onderlapankaj kumar w holidays ltd (whl) pankajr ......private client research initiating coverage...

PRIVATE CLIENT RESEARCH INITIATING COVERAGE

JANUARY 5, 2018

WONDERLA HOLIDAYS LTD (WHL) PRICE: RS.363 RECOMMENDATION: BUY TARGET PRICE: RS.465 FY19E PE: 29.1X

Wonderla Holidays Ltd (WHL) is the largest amusement park chain in India with over 17 years of successful operations. WHL has been running amusement park in southern India through 3 operational parks in Kochi, Bangalore and Hyderabad. The company follows low capex model with its parks located near large cities with less than 7 years of payback period as against capex intensive holiday destination model. In order to tap huge opportunity in the sector, WHL is expanding its presence to Chennai where it has finalized land and is further targeting new geographies particularly in western India. WHL intends to setup new park every 3 years which would be funded through its strong balance sheet and robust cash flows with negligible debt. The contribution from high margin non-ticket revenue has been increasing over the past 5-6 years from 14% in FY12 to 25% in FY17 and is expected to increase further to 28% in FY19E. We expect company’s revenue and PAT to grow at a CAGR of 18% and 46% respectively in FY17-19E (due to lower base of FY17). We recommend Buy on the stock with DCF based target price of Rs.465.

Key Investment argument

Amusement park business: Huge opportunity to grow - Indian amusement park sector valued at Rs 29.3 bn in 2016 grew at 10.25%. The sector is very small as compared to Rs 1.675 trn (USD25 billion) global amusement park sector. It is at a nascent stage in India and is on the verge of transition. The park to population ratio is remarkably lower in India as compared to the USA market which has 400 theme parks for a population of 319 million. With rising income levels, increasing domestic tourism and favourable demographics, the sector is estimated to grow at a CAGR of 19% over the next 5 years to Rs 69.8 bn by end of 2021.

Efficient business model with strong track record of running amusement parks - WHL has been running amusement park business efficiently for last 17 years with wide presence in southern India through 3 operational parks. The company follows low capex model where its parks are based on concept of giving an alternative option for leisure and entertainment near large cities as against capex intensive holiday destination model (like Adlabs). The company does not invest a large sum in creating huge real estate and aims for payback of less than 7 years from its parks. The asset light model helps it to generate high RoCEs of over 20% with zero debt balance sheet and strong operating cash flows.

New and upcoming parks to drive growth. As part of its growth strategy, WHL intends to expand its presence in new geographies by leveraging its brand equity and experience in the amusement park industry. In 2017, it rolled out operations in Hyderabad. Further, the company has acquired 57 acres of land for its upcoming park at Thiruporur, near Chennai. WHL intends to setup new park in every 3 years which would be funded through its internal cash flows and debt. The company is expected to generate Operating & Free Cash Flow of ~Rs.1 bn and ~Rs.300 mn, respectively in FY18. Post Chennai set-up the company could look to expand in Maharashtra and Gujarat in future. The cash generation from old parks should help it in meeting funding requirement for new parks.

Increasing share of non-ticket revenue - Over the years, the company has been growing its revenue pie from non-ticket revenue segment which includes food and beverages, merchandise, etc. The contribution of non-ticket revenue has been increasing over the past 5-6 years from 14% in FY12 to 25% in FY17

Pankaj Kumar [email protected] +91 22 6218 6434

Stock details

Stock details

BSE code : 538268 NSE code : WONDERLA Market cap (Rs bn) : 20.5

Free float (%) : 29.0 52 wk Hi/Lo (Rs) : 405/330 Avg daily volume (nos) : 28940

Shares (o/s) (mn) : 56.5

Summary table

(Rs mn) FY17 FY18E FY19E

Revenue 2704 3172 3797 Growth (%) 31.7 17.3 19.7 EBITDA 739 1051 1377

EBITDA margin (%) 27.3 33.1 36.3 PBT 484 745 1050 PAT 336 499 704

EPS 5.9 8.8 12.5 EPS Growth(%) (45) 51 41 CEPS (Rs) 11 15 19

Book value (Rs/share) 77 85 96 Dividend per share (Rs) 1 1 1 ROE (%) 7.9 10.9 13.7

ROCE (%) 10.5 15.3 19.6 Net cash (debt) 640 874 715 NW Capital (Days) (8) (4) (6)

P/E (x) 62.0 41.1 29.1 P/BV (x) 4.7 4.3 3.8 EV/EBITDA (x) 26.9 18.7 14.4

EV/Sales (x) 7.3 6.2 5.2

Source: Company, Kotak Securities – Private Client Research

Share holding pattern

Source: Capitaline

One-year performance (Rel to Sensex)

Source: Capitaline

Promoter71%

FII13%

DII6%

Others10%

Kotak Securities – Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 2

January 5, 2018 INITIATING COVERAGE

and this is expected to increase further to 28% by FY19E. We believe that there is enough scope to grow non-ticket revenue pie as it is much lower as compared to 50-55% in international parks The margin in non-ticket revenue segment is far higher. Hence increased share of non-ticket revenue will have positive impact on margins of WHL.

Volume growth to revive as most of the negatives already factored in - Last two years have been challenging for WHL’s business due to service tax issue, political issues in southern states, demonetization, GST, etc. As a result, the footfall in its parks took a hit. Further, the company has taken price hike for its parks keeping GST rates in mind. Hence, we expect some impact on total volumes which would grow at slower pace of 2.3% in FY18E due to rise in ticket prices. We expect 5.3% CAGR in footfalls in FY17-19E with overall normalcy expected in FY19E (with 8.4% yoy growth built in for the year).

Outlook & valuations

We expect company’s revenue and PAT to grow at a CAGR of 18% and 46% respectively in FY17-19E, led by 1) 16.5% CAGR in ticket income 2) and 26% CAGR in non-ticket income3) 5.3% growth in footfall and 4) 12.7% growth in average revenue per footfall. We expect 900 bps improvement in EBITDA margins in FY17-19E. This should have positive impact on earnings and returns ratios. The stock is presently trading at FY18E and FY19E PE of 41.1x and 29.1x based on EPS of Rs 8.8 and Rs 12.5, respectively.

It will not be justified to value the stock purely on PE basis keeping in mind the capex oriented nature, annuity income and cash flows that accrue every year. The company operates at a healthy EBITDA margin of over 30%. Post commissioning of the Chennai property the company could easily fund its future capex from internal accruals (see self-sufficiency coming into play). One also needs to keep in mind the future potential of theme parks (as per capita income levels keep on rising) and limited avenues of entertainment surrounding the metros and Tier-I cities. We have high regards for the management, its integrity and sole focus on this business segment. The best way to capture the upside of the stock is to use DCF method. Our DCF based target price works to Rs.465. We initiate coverage on the stock with a BUY recommendation.

Key risk and concerns

Slowdown in consumer discretionary spending

Competition from large global players

Any major change in tax structure

Accidental risk



COMPANY BACKGROUND Wonderla Holidays Ltd (WHL) is the largest amusement park chain in India with over 17 years of successful operations. It has entertained over 30 mn visitors across its parks in Kochi, Bangalore and Hyderabad. The company is promoted by Mr. Arun Chittilappilly and Mr. Kochouseph Chittilappilly, who also incorporated V-Guard Industries Ltd. The promoters have operational experience in the amusement park industry since 2000. The promoters launched the first amusement park in Kochi in 2000 under the name Veegaland, later successfully launched the second park in Bangalore in 2005 and third park in Hyderabad in 2016 under the name “Wonderla”. The company also operates Wonderla Resort attached to its amusement park in Bangalore. It is a three Star leisure resort with has 84 luxury rooms and 4 banquet halls / conference rooms. WHRL has vast experience in running amusement parks resulting in understanding customer preferences. This enables it to conceptualize and develop innovative rides. The company has an In-house manufacturing facility located at Kochi which manufactures /constructs rides and attractions for all of its parks. Over the years, the company has successfully run the business whereby revenue grew at 19% CAGR in FY12-17.

Kochi Amusement Park

Wonderla Kochi amusement park was launched in 2000 by the name ‘Veegaland’ and operating under the name ‘Wonderla’ since April 2008. It is situated on 93.17 acres of land, and currently occupying 28.75 acres for 55 land and water based attractions and other allied facilities. It has 6 restaurants offering various cuisines, of which five are operated by the company.

Kochi Park financials FY17 FY16 YoY (%)

Total Revenues (Rs Mn) * 848 820 3.4%

No of Visitors (In ‘000) 1000 1049 -4.7%

Avg. Revenue Per Visitor (Rs) 849 782 8.6%

Source: Company, *Includes sale of services, sales of products & other operating income

Bangalore Amusement Park

Wonderla Bangalore Park was launched in 2005 by the name ‘Wonderla’ and is located off the Bangalore-Mysore highway, 28 km from Central Bangalore. It is situated on 81.75 acres of land with 61 land and water based attractions and other allied facilities. It has 5 restaurants offering various cuisines, of which 3 are operated by the company.

Bangalore Park financials FY17 FY16 YoY%


No of Visitors (In ‘000) 1040 1187 -12.4%

Avg. Revenue Per Visitor (Rs) 1135 961 18.1%


Hyderabad Amusement Park

It was launched in April 2016 by the name ‘Wonderla’. It is situated on 49.5 acres of land, and currently occupying 27.0 acres for 43 land and water based attractions and other allied facilities. It has 4 restaurants offering various cuisines, of which 3 are operated by the company.

Hyderabad Park financials FY17

Total Revenues (Rs Mn) * 571

No of Visitors (In ‘000) 620

Avg. Revenue Per Visitor (Rs) 921




Wonderla Bangalore Resort

Wonderla Resort in Bangalore is a three Star leisure resort attached to the amusement park launched in March 2012. The resort has 84 luxury rooms and also has 4 banquet halls / conference rooms, totalling 8,900 sq. ft. with a capacity to hold 800 guests.

Bangalore Resort financials FY17 FY16 YoY (%)


Occupancy % 56% 42%

Avg. Room Rental for the period (Rs) 4600 4758 -3.3%


Facilities at a glance

Kochi Park Bangalore Park

Source: Company

Hyderabad Park Bangalore Resort

Source: Company



Key management Name Designation Background/Role

Kochouseph Chittilappilly Founder & Non Executive Director Founded V-Guard Industries Ltd., a publicly listed company since 2008 and is currently its Chairman. He has Post Graduate Degree in Physics

George Joseph Chairman & Non Executive Director 38+ yrs of total work experience, Director in Muthoot Finance Ltd.

Arun K. Chittilappilly Promoter & Managing Director Experience of 12+ yrs in the industry, Holds a masters degree in industrial engineering, Actively involved in day-to-day operations and management of Wonderla since 2003

Priya Sarah Cheeran Joseph Executive Director 12+ yrs in the Industry, Involved in F&B Operations and HR department of Wonderla since 2005

D.S. Sachdeva Chief Executive Officer He has 26+ years of work experience, Prior experience in well established companies at M/s 3M India Ltd, Hindustan Unilever Ltd, Holds a degree in engineering from BIT, Ranchi and is also an alumnus of IIM-Bangalore

Nandkumar N Chief Financial Officer 22 yrs of experience. ACMA, ACS & BGL, Prior experience with large corporates like Raymond, Ashok Leyland, Lucas – TVS and MNC’s like Coke, Levi Strauss

Source: Company



INVESTMENT RATIONALE Amusement park business: Huge opportunity to grow

The total global parks industry was estimated at over US$ 25 billion with parks in the USA and Europe nearing maturity levels while that in Asia fast emerging. The footfalls of the top 25 global theme Parks worldwide have grown at a CAGR of 4.4% since 2011. In 2016, the footfall at top 25 parks have declined by 1.1% to 233.1 mn. Baring North America all major geographies witnessed decline in footfall in 2016. In Asia, the footfall has declined by 2.8% to 127.3 mn in 2016 as compared to CAGR of 5.4% seen in 2011-16.

Attendance at theme parks in different geographies Region No. of 2016 2011 Chg 2016 2015 Chg Park Nos. mn Nos. mn (%) Nos. mn Nos. mn (%)

Worldwide Top 25 233.1 196.3 3.5% 233.1 235.6 -1.1%

North America Top 20 148 127 3.1% 148 146.3 1.2%

Europe Top 20 60.5 57.8 0.9% 60.5 61.2 -1.1%

Asia Top 20 127.3 103.3 4.3% 127.3 130.9 -2.8%

Source: Adlabs Entertainment FY17 AR

Attendance at select global theme parks (nos mn)

Source: Adlabs Entertainment Q1FY18 PPT

The Indian amusement parks sector comprises more than 150 operational small, medium and large Parks, with only 10-15% classified as large parks. Key players in the sector are Wonderla, Essel group, Adlabs, Nicco Park, etc. The Indian amusement park sector grew at 10.25% in 2016 and was valued at Rs 29.3 bn in 2016. The sector is very small as compared to Rs 1.675 trn (USD25 billion) global amusement park sector. With rising income levels, increasing domestic tourism and favourable demographics, the sector is estimated to grow at a CAGR of 19% over the next 5 years to Rs 69.8 bn by end of 2021 (source; Company annual report).

No. of parks in India Type No. of parks Annual visitors

Large parks ~15 More than 0.5 million

Medium parks ~50 Between 0.3 to 0.5 million

Small parks ~100 Less than 0.3 million

Source: Adlabs RHP

0

5

10

15

20

25

MagicKingdom

Disneyland TokyoDisneyland

TokyoDisneySea

Europe

Epcot Disney’s Hollywood

Studios

Disney’s Animal

Kingdom

UniversalStudioJapan

2009 2015



Major amusement parks in India Name of Park Location Area (acres) Rides

Wonderla- Bangalore Bangalore 39.2 61

Wonderla- Kochi Cochin 28.8 55

Wonderla- Hyderbad Hyderabad 27 43

Adlabs Imagica Mumbai 132 40

Essel World and Water Kingdom Mumbai 90 75

World of Wonders Noida 147 30

Nicco Park Kolkata 40 33

Ramoji Film City Hyderabad 2000 NA

MGM Dizzee World Chennai 45 60

Kishkintha Chennai 120 25

VGP Universal Kingdom Chennai - 11

Ocean Park Hyderabad 20 33

Snow World Hyderabad <0.5 NA

Kingdom of Dreams Gurgaon 6 NA

Source: Adlabs RHP, Company, Kotak Private Client Research

Indian Amusement Park Industry (Rs bn)

Source: Company

The sector is at a nascent stage in India and is on the verge of transition, with various large investments proposed in the theme park sector. India currently has over 150 theme parks across the country catering to more than a billion people. The park to population ratio is remarkably lower in India as compared to the USA market which has 400 theme parks for a population of 319 million. There is a case for increased investments in theme parks in India due to rise in urbanization and increasing consumer spending. India’s urbanization rate is likely to cross 60% in the next thirty years from 31.1% in 2011. Consumer spending on leisure activities was Rs. 2 trillion in 2011 which is expected to reach INR 6.3 trillion by 2025. Thus, there is immense growth opportunities which will attract more investment in the sector.

Consumer Spending in India (Rs trn) Increasing Urbanization (%)

Source: Company, Kotak Private Client Research, Census

29.3

69.8

0

20

40

60

80

2016 2021F

2

6.3

0

2

4

6

8

2011 2025F0

7

14

21

28

35

1971 1981 1991 2001 2011



Indian Consumer spending outlook (Rs trn)

Young Population in India Attendance of Visitors in Indian theme parks

Source: Adlabs Entertainment Q1FY18 PPT, KPMG-FCCI's IMEI report 2016

Efficient business model with strong track record of running amusement parks

WHL has been running amusement park business efficiently for last 17 years with wide presence in southern India through 3 operational parks. Its promoters launched first park in Kochi in 2000, second in Bangalore in 2005 and third in Hyderabad in 2017. All these parks have been setup at a relatively low capex with payback period targeted at less than 7 years. The company follows low capex model with investment in each park of Rs 3 bn or less. Its parks are based on concept of giving an alternative option for leisure and entertainment near large cities as against capex intensive holiday destination model (like Adlabs). Its parks offer dry and wet rides on same ticket in the same campus. Thus, the company does not invest a large sum in creating huge real estate which results into asset heavy model. The asset light model helps it to generate high RoCEs of over 20% with zero debt balance sheet and strong operating cash flows. It sets up park next to urban areas by giving an alternative options of entertainment and fun to its visitors. The company offers full day entertainment as against limited period entertainment alternatives like multiplexes, etc. at an affordable price.

Operating Cash flows (Rs mn)

Source: Company, Kotak Securities - Private Client Research

Enough space to grow Area Developed Area Capex/ Initial (acres) (acres) Utilized (%) current GB Capex

Kochi 93 29 31% 946 234

Bangalore 82 40 48% 1381 835

Hyderabad 50 27 55% 2500 2500

Chennai 57 NA NA 650 3500

Source: Company

31%

35%

34%

0-14 Years 15 - 34 Years > 34 Years

0

200

400

600

800

1,000

1,200

FY13 FY14 FY15 FY16 FY17 FY18E FY19E

25.9 27.4 30.2 34.741.7

54.464.7

75.187.1

182.9

0

50

100

150

200



Wonderla Vs Imagica Wonderla Holidays Adlabs Entertainment (Imagica) FY17 FY16 FY17 FY16

Footfall (Theme/Water/ Snow Park) (mn) 2.7 2.2 1.5 1.6

Revenue from Operations (Rs mn) 2704 2054 2390 2340

EBITDA (Rs mn) 739 849 614 568

EBITDA Margins % 27.3% 41.3% 25.7% 24.3%

PAT Margins % 12.4 26.9 -13.85 -13.2

D/E 0 0 1.66 1.9

Source: Company

New and upcoming parks to drive growth

As part of its growth strategy, WHL intends to expand its presence in new geographies by leveraging its brand equity and experience in the amusement park industry. In 2017, it rolled out operations in Hyderabad which got robust response in first year of launch. The company targets to attain 1 mn plus footfalls in 4-5 years of operations as against 0.62 mn in FY17. It also intends to achieve payback period of less than 7 years for the park. Further, the company has acquired 57 acres of land for its upcoming park at Thiruporur, near Chennai. The company would be investing Rs 3.5 bn in Chennai park (including the cost of land). This park is expected to be operational by FY20. WHL intends to setup new park every 3 years which would be funded through its internal cash flows and some debt. It is looking to expand in Maharashtra and Gujarat in future. The cash generation from old parks would help it in meeting funding requirement for new parks.

Increasing share of non-ticket revenue

Over the years, the company has been growing its revenue pie from non-ticket revenue segment which includes food and beverages, merchandise, etc. The contribution of non-ticket revenue has been increasing over the past 5-6 years from 14% in FY12 to 25% in FY17 and this is expected to increase further to 28% in FY19E. The growth in non-ticket revenue is driven by introduction of new Food and Beverage (F&B) offerings and sale of costumes which were made mandatory for water rides on introduction of dress code. Share of non-ticket revenue for WHL is better than the industry trend in India but still lower than global standards. Share of non-ticket revenue by Indian amusement parks have been in the range of 20-25% as compared to 50-55% in international parks. Hence, we believe that there is enough scope to grow this pie. Further, the margin in non-ticket revenue segment is far higher. Hence increased share of non-ticket revenue should have positive impact on margins of WHL.

Revenue breakup: Indian Vs International Parks Indian Parks International Parks

Admission 75-80% 45-50%

Food & Beverages 15-20% 20-25%

Merchandise 1-2% 30-35%

Others 2-3% 5-10%

Source: Company, Industry



Increasing share of non-ticket revenue (%)

Source: Company, Kotak Private Client Research

Backward integration provides an edge

WHL has developed in-house manufacturing facility in Kochi to manufacture and construct amusement rides. The company manufactures or procures 30% of its requirement in-house while balance rides are bought out or refurbished from international or domestic market. WHL’s experience in running amusement parks and understanding customer preferences enables it to conceptualize and develop innovative rides suitable for its customers. The in-house manufacturing helps in reducing capex cost due to low cost manufacturing and savings of 27-30% on custom duty. This also benefits company by reducing dependency on external agencies and curtails maintenance cost.

Volume growth to revive as most of the negatives already factored in

Last two years have been challenging for Bangalore park due to introduction of Service Tax, political issue related to Kaveri water dispute, etc. As a result, the footfall in Bangalore Park took a hit. Further, the volume in Hyderabad witnessed a decline in recent quarter after ~30% price hike taken over discounted introductory price. In FY18 again, we believe that the footfalls will be affected by higher tax rates in GST at 28% vs ~15% service tax charged earlier. The company has taken price hike for its parks keeping GST rates in mind. Hence, we expect some impact on volumes due to hike in prices particularly in Kochi. In Kochi, the indirect taxes was less than 5% due to low duty structure in the state. Post GST, the taxes for Kochi park has increased to 28% which is being passed on to customers. Hence, we expect some impact on total volumes which would grow at slower pace of 2.3% in FY18E due to rise in ticket prices. We expect 5.3% CAGR in footfalls in FY17-19E with overall normalcy expected in FY19E (with 8.4% yoy growth in the year). We expect revival in footfall of Bangalore in FY19E with 6% volume growth, after three years of challenging phase. We expect footfalls in Hyderabad park to grow at a faster pace with 10.3% CAGR in FY17-19E.

Footfall Trends Bangalore and Kochi Hyderabad footfall trend


0%

5%

10%

15%

20%

25%

30%

FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40


Kochi Bangalore

0.6 0.7

0.8

0.0

0.2

0.4

0.6

0.8

FY17 FY18E FY19E



KEY RISK Slowdown in consumer discretionary spending: Spending on entertainment is

discretionary in nature. Any slowdown in consumer discretionary would be negative for company’s business.

Competition from of large global players: Entry of any large global players near WHL parks will lead to stiff competition.

Any major change in tax structure: Any major state level levy related to entertainment in certain states may negatively impact volumes for short terms.

Accidental risk: WHL business may get affected in the event of any major accidents led by technical faults. But, the company adopts stringent safety majors with regular maintenance of its rides to avoid any such incidents.



OUTLOOK WHL revenue grew at 19% CAGR while PAT grew by 2% during FY12-17. PAT growth of the company got impacted in FY17 due to 1) decline in footfalls in Bangalore and Kochi parks and 2) discounted pricing, higher advertising and promotional expenses and higher operating expenses in Hyderabad park which got operational in the year. The EBITDA margins declined by 1400 bps on yoy resulting in 13% decline in EBITDA. The advertisement expenses as percentage of revenue grew by 280 bps yoy in FY17 for promoting Hyderabad park. Further, the company also took a hit of Rs 250 mn on account of provisioning related to disputed tax liability.

Key assumptions Particulars FY16 FY17 FY18E FY19E

Footfall (Nos. mn) 2.2 2.7 2.7 2.9

Kochi 1.0 1.0 1.0 1.1

Bangalore 1.2 1.0 1.1 1.1

Hyderabad 0.6 0.7 0.8

Avg Revenue per footfall (Rs per footfall) 877 978 1124 1241

Kochi 782 849 945 1039

Bangalore 961 1135 1300 1451

Hyderabad 921 1114 1216

Avg Ticket Realization (Rs per footfall) 722 764 866 936

Kochi 644 680 748 808

Bangalore 790 907 1025 1117

Hyderabad 659 791 846

Avg Non-ticket Realization (Rs per footfall) 155 214 258 306

Kochi 138 169 197 262

Bangalore 171 227 275 334

Hyderabad 262 323 370




Q2FY18 result highlights

In Q2FY18, WHL’s revenue was flattish at 1.3% yoy due to 1)5.4% yoy decline in footfalls due to unseasonal and excessive rains across its markets, 2) while average revenue per visitor grew by 7.1% yoy. Share of non-ticket revenue improved from 23.1% in Q2 FY17 to 26.9% in Q2FY18. Company’s Q2FY18 EBITDA grew at 21.1% yoy with EBITDA margins improved from 18.8% to 22.4% while PAT de-grew by 36.9% yoy on higher depreciation and taxes.

Quarterly performance Year to March (INR mn.) Q2FY18 Q2FY17 % Chg Q1FY18 % Chg

Net Revenues 494 488 1.3 1,023 (51.7)

Direct operating expenses 52 38 36.4 237 (78.1)

Gross Profit 442 450 (1.7) 786 (43.8)

Employee Expenses 104 96 8.9 113 (8.1)

Other Expenses 227 262 (13.5) 236 (3.8)

Operating Expenses 383 396 (3.3) 587 (34.7)

EBITDA 111 92 21.1 437 (74.6)

EBITDA margin 22.4% 18.8% 42.7%

Depreciation 89 77 16.3 80 11.8

Other income 18 27 (33.6) 31 (43.0)

Net finance expense 3 2 37.5 4 (10.8)

Profit before tax 36 39 (7.7) 384 (90.7)

Provision for taxes 13 2 557.9 124 (89.9)

Reported net profit 23 37 (36.9) 260 (91.0)

As % of net revenues

Direct operating expenses 10.5 7.8 23.6

Employee cost 21.0 19.6 11.1

Other Expenses 46.0 53.8 23.1

Operating expenses 77.6 81.2 57.3

EBITDA 22.4 18.8 42.7

Reported net profit 4.7 7.6 25.4

Tax rate (% of PBT) 34.9 4.9 32.4

Source: Company

Revenue to grow at 18% CAGR

We expect revenue and PAT to grow at a CAGR of 18% and 46% respectively. The growth in revenue would be driven by 16.5% CAGR in ticket and 26% CAGR in non-ticket. Ticket revenue growth would be supported by 5.3% CAGR in footfalls (primarily in Hyderabad) and 10.7% CAGR in realization led by price hikes in Hyderabad and Bangalore.

Net Sales & Growth Ticket & Non ticket to support revenue growth


0

9

18

27

36

0

1,000

2,000

3,000

4,000


Net Sales (Rs mn, LHS)

Growth (%, RHS)

0

1000

2000

3000

4000

FY17 Ticket revenue Non-ticketrevenue

FY19E



PAT to grow at faster pace on improved margins.

We expect margins to improve by 380 bps in FY18 on no major provisioning for taxes, improved profitability in Hyderabad and increased share of high margin non-ticket revenue. We expect EBITDA margins to be at 33.1% and 36.3% in FY18E and FY19E, respectively. We expect EBITDA and PAT to grow at a CAGR of 37% and 46%, respectively.

EBITDA & Growth (%) PAT & PAT Growth (%)


ROE and RoCE

We expect RoE and RoCE to improve in FY17-19E on improved margins and rise in asset turnover. Improved revenue contribution from Hyderabad would positively impact asset turnover.

Asset Turnover (x) and EBIT Margins (%) RoE & RoCE (%)


-20

-10

0

10

20

30

40

0

400

800

1,200

1,600


EBITDA (Rs mn, LHS)

Growth (%, RHS)

0.0

0.2

0.4

0.6

0.8

1.0

1.2

0.0

11.0

22.0

33.0

44.0


Asset Turnover ((x), RHS)

EBIT Margins (%, LHS)

-50

-25

0

25

50

0

100

200

300

400

500

600

700


PAT (Rs mn, LHS) Growth (%, RHS)

0.0

5.0

10.0

15.0

20.0

25.0

FY15 FY16 FY17 FY18E FY19E

RoE% RoCE%



VALUATION We expect company’s revenue and PAT to grow at a CAGR of 18% and 46%, respectively in FY17-19E, led by 1) 16.5% CAGR in ticket 2) and 26% CAGR in non-ticket 3) 5.3% growth footfall and 4) 12.7% growth in average revenue per footfall. We expect 900 bps improvement in EBITDA margins in FY17-19E. This will have positive impact on earnings and returns ratios. The stock is presently trading at FY18E and FY19E PE of 41.1x and 29.1x based on EPS of Rs.8.8 and Rs.12.5, respectively.

It will not be justified to value the stock purely on PE basis keeping in mind the capex oriented nature and annuity income and cash flows that accrue every year. The company operates at a healthy EBITDA margin of 30-40%. Post commissioning of the Chennai property the company could easily fund its future capex from internal accruals (see self-sufficiency coming into play). One also needs to keep in mind the future potential of theme parks (as per capita income levels keep on rising) and limited avenues of entertainment surrounding the metros and Tier-I cities. We have high regards for the management, its integrity and sole focus on this business segment. The best way to capture the upside of the stock is to use DCF method. Our DCF based target price works to Rs.465. We initiate coverage on the stock with a BUY recommendation.

DCF valuation Total Present Value of Free Cash Flows (FCF) Rs mn 8746

Cost of Capital (WACC) (%) 12%

Terminal Growth% 5%

Terminal Value (Rs mn) 16094

Fair Value of Theme park (Rs mn) 24841

Bangalore Resort (2x BV) (Rs mn) 575

Net debt (Net of liquid investments) (Rs mn) -874

Fair Value of Equity (Rs mn) 26290

Target (Rs per share) 465

Source: Kotak Private Client Research

Peer Comparison FY17 Wonderla Holidays Adlabs Entertainment

EV (Rs mn) 19636 16696

EV/Sales (x) 7.3 7.0

EV/EBITDA (x) 26.9 26.5

Source: Company, Capitaline



FINANCIALS

Profit and Loss Statement (Rs mn) FY16 FY17 FY18E FY19E

Revenues 2054 2704 3172 3797 % change yoy 12.9 31.7 17.3 19.7 EBITDA 849 739 1051 1377 % change yoy 4.7 (13.0) 42.3 31.0 Depreciation 139 293 333 353 EBIT 709 446 718 1024 Other Income 181 63 63 63 Interest 20 25 36 36 Profit Before Tax 870 484 745 1050 % change yoy 19.3 (44.4) 53.9 41.1 Tax 272 153 246 347 as % of EBT 31.3 31.6 33.0 33.0 PAT 552 336 499 704 % change yoy 18.2 (44.7) 50.9 41.1 Shares outstanding (mn) 57 57 57 57 EPS (Rs) 10.6 5.9 8.8 12.5 DPS (Rs) 2.0 1.0 1.0 1.0 CEPS(Rs) 13.1 11.0 14.7 18.7 BVPS (Rs) 71.3 77.2 85.0 96.5


Cash Flow Statement (Rs mn) FY16 FY17 FY18E FY19E

Pre-Tax Profit 917 479 745 1050 Depreciation 139 293 333 353 Change in WC 100 129 38 24 Other operating activities (337) (328) (26) (347) Operating Cash Flow 819 573 1090 1081 Capex (1465) (987) (800) (1200) Free Cash Flow (646) (414) 290 (119) Change in Investments 1099 94 0 0 Investment cash flow (366) (894) (800) (1200) Equity Raised 0 0 0 0 Debt Raised (76) 121 0 0 Dividend & others (87) (5) (57) (57) CF from Financing (163) 116 (57) (57) Change in Cash 290 (205) 233 (159)


Balance Sheet (Rs mn) FY16 FY17 FY18E FY19E

Paid - Up Equity Capital 565 565 565 565 Reserves 3465 3796 4238 4885 Net worth 4030 4361 486 5563 Borrowings 75 196 196 196 Net Deferred tax (52) (87) (87) (87) Total Liabilities 4053 4469 4912 5559 Net block 1528 3226 3693 4540 Capital work in progress 1589 585 585 585 Total fixed assets 3117 3811 4278 5125 Investments 844 750 750 750 Inventories 66 90 87 104 Sundry debtors 8 10 10 12 Cash and equivalents 280 85 319 160 Loans and advances & Others 51 125 137 151 Total current assets 405 309 553 427 Sundry creditors and others 221 242 271 325 Provisions 173 380 399 419 Total CL & provisions 394 621 670 743 Net current assets 12 (312) (117) (316) Misc Expenses/other net assets 80 220 0 0 Total Assets 4053 4469 4912 5559


Ratio Analysis (Rs mn) FY16 FY17 FY18E FY19E

Profitability Ratios EBITDA margin (%) 41.3 27.3 33.1 36.3 EBIT margin (%) 34.5 16.5 22.6 27.0 Net profit margin (%) 26.9 12.4 15.7 18.5 Adjusted EPS growth (%) 18.2 (44.7) 50.9 41.1 Balance Sheet Ratios Receivables (days) 1 1 1 1 Inventory (days) 10 10 10 10 Loans & Advances 7 12 16 14 Payable (days) 28 31 31 31 Cash Conversion Cycle (10) (8) (4) (6) Asset Turnover 0.5 0.6 0.6 0.7 Net Debt/ Equity (0.1) (0.2) (0.1) 0.0 Return Ratios RoCE (%) 18.3 10.5 15.3 19.6 RoE (%) 15.8 7.9 10.9 13.7 Valuation Ratios P/E (x) 34.3 62.0 41.1 29.1 P/BV (x) 5.1 4.7 4.3 3.8 EV/EBITDA (x) 22.9 26.9 18.7 14.4 EV/Sales (x) 9.5 7.3 6.2 5.2




RATING SCALE Definitions of ratings BUY – We expect the stock to deliver more than 12% returns over the next 9 months ACCUMULATE – We expect the stock to deliver 5% - 12% returns over the next 9 months REDUCE – We expect the stock to deliver 0% - 5% returns over the next 9 months SELL – We expect the stock to deliver negative returns over the next 9 months NR – Not Rated. Kotak Securities is not assigning any rating or price target to the stock. The report has been prepared for information purposes only. RS – Rating Suspended. Kotak Securities has suspended the investment rating and price target for this stock, either because there is not a Sufficient fundamental basis for determining, or there are legal, regulatory or policy constraints around publishing, an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon. NA – Not Available or Not Applicable. The information is not available for display or is not applicable NM – Not Meaningful. The information is not meaningful and is therefore excluded. NOTE – Our target prices are with a 9-month perspective. Returns stated in the rating scale are our internal benchmark.

FUNDAMENTAL RESEARCH TEAM Sanjeev Zarbade Ruchir Khare Amit Agarwal Nipun Gupta K. Kathirvelu Capital Goods, Engineering Capital Goods, Engineering Logistics, Paints, Transportation Information Technology Production [email protected] [email protected] [email protected] [email protected] [email protected] +91 22 6218 6424 +91 22 6218 6431 +91 22 6218 6439 +91 22 6218 6433 +91 22 6218 6427

Teena Virmani Ritwik Rai Jatin Damania Jayesh Kumar Construction, Cement FMCG, Media Metals & Mining Economy [email protected] [email protected] [email protected] [email protected] +91 22 6218 6432 +91 22 6218 6426 +91 22 6218 6440 +91 22 6218 5373

Arun Agarwal Sumit Pokharna Pankaj Kumar Ashini Shah Auto & Auto Ancillary Oil and Gas Midcap Midcap [email protected] [email protected] [email protected] [email protected] +91 22 6218 6443 +91 22 6218 6438 +91 22 6218 6434 +91 22 6218 5438

TECHNICAL RESEARCH TEAM Shrikant Chouhan Amol Athawale [email protected] [email protected] 91 22 6218 5408 +91 20 6620 3350

DERIVATIVES RESEARCH TEAM Sahaj Agrawal Malay Gandhi Prashanth Lalu Prasenjit Biswas, CMT [email protected] [email protected] [email protected] [email protected] +91 79 6607 2231 +91 22 6218 6420 +91 22 6218 5497 +91 33 6625 9810

mailto:[email protected]



















Disclosure/Disclaimer Kotak Securities Limited established in 1994, is a subsidiary of Kotak Mahindra Bank Limited. Kotak Securities is one of India's largest brokerage and distribution house.

Kotak Securities Limited is a corporate trading and clearing member of Bombay Stock Exchange Limited (BSE), National Stock Exchange of India Limited (NSE), Metropolitan Stock Exchange of India Limited (MSE). Our businesses include stock broking, services rendered in connection with distribution of primary market issues and financial products like mutual funds and fixed deposits, depository services and Portfolio Management.

Kotak Securities Limited is also a depository participant with National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). Kotak Securities Limited is also registered with Insurance Regulatory and Development Authority as Corporate Agent for Kotak Mahindra Old Mutual Life Insurance Limited and is also a Mutual Fund Advisor registered with Association of Mutual Funds in India (AMFI). We are registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014.

We hereby declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered in last five years. However SEBI, Exchanges and Depositories have conducted the routine inspection and based on their observations have issued advise/warning/deficiency letters/ or levied minor penalty on KSL for certain operational deviations. We have not been debarred from doing business by any Stock Exchange / SEBI or any other authorities; nor has our certificate of registration been cancelled by SEBI at any point of time.

We offer our research services to clients as well as our prospects.

This document is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any other person. Persons into whose possession this document may come are required to observe these restrictions.

This material is for the personal information of the authorized recipient, and we are not soliciting any action based upon it. This report is not to be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It is for the general information of clients of Kotak Securities Ltd. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients.

We have reviewed the report, and in so far as it includes current or historical information, it is believed to be reliable though its accuracy or completeness cannot be guaranteed. Neither Kotak Securities Limited, nor any person connected with it, accepts any liability arising from the use of this document. The recipients of this material should rely on their own investigations and take their own professional advice. Price and value of the investments referred to in this material may go up or down. Past performance is not a guide for future performance. Certain transactions -including those involving futures, options and other derivatives as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. Reports based on technical analysis centers on studying charts of a stock's price movement and trading volume, as opposed to focusing on a company's fundamentals and as such, may not match with a report on a company's fundamentals.

Opinions expressed are our current opinions as of the date appearing on this material only. While we endeavor to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance or other reasons that prevent us from doing so. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice. Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein.

Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited.

We and our affiliates/associates, officers, directors, and employees, Research Analyst(including relatives) worldwide may: (a) from time to time, have long or short positions in, and buy or sell the securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company/company (ies) discussed herein or act as advisor or lender / borrower to such company (ies) or have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of Research Report or at the time of public appearance. Kotak Securities Limited (KSL) may have proprietary long/short position in the above mentioned scrip(s) and therefore may be considered as interested. The views provided herein are general in nature and does not consider risk appetite or investment objective of particular investor; readers are requested to take independent professional advice before investing. This should not be construed as invitation or solicitation to do business with KSL. Kotak Securities Limited is also a Portfolio Manager. Portfolio Management Team (PMS) takes its investment decisions independent of the PCG research and accordingly PMS may have positions contrary to the PCG research recommendation. Kotak Securities Limited does not provide any promise or assurance of favourable view for a particular industry or sector or business group in any manner. The investor is requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile and take professional advice before investing.

The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.

No part of this material may be duplicated in any form and/or redistributed without Kotak Securities' prior written consent.

Details of Associates are available on our website ie www.kotak.com

Research Analyst has served as an officer, director or employee of subject company(ies): No

We or our associates may have received compensation from the subject company(ies) in the past 12 months.

We or our associates have managed or co-managed public offering of securities for the subject company(ies) in the past 12 months: No

We or our associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received compensation or other benefits from the subject company(ies) or third party in connection with the research report. Our associates may have financial interest in the subject company(ies).

Research Analyst or his/her relative's financial interest in the subject company(ies): No

Kotak Securities Limited has financial interest in the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report - No

Our associates may have actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report.

Research Analyst or his/her relatives has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: No.

Kotak Securities Limited has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: No

Subject company(ies) may have been client during twelve months preceding the date of distribution of the research report.

"A graph of daily closing prices of securities is available at www.nseindia.com and http://economictimes.indiatimes.com/markets/stocks/stock-quotes. (Choose a company from the list on the browser and select the "three years" icon in the price chart)."

Kotak Securities Limited. Registered Office: 27 BKC, C 27, G Block, Bandra Kurla Complex, Bandra (E), Mumbai 400051. CIN: U99999MH1994PLC134051, Telephone No.: +22 43360000, Fax No.: +22 67132430. Website: www.kotak.com/www.kotaksecurities.com. Correspondence Address: Infinity IT Park, Bldg. No 21, Opp. Film City Road, A K Vaidya Marg, Malad (East), Mumbai 400097. Telephone No: 42856825. SEBI Registration No: NSE INB/INF/INE 230808130, BSE INB 010808153/INF 011133230, MSE INE 260808130/INB 260808135/INF 260808135, AMFI ARN 0164, PMS INP000000258 and Research Analyst INH000000586. NSDL/CDSL: IN-DP-NSDL-23-97. Our research should not be considered as an advertisement or advice, professional or otherwise. The investor is requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile and the like and take professional advice before investing. Investments in securities market are subject to market risks, read all the related documents carefully before investing. Derivatives are a sophisticated investment device. The investor is requested to take into consideration all the risk factors before actually trading in derivative contracts. Compliance Officer Details: Mr. Manoj Agarwal. Call: 022 - 4285 8484, or Email: [email protected].

Level 1: For Trading related queries, contact our customer service at '[email protected]' and for demat account related queries contact us at [email protected] or call us on: Online Customers - 30305757 (by using your city STD code as a prefix) or Toll free numbers 18002099191 / 1800222299, Offline Customers - 18002099292

Level 2: If you do not receive a satisfactory response at Level 1 within 3 working days, you may write to us at [email protected] or call us on 022-42858445 and if you feel you are still unheard, write to our customer service HOD at [email protected] or call us on 022-42858208.

Level 3: If you still have not received a satisfactory response at Level 2 within 3 working days, you may contact our Compliance Officer (Mr. Manoj Agarwal ) at [email protected] or call on 91- (022) 4285 8484.

Level 4: If you have not received a satisfactory response at Level 3 within 7 working days, you may also approach CEO (Mr. Kamlesh Rao) at [email protected] or call on 91- (022) 4285 8301.

onderlapankaj kumar w holidays ltd (whl) pankajr ......private client research initiating coverage...

Documents