IPO Note

Wonderla Holidays Rating: Subscribe Robust business at compelling valuations Issue opens: 21‐Apr‐14

Issue closes: 23‐Apr‐14 Holidays, promoted by the Chittilappilly family, owns and operates Price band (Rs): 115‐125 amusement parks in Kochi and Bangalore along with a resort adjacent to its Bangalore park. Both the parks witnessed over a million footfalls each in FY13 and the company is likely to post 21% revenue and 22% PAT cagr over FY11‐14E. Issue details Wonderla’s business is characterized by operating margin in excess of 40% and Face value (Rs) 10 >30% RoCE supported by high EBIT margin and lower incremental capex on Issue size (Rs bn) 1.7‐1.8 Crisil Rating 4/5 existing parks. Company plans to raise money for funding an amusement park in 100% Book Issue type Hyderabad at a total cost of Rs2.6bn and likely to be operational in FY17. At the building upper end of Rs115‐125 price range, our FY15 PAT forecast of ~Rs450mn Industry Hotels & Tourism

translates in to PE of 15.7x which compares favourably to the CY14E ~14x‐27x range for US‐listed peers like Six Flags and Cedar Fair. Wonderla offers a robust Shareholding pattern business model with inherently strong profitability at an attractive valuation. (%) Pre IPO Post IPO Recommend investors to subscribe at the upper end of IPO range. Promoters 95.5 71.0 Others 4.5 29.0 The issue: Company plans to raise Rs1.7‐1.8bn at the above price range via a fresh issue of 14.5mn shares (25.7% of post IPO equity) which values the Share reservation (%) company at ~Rs6.5‐7.1bn. QIB 50 Non institutional 15 Business highlights: Wonderla operates amusement park in Kochi started in Retail 35 2000 which accounted for 40% of 9m FY14 revenues. Its second amusement park cum 84‐room resort at Bangalore accounted for ~60% of revenues. Both the Company management parks attracted over a million footfalls each in FY13 and management indicated George Joseph Chairman Vice Chairman, Kochouseph that footfalls have maintained a 7‐8% cagr which is expected to sustain in future. Whole time Chittilappilly director Growth, valuation & risks: Wonderla’s revenue and PAT cagr over FY11‐14E is Arun Kochouseph Managing projected at 21% and 22% respectively coupled with robust EBIDTA margin and Chittilappilly Director return ratios. We project FY15 revenues of ~Rs1.8bn and PAT of ~Rs450m which implies PE of 15.7x at the upper end of price range and compares well to that of Issue manager BRLM Edelweiss, ICICI Sec its US‐listed peers like Six Flags and Cedar Fair (14x‐27x). Key risks include rising Karvy Computershare Registrar land acquisition costs and suppression of return ratios due to large upfront capex Pvt Ltd for Hyderabad park. Listing BSE, NSE

Financial summary Y/e 31 Mar (Rs m) FY13 FY14E FY15E FY16E Revenues 1,379 1,595 1,841 2,125 yoy growth (%) 21.8 15.7 15.4 15.4 Operating profit 628 729 841 975 OPM (%) 45.6 45.7 45.7 45.9 Reported PAT 335 380 451 535 yoy growth (%) 12.1 13.5 18.6 18.8

EPS (Rs) 5.9 6.7 8.0 9.5 P/E (x) 21.1 18.6 15.7 13.2 P/BV (x) 4.3 3.5 1.9 1.7 EV/EBITDA (x) 8.6 7.7 7.5 7.1 Debt/Equity (x) 0.2 0.3 0.1 0.1 RoE (%) 30.9 26.8 17.4 13.8 RoCE (%) 40.4 35.9 23.9 19.7 Research Analyst: Source: RHP, Infoline Research Note: per share ratios based on diluted equity, price assumed at Rs125 for EV calculations Bhavesh Gandhi [email protected] This report is published by IIFL ‘India Private Clients’ research desk. IIFL has other business units with independent research teams separated by 'Chinese walls' catering to different sets of customers having varying objectives, risk profiles, investment horizon, etc. The views and opinions expressed in this document may at times be contrary in terms of rating, target prices, estimates and views on sectors and markets. April 21, 2014 Wonderla Holidays

Wonderla operates amusement parks in Bangalore & Kochi Wonderla Holidays owns and operates amusements parks under the brand Wonderla operates an amusement name ‘Wonderla’ in Bangalore and Kochi in addition to a resort in Bangalore park in Bangalore and Kochi each along with a newly opened resort in opened in 2012. The amusement park at Kochi has 22 water‐based and 34 Bangalore land‐based attractions situated on ~93 acres of land (of which only 27 acres have been utilized) and 20 water‐based and 33 land‐based attractions at Bangalore, situated on ~82 acres. Unsurprisingly sale of entry tickets accounted for ~80% of total income in first nine months of FY14 though the share was even higher prior to opening of resort in Bangalore. Bangalore’s share in total revenues has been inching up in the past three years to ~60% and in 9m FY14 it attracted higher footfalls compared to Kochi.

Trend in revenue breakup Bangalore (inc resort) accounts for ~60% of revs Other income Sale of products Resort income Wonderla Resort Bangalore Kochi Restaurant revs Sale of entry tickets 100% 100% %

75% 75%

50% 50%

25% 25%

0% 0% FY11 FY12 FY13 9M FY14 FY11 FY12 FY13 9M FY14

Source: RHP, India Infoline Research

Footfalls across 2 locations posted ~4‐11% cagr over Ticket sales account for >75% of total income FY11‐13 90.0 1.4 mn Kochi Bangalore %

1.2 80.0 1.0

0.8 70.0 0.6

0.4 60.0 0.2

0.0 50.0 FY11 FY12 FY13 9M FY14 FY11 FY12 FY13 9M FY14

Source: RHP, India Infoline Research

2 Wonderla Holidays

India’s amusement industry offers large opportunity for growth Indian amusement industry is at a India’s amusement industry is at a nascent stage compared to its global relative nascent stage compared to its global counterparts with a size of counterparts: this is evident from several indicators such as the relative small Rs26bn and 58‐60mn annual footfalls size (~Rs26bn with about 150 amusement parks) and high share of ticket sales in overall revenue pie (as opposed more or less even split amongst entry fees, accommodation and F&B). With an annual footfall of around 58‐60mn, the industry is undersized in terms of footfalls as compared to some of the large global amusement parks. In terms seasonality, with four months of monsoon and less extreme weather conditions in several Tier 1 cities, India offers very conducive environment for amusement parks. As kids are the major drivers of amusement parks, school vacations around Diwali, Christmas and summer attract major crowds to amusement parks. Accordingly, Q1 and Q3 are usually the best months for amusement parks.

Ticket sales account for majority of revenues in … unlike globally wherein total proceeds are much India… evenly split

2% 18‐23% 35‐37% 31‐35% Entry fees Entry fees

F&B+Merchandising F&B+Merchandising

Resort & other Resort & other rentals rentals 75‐80% 32‐35% Source: RHP, India Infoline Research

Key industry highlights

Parameters/Classification Large parks Medium parks Small parks

Capex >Rs700mn Rs300‐700mn

Area covered >40acres 10‐40acres <10acres

Annual visitors >0.5mn 0.3‐0.5mn <0.3mn

Tier II cities, small

Outskirts of towns, outskirts of metros , Tier I metro and Tier I Location Metros & outskirts cities cities Essel World (Mumbai), (Kolkata), GRS Fantasy Park Wonderla (Kochi & (Mysore), Ocean Fun N Food Bangalore), Park Kingdom Examples Kishikinta Chennai (Hyderabad) (Dehradun) Number of parks 16‐18 40‐45 85‐95 Source: RHP, India Infoline Research

3 Wonderla Holidays

Upcoming amusement parks: no additional supply seen in Hyderabad A look at the upcoming amusement/theme parks shows apart from Wonderla A total of Rs175bn over 12 projects is likely to be incurred over next 3‐4 years Holidays, no major park is projected to be built in Hyderabad which augurs well from a competition perspective for the company. A total of Rs175bn of investment pertaining to the 12 major projects is lined up over next 3‐4 years with the amusement park at Surat alone contributing around Rs95‐100bn.

Major upcoming/completed amusement park projects Est value Year of Size Project Location Promoters/JV Theme/attraction (Rs bn) completion (acres) Proposed by Glass‐enclosed underwater tunnels having 3,000 kinds Singhudurg, GoM,to be of marine animals. Will replicate the Sea World park in Sea World Konkan, undertaken on 5 ‐ 5.1 2,015 150 USA. Will have attractions like dolphins, theme Maharashtra PPP basis, parties restaurants, school about animal life lessons, etc. yet to be decided. Nagpur, Landmark Early stages Theme parks based on concepts like Jurassic Park, Theme Park 15 300 Maharashtra Entertainment of planning Terminator and Spiderman. MGM Lavasa Lavasa, Hollywood MGM ‐ Lavasa 4.5 2014 75 India's first Hollywood theme park. Maharashtra Theme Park

Spaceworld Lavasa, Space Investment India's first edutainment theme park. Already under 4 2013 65 Theme Park Maharashtra Company ‐ Lavasa construction. A replica of Disneyland, phase I – 21 international standards rides including India's largest roller coaster Adlabs Khopoli, Adlabs 16 2013 297 and 4D stimulation rides, phase II and III ‐ water park Imagica Maharashtra Entertainment and a 3‐star hotel. Phase I scheduled to open in the first half of 2013. Hyderabad, Wonderla Wonderla Andhra 2.3* 2015 46 Amusement park combined with a five star hotel. Holidays Pradesh

Chennai, Wonderla Wonderla N.A. 2015 N.A. Embedded with water park Tamil Nadu Holidays

Come back of India's first amusement park, will , International 4 2013 58 include amusement park, water park, FEC, themed Amusement Ltd retail complex, etc.

Surat Theme Surat, One of Asia's largest theme parks and may be bigger Atlanta Ltd 95 ‐ 100 2014‐2016 3,200 Park Gujarat than Disneyland in California, Paris and Tokyo.

ISKCON Will be set up to spread the awareness of vedic heroes

(International (Ram, Krishna, Hanuman, etc). Contains two temples, Krishna Lila Bangalore, Society for 3.5 2016‐17 28 a 4‐D theatre, expos, puppetry workshops, story‐ Theme Park Karnataka Krishna telling for children and costume shows. Already under

Consciousness) construction.

A mega tourism city comprising of themed retail, golf Jaipur Mega Jaipur, International Early stages 25 300 course, water park, FEC, resorts, villas, etc. Already Tourism City Rajasthan Amusement Ltd of planning under construction. Proposed by Naya Raipur Naya NRDA, to be A recreational cum amusement park having various Early stages Amusement Raipur, undertaken on 0.23 40 amusement and water rides for kids and adults. of planning Park Chhattisgarh PPP basis, parties Parties yet to be decided. yet to be decided.

Adventure 50:50 JV of

Island International Amusement park spread over 24 acres, retail mall of Rohini, 2 ‐ 3 Completed 62 and Metro Amusement Ltd 200,000 sq ft

Walk and Unitech

Phase I 50:50 JV of completed, A mega complex area having amusement park (Worlds Entertainment International Phase II of Wonder), retail space and health club, small water Noida, Delhi 10 ‐ 11 147 City Phase I Amusement Ltd expected park, shopping mall with a 5‐ and Unitech completion: star hotel. 2013‐14 Source: RHP, India Infoline Research * planned investment on park without resort

4 Wonderla Holidays

IPO proceeds to fund amusement park in Hyderabad At the upper end of the price range of Rs115‐125, the company would garner IPO proceeds to be used for funding of gross proceeds of ~Rs1.8bn. The company plans to use the net IPO proceeds to an amusement park in Hyderabad whose total cost is pegged at Rs2.6bn part fund an amusement park in Hyderabad. The total cost of the park is pegged at Rs2.6bn and the company would use Rs450mn in debt funding. The estimated total cost of the upcoming park in Hyderabad would be similar to the existing gross fixed assets of the company, which implies return ratios like RoCE would be suppressed as the park is likely to commence operation by FY17.

Hyderabad funding break up Use of proceeds Rs mn

Total cost of amusement park at Hyderabad 2,560 Amt deployed so far 377 IPO proceeds 1,733 Debt 450 Source: RHP, India Infoline Research

Robust margins but return ratios to be dampened due to Hyderabad capex Amusement parks require large upfront capex though once park operations stabilize, growth can be driven by twin factors of rising footfalls and better revenue mix especially in an Indian context where F&B, merchandising and Wonderla’s business enjoys strong rentals have vast scope for improvement. Wonderla’s existing business enjoys EBIDTA margin but return ratios likely robust and more importantly, sustainable EBIDTA margin in excess of 40%. to be dampened due to upcoming Hyderabad amusement park Return ratios like RoE and RoCE have historically remained healthy though a large upfront capex on Hyderabad project would impact return ratios in the near term; however, we eventually expect these to trend higher once the park starts contribution in a meaningful manner. Free cash generation can be significant for amusement parks as they attain maturity due to high EBIT margins, lower incremental capex and improved revenue mix.

Robust EBIDTA margin to sustain Hyderabad park to dampen return ratios

52.0 RoE RoCE % 60.0 %

50.0 50.0

48.0 40.0

46.0 30.0

44.0 20.0

10.0 42.0 0.0 40.0 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E

Source: RHP, India Infoline Research

5 Wonderla Holidays

Attractive valuations combined with robust growth: Subscribe Wonderla is likely to post FY14 revenues and PAT of ~Rs1.6bn and Rs380mn respectively. Further we forecast 15% and 19% revenue/PAT cagr over FY14‐16 driven by growth in footfalls and steady uptrend in ticket prices. Indeed the Wonderla is expected to post ~19% company had mentioned in its IPO analyst meet that footfalls have maintained PAT cagr over FY14‐16 driven by growth in footfalls and steady uptick in a 7‐8% cagr while ticket prices have also seen a similar 8‐9% cagr which are ticket prices likely to be sustained in the future. We expect EBIDTA margins to remain stable though return ratios like RoE and RoCE are expected to be dampened due to the large upfront capex for Hyderabad amusement park.

Based on post IPO diluted equity, we expect FY15/16 EPS of Rs8.0/9.5 which implies PE of 15.7x/13.2x at the upper end of the price range. Hence on a PE basis, even at the upper end of price band, there appears to be enough valuation headroom given that larger US‐listed peers like Six Flags, Cedar Fair Recommend investors to subscribe to the IPO given attractive valuations, trade between ~14x‐27x on CY14 basis. We also note that once amusement robust growth and inherently strong parks attain maturity, they can throw up significant cash flows since they profitability require only maintenance capex: for instance, in FY10 and FY11, when there was no large ongoing project, capex/sales was just 5%‐7% which helped generate large free cash flows. Given attractive valuations, robust growth prospects and inherently strong profitability, we recommend investors to subscribe to the IPO at the upper end of price band.

Valuation comparison Company Mcap (US $mn) PE (CY14/FY15) RoE Wonderla Holidays 118 15.7 17.4 Six Flags 3,802 26.9 18.8 Cedar Fair 2,898 14.3 73.7 Source: Reuters, India Infoline Research Note: RoE for Six Flags and Cedar Fair is TTM

Key risks

 Location and land costs: Amusement parks are usually set up in metros or on the outskirts with a large land area which means managing land acquisition process becomes critical and also company has to find the right balance between location and corresponding land acquisition costs. Land acquisition costs, discretionary  Discretionary nature: Spending on amusement parks would form a part of nature of spending and dampening of discretionary spend for a consumer and could be impacted to an extent in return ratios are the key risks in our view an economic down cycle

 Lower return ratios: Wonderla’s expansion plan in Hyderabad would lead to pressure on return ratios as cost of project is large compared to balance sheet of the company

6 Wonderla Holidays

Company background Wonderla owns and operate two amusement parks under the brand name ‘Wonderla’, located at Kochi and Bangalore and is in the process of setting up its third amusement park, Wonderla Hyderabad. Company also owns an 84‐ Wonderla operates amusement parks room resort besides its amusement park in Bangalore which has been in Kochi and Bangalore and plans to operational since March 2012. Both the amusement parks offer a wide range of raise money for setting up an water and land based attractions and attracted combined footfalls of 2.3mn in amusement park in Hyderabad

FY13 while total footfalls have witnessed 7.4% cagr over FY11‐13. Bangalore amusement park and resort together accounted for 60% of 9m FY14 revenues while EBIDTA margin stood at ~47%. Company has acquired ~50 acres of land for its proposed Hyderabad park and has invested about Rs380mn so far out of total cost of ~Rs2.6bn. Company has developed an in‐house facility in Kochi to Company has developed an in‐house manufacturing facility for rides which construct the rides used in its amusement park and it has constructed 42 rides helps reduce capex and down time so far. This has helped reduce capex incurred on the rides; as per the management, the cost of a ride manufactured in‐house is one‐third of the cost of procuring the ride externally. This has helped the company to build in‐house maintenance capabilities, thereby reducing the cost of maintenance and down‐ time for a ride.

About promoters Kochouseph Chittilappilly is the Vice‐Chairman and Whole Time Director of the company. He is one of the promoters and has been a director since incorporation. He holds a post graduate degree in physics from Calicut University and has 15 years of experience in the amusement park industry. He entered into the amusement park business in the year 1998 by establishing Veega Holidays and Parks in Kochi and later expanded the amusement park business by establishing Wonderla in Bangalore in the year 2002. He is also the chairman of V‐Guard Industries and director on the board of several other companies.

Arun Kochouseph Chittilappilly is the MD of the company since April 1, 2012. He holds a masters degree in industrial engineering from Swinburne University of Technology, Victoria, Australia. He is involved in the day to day operations and management since 2003 and has over 11 years of experience in the amusement park industry.

Trend in revenues and profit Cash flow summary

1,600 Rs mn 500 Rs mn Op CF Capex Free CF 1,400 400 300 1,200 200 1,000 100 800 0

600 (100) (200) 400 (300) 200 (400) 0 (500) FY09 FY10 FY11 FY12 FY13 9M FY14 FY10 FY11 FY12 FY13 9M FY14

Source: RHP, India Infoline Research

7 Wonderla Holidays

Financials

Income statement Key ratios Y/e 31 Mar (Rs m) FY13 FY14E FY15E FY16E Y/e 31 Mar FY13 FY14E FY15E FY16E Revenue 1,379 1,595 1,841 2,125 Growth matrix (%) Operating profit 628 729 841 975 Revenue growth 21.8 15.7 15.4 15.4 Depreciation (118) (134) (142) (150) Op profit growth 13.2 16.0 15.4 15.9 Interest expense (22) (46) (46) (46) EBIT growth 15.4 17.2 17.2 17.6 Other income 13 18 19 20 Net profit growth 12.1 13.5 18.6 18.8 Profit before tax 501 567 673 799 Taxes (166) (187) (222) (264) Profitability ratios (%) PAT 335 380 451 535 OPM 45.6 45.7 45.7 45.9 EBIT margin 38.0 38.5 39.0 39.8 Balance sheet Net profit margin 24.3 23.8 24.5 25.2 Y/e 31 Mar (Rs m) FY13 FY14E FY15E FY16E RoCE 40.4 35.9 23.9 19.7 Equity capital 420 420 565 565 RoNW 30.9 26.8 17.4 13.8 Reserves 794 1,101 3,086 3,523 RoA 22.1 20.0 13.9 11.7 Net worth 1,214 1,521 3,651 4,088 Debt 186 385 385 385 Per share ratios Deferred tax lia 37 34 34 34 EPS 5.9 6.7 8.0 9.5 Total liabilities 1,437 1,940 4,071 4,507 Dividend per share 1.5 1.5 1.5 1.5 Cash EPS 8.0 9.1 10.5 12.1 Fixed assets 1,497 1,763 2,913 3,928 Book value per share 21.5 26.9 64.6 72.3 Investments 1 2 2 2 Net working cap (61) 175 1,155 576 Valuation ratio (x) Inventories 28 31 35 41 P/E 21.1 18.6 15.7 13.2 Sundry debtors 5 9 10 12 P/CEPS 15.6 13.7 11.9 10.3 Cash 29 105 1,100 538 P/B 5.8 4.6 1.9 1.7 Other curr assets 109 290 309 332 EV/EBIDTA 8.6 7.7 7.5 7.1 Sundry creditors (40) (48) (55) (64) Other curr lia (70) (77) (89) (102) Payout (%) Provisions (121) (135) (155) (179) Dividend payout 22.0 19.4 22.0 18.5 Total assets 1,437 1,940 4,071 4,507 Tax payout 33.2 33.0 33.0 33.0

Cash Flow Statement Liquidity ratios Y/e 31 Mar (Rs m) FY13 FY14E FY15E FY16E Debtor days 1 2 2 2 Profit before tax 501 567 673 799 Creditor days 11 11 11 11 Depreciation 118 134 142 150 Def.tax lia 3 (2) ‐ ‐ Leverage ratios Tax paid (166) (187) (222) (264) Interest coverage 23.5 13.3 15.6 18.3 Working capital ∆ (37) (159) 14 16 Net debt / equity 0.1 0.2 (0.2) (0.0) Operating cashflow 420 352 607 702 Net debt / op. profit 0.3 0.4 (0.9) (0.2) Capital expenditure (361) (400) (1,292) (1,165) Free cash flow 58 (48) (685) (463) Du‐Pont Analysis Equity raised ‐ ‐ 1,779 ‐ Y/e 31 Mar (Rs m) FY13 FY14E FY15E FY16E Investments (0) (1) ‐ ‐ Tax burden (x) 0.67 0.67 0.67 0.67 Debt fin/disp 20 199 ‐ ‐ Interest burden (x) 0.96 0.92 0.94 0.95 Dividends paid (74) (74) (99) (99) EBIT margin (x) 0.38 0.38 0.39 0.40 Net ∆ in cash 4 77 995 (562) Asset turnover (x) 0.91 0.84 0.57 0.46 Financial leverage (x) 1.40 1.34 1.26 1.18

RoE (%) 30.9 26.8 17.4 13.8 Note: all per share ratios based on diluted equity and price assumed at Rs125 for EV calculations

8

Recommendation parameters for fundamental reports: BUY – Absolute return of over +10% Market Performer – Absolute return between ‐10% to +10% SELL – Absolute return below ‐10% Call Failure ‐ In case of a Buy report, if the stock falls 20% below the recommended price on a closing basis, unless otherwise specified by the analyst; or, in case of a Sell report, if the stock rises 20% above the recommended price on a closing basis, unless otherwise specified by the analyst

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