad in Kochi. The company now has 4 Wonder Kitchens mostly in cities where it has its parks. Wonder Kitchen did not entail a major investment and has almost reached break-even. On October 05, the company also test launched a new plant nursery venture under the brand name ‘Wonder Garden’ in Kochi, opposite to Wonderla Kochi Park, with a view of highlighting the importance of planting a garden/plant at homes/ workspaces for creating a healthy living atmosphere. It offers a wide range of flowering plants, fruit plants, ornamental plants, indoor plants, pots, seeds, etc. at very attractive rates. Focus on reducing costs: The company has taken various cost-rationalisation initiatives in areas such as payroll, advertising and marketing and other overheads including deferral of avoidable operating costs, through which the management could bring down ‘cash-burn’ significantly. As a result of these measures, monthly expenses have reduced from approximately Rs. 10 crore in March (Rs. 14 crore during pre-COVID levels) to Rs. 3 crore in August 2020. However, with reopening of parks and the resort, the operating expenses are expected to gradually increase as largely the employee costs and other expenses would increase. Construction of Chennai Park to commence soon: WHL’s management has indicated that the construction of Chennai park got delayed due to the pandemic. However, it is expected to commence soon once the environment normalises. The state government of Tamil Nadu had given WHL an exemption from the levy of Entertainment Tax for a period of five years commencing from November 1, 2019. Since the commencement of construction got delayed, the company plans to renegotiate the tax burden issue with the Tamil Nadu government. The company has already spent ~Rs. 109 crore on the Chennai park (of a ~planned capex of Rs. 300-325 crore) and has received all regulatory approvals. The company’s balance sheet is in a comfortable position and it can raise debt for future requirement. The Odisha park still remains at a very early stage. Pent-up demand to drive footfalls once business environment normalises: The management is confident of a recovery in footfalls post normalisation of the business environment. The pick-up in footfalls of the international parks suggest that there will be pent-up demand for outdoor activities as visitors want to venture out of home for entertainment, post the easing of lockdowns and would prefer open spaces as compared to enclosed spaces such as cinema halls, which are assumed to be more risky from a pandemic point of view. Ticketing revenues are expected to recover with improvement in footfalls. F&B segment which is 55-60% of non-ticketing revenues will recover in line with improvement in footfalls but retail/merchandise sales will take time to revive. Other highlights: WHL is trying to renegotiate local body tax (LBT) which was 5.8% earlier and is now at 18% after implementation of the GST (28% in Tamil Nadu). Any benefits gained on this front will help the company improve its footfalls as ticket prices would fall. The company is also exploring options in places like Sri Lanka to open amusement parks. To make relevance in the digital era, WHL is also looking at exploring the indoor gaming segment. However, WHL is still at the exploring stage and it will take some time to materialise.
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Results (Standalone) Rs cr Particulars Q2FY21 Q2FY20 y-o-y (%) Q1FY21 q-o-q (%) Net Sales 0.2 40.8 - 0.0 - Total expenditure 9.3 35.3 - 11.9 -21.6 Operating profit -9.1 5.5 - -11.9 - Other income 1.6 3.1 -49.3 1.8 -13.3 Interest cost 0.1 0.2 -23.8 0.1 -7.6 Depreciation 12.6 10.5 20.3 10.4 21.6 PBT -20.3 -2.1 - -20.6 - Tax -4.5 -2.2 - -6.1 - Reported PAT -15.8 0.2 - -14.5 -
OPM(%) - 13.4 - - - EPS (Rs.) -2.8 0.0 - -2.6 - Source: Company; Sharekhan Research
Outlook and Valuation n Sector view - Parks to open at limited capacity, but virus scare persist Amusement parks were totally closed from mid-March till mid-October due to increasing COVID-19 cases in India. However, with a drop in active cases and recovery inching close to ~90%, the government (in Unlock 5.0 phase) allowed entertainment/amusement parks to open from October 15, 2020, with limited capacity under the standard operational policy. Some of the international top rated parks in France, China and Hong Kong starting its operations post the receding of the virus scare and received encouraging response driven by huge pent-up demand. However, with the recent second wave of COVID-19 in Europe, the amusement parks are again closing down till further notice. Thus, spike in COVID-19 cases and controlling the operating cost remain key headwinds for global amusement park industry in the near term. n Company outlook - Gradual opening with safety measures H1FY2021 was no business period for WHL as parks were shut under the lockdown norms. However, the stringent cost saving measures aided the company to save around Rs. 15-20 crore at an operating cost level in H1FY2021. Under the Unlock 5.0 phase, the government has given permission to open amusement parks with a 50% capacity under standard protocol. Sensing this as an opportunity of new beginning, the company will open its Bengaluru park starting November 13 at a 50% capacity (operational only on weekends and holidays). With gradual recovery in footfalls, we expect a good recovery in FY2022 (turning EBIDTA positive with OPM of 20.5%) and expect growth momentum to sustain in FY2023 (expect of OPM of ~32%). n Valuation - Retained Hold with revised price target of Rs. 174 With people globally opting for open entertainment parks over enclosed options, we expect a steady recovery in footfalls for WHL in a stable environment. We expect revenues to reach close to pre-covid by FY2023E with substantial improvement in the footfalls in all the parks in the post pandemic era (with OPM reaching close to 38%). The stock has corrected by ~14% in the last 3 months (~43% in last one year) trading at EV/EBIDTA of 10.8x its FY2023E. With strong assets under kitty and stable balance sheet, WHL’s long term growth prospects are intact. We maintain our Hold recommendation on the stock with revised PT of Rs. 174.
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About company WHL is one of the largest theme park operators in India and has been in the business for over 19 years. The company launched its first amusement park in Kochi, followed by parks in Bengaluru and Hyderabad and owns a resort located near its Bengaluru park. The company has an in-house facility in Kochi for manufacturing rides and attractions. The company has acquired land in Chennai for its fourth park which is in the process of construction and another park is expected to commence construction in Odisha.
Investment theme WHL is one of the top entertainment companies in India with three amusement parks in Kochi, Bengaluru and Hyderabad. Despite an asset-heavy model, the company has a strong balance sheet with no debt on books as strong cash flows take care of incremental capex requirements. Recent performance was affected by events closure of amusement parks and resorts due to the spread of the pandemic Any sustained improvement in footfalls will act as a re-rating trigger for the stock.
Key Risks Muted footfalls in the near to medium would affect revenue growth. Continuation of the lockdowns leading to sustained closure of parks would act as key risk to the footfalls and would affect performance for a quarter or two.
Additional Data Key management personnel Arun K Chittilappilly Managing Director M Ramachandran Chairman George Joseph Vice Chairman Srinivasulu Raju Y Company Secretary Source: Company
Top 10 shareholders Sr. No. Holder Name Holding (%) 1 Steinberg India EM OP Fund 7.4 2 K Chittilappilly Trust 4.9 3 Arav Chittilappilly Trust 4.7 4 Handelsbanken Tillvaxtmark 2.2 5 Svenska Handelsbanken 2.2 6 Valuequest India Moat Fund 1.8 7 Old Well Emerging Markets 1.5 8 Union Mutual Fund/India 1.0 9 Lloyd George Investment Mgmt 0.3 10 BMO Investments II Ireland PLC 0.2 Source: Bloomberg
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November 04, 2020 24 Understanding the Sharekhan 3R Matrix Right Sector Positive Strong industry fundamentals (favorable demand-supply scenario, consistent industry growth), increasing investments, higher entry barrier, and favorable government policies Neutral Stagnancy in the industry growth due to macro factors and lower incremental investments by Government/private companies Negative Unable to recover from low in the stable economic environment, adverse government policies affecting the business fundamentals and global challenges (currency headwinds and unfavorable policies implemented by global industrial institutions) and any significant increase in commodity prices affecting profitability. Right Quality Positive Sector leader, Strong management bandwidth, Strong financial track-record, Healthy Balance sheet/cash flows, differentiated product/service portfolio and Good corporate governance. Neutral Macro slowdown affecting near term growth profile, Untoward events such as natural calamities resulting in near term uncertainty, Company specific events such as factory shutdown, lack of positive triggers/events in near term, raw material price movement turning unfavourable Negative Weakening growth trend led by led by external/internal factors, reshuffling of key management personal, questionable corporate governance, high commodity prices/weak realisation environment resulting in margin pressure and detoriating balance sheet Right Valuation Positive Strong earnings growth expectation and improving return ratios but valuations are trading at discount to industry leaders/historical average multiples, Expansion in valuation multiple due to expected outperformance amongst its peers and Industry up-cycle with conducive business environment. Neutral Trading at par to historical valuations and having limited scope of expansion in valuation multiples. Negative Trading at premium valuations but earnings outlook are weak; Emergence of roadblocks such as corporate governance issue, adverse government policies and bleak global macro environment etc warranting for lower than historical valuation multiple. Source: Sharekhan Research
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