Wonderla Holidays Ltd. looks strong for further growth along with improving CAGR.

Wonderla Holidays Ltd. Looks strong with improving CAGR and improving balance sheet along with company's profit.

WONH is the largest chain of amusement parks in India. It is the owner and operator of three amusement parks in Kochi, Bengaluru and Hyderabad. It also owns and operates a 3-star luxury resort (84 keys) in Bengaluru park. It opened its first park in Kochi in 2000, previously known as Veega land. All the parks are in within proximity (<30kms) of the major city. WONH opened its first park in Kochi in 2000 for a capex of INR 650 million. The total land available is 93 acres and the park is spread across 29 acres of land, leaving over 64 acres of land for future development. It has over 54 rides, 33 dry rides and 21 wet rides. It reported total sales of INR 751 million in FY20, clocking a sales CAGR of ~6% between FY11-20. In the same period, it reported a 5% CAGR in footfall growth to ~0.8mn visitors and 11% CAGR in overall ARPU to INR 968 (led by a faster rise in non-ticket ARPU). We expect revenue to touch INR 1,806 million in FY26 (16% CAGR between FY23E-26E), backed by a strong growth in footfall and overall ARPU.

In 2005, WONH established its second theme park in Bengaluru after Kochi. The park needed 900 million INR in capital expenditures. Within Bengaluru Park's boundaries, there are more than 60 rides (39 dry rides and 21 wet rides), as well as a resort with 84 rooms. A total of 82 acres make up Wonderla Bengaluru, of which 39 acres are developed. With more over 0.9 million visits in FY20 (against 0.93 million visitors in H1FY23) and an overall ARPU of INR 1226, it generated over INR 1,105 million in revenue in FY20 (versus INR 870 million in H1FY23). Over 41% of WONH's overall revenue in FY20 came from Bengaluru Park. Between FY11 and FY20, revenue has grown by about 11%, driven by a 10% increase in ARPU.  footfall was flat in the same period. We expect the revenue to grow to INR 2,447 million by FY26E at 16% CAGR.

The number of visitors peaked in FY15 at 1.3 million. Bengaluru Park experienced multiple external issues between FY16 and FY22, which led to a 12% decline in foot traffic. These issues included the introduction of a 14% service tax in FY17, the demonetization of currency in Q2FY17 due to the Cauvery water dispute, the introduction of a 28% GST on amusement park tickets in FY18, unseasonably heavy rainfall in FY20, and a lockdown in FY21 and FY22. We anticipate that foot traffic will pick up again in FY23E, with absolute growth of 25% over FY20 foot traffic to 1.13 million visits, supported by a move to digital marketing, the park plus approach, and pent-up demand as a result of the pandemic, among other factors. 2012 saw the opening of the 84-room resort inside Bengaluru Park. It made up about 4% of the total Revenue in FY20. Between FY13-20, revenue grew at 9% CAGR to INR 112 million. It contributes only 4% of overall revenue with an average room rental of INR 4736 between FY16-20. We expect revenue to touch INR 168 million in FY23.

 Shareholding:

Industry Research:

The global theme park market is expected to increase from USD 49 billion in CY21 to USD 67 billion in CY27. The Indian amusement park business is predicted to increase at a 10% CAGR between FY22 and FY27, with an expected FY20 market size of over INR 40 billion.

According to IBEF, the size of the Indian amusement parks market was INR 40 billion in FY20. Until FY27, it is anticipated to expand by 10% annually (except for FY21 and FY22 due to covid shutdown). The leisure industry generates about 40% of its revenue from amusement parks, which are important growth factors for India's service sector. About 30-35% of visitors are tourists, making them a significant source of tourism. Post-Pandemic, the growth and demand of the amusement park market revenue are being fueled by cultural transformation, changing lifestyles, and a growing emphasis on living a life that balances work and play. Favourable demographics, a limited avenue of outdoor entertainment, and rising GDP per capita are other major factors influencing the expansion of amusement parks in India.

In India, there are over 125+ districts with a population of over 3 million. In comparison, there are only 15-20 major parks in India with a footfall of over >0.5 million/year, thus providing a huge opportunity for growth as WONH is the only pan-India player. Wonderla Kochi park (started in 2000), situated in Ernakulum district with a population of around 3.3 million people, has reported an average of ~1 million+ footfall/year between FY10-20.  The world's theme parks have survived the recession and seen an increase in visitors throughout that time. Despite the global economic slowdown, the top 10 amusement theme parks in North America, South America, Asia, and Europe saw an increase in overall foot traffic from 211 million visitors in 2007 to 231 million visitors in 2012, representing a 1.8% CAGR. All regions, except for Europe, saw an increase in traffic. During the same time, the top ten amusement/theme park chains recorded 358 million visitors overall in CY12, a 5% CAGR between CY07 and CY12.

As per the WEF 2018 report, the number of households with income >USD 4000 per year will double from 166 million households in 2018 to 329 million household in 2030E. The share of the upper middle class, with an annual household income of USD 8,500-40,000 will increase from 21% in 2018 to 44% in 2030E according to the World Economic Forum report. Indians spend one of the least on entertainment globally (2%-3% of total spend versus about 16% in the US and 11% in China), often due to limited access issues and low incomes. Rising incomes could unlock a $200 billion market in India by 2030, with a disproportionate share of increased spend going into digital entertainment, especially videos. Even if we assume 1-2% of the spending will shift to amusement/theme parks, it creates a $2-4 billion opportunity size vs $0.5 billion currently.

Investment Rationale:

Increase in number of parks:

Management aspires to operate ten parks by FY2030. WONH currently runs three parks with a combined annual visitor count of over 2.4 million in FY20. The company intends to open two more parks in the next three years, one in Bhubaneswar, with an estimated cost of INR 1.25 billion, and another in Chennai, with an estimated cost of INR 3.30 billion. As per Management estimates, Bhubaneswar Park will commence operations in Q3FY25, and Chennai Park will start operations in Q1FY26 (subject to approval from state government). We expect both the upcoming parks to be EBITDA positive from the first year and start contributing to the bottom line from the second year of inception. 

WONH’s existing parks have a capacity of 10,000 to 12,000 guests per day. However, in FY2020, the daily average number of visitors was only 2,174, resulting in a utilization rate of around 18%. The management expects to boost the number of daily visitors by implementing strategies like dynamic pricing, add-on park events, shift to digital marketing, and the use of data analytics, to reach an average of more than 4,000 visitors per day. In the add-on park events strategy, the company has also run various campaigns and successful events like Women’s Day, Navratri, Sunburn Festival, New-year event, etc. to attract crowd after regular park visiting hours at an additional ticket price. This strategy has helped improve footfalls and ARPU in the existing parks where the company is targeting two major events every month. WONH has reported a peak average footfall utilisation of ~27% in FY15. We saw a declining trend in footfall between FY15-21 due to the introduction of a new park in Hyderabad and various exogenous factors like demonetisation (2016), introduction of GST (2017), covid (2020), etc. Though we expect a small dip in average daily visitors between FY23E-26E due to the introduction of two new parks, we expect actual footfall to grow from ~3.04 million in FY23E (vs 1.06 million in FY22) to 4.85 million in FY26E.

Increase in ARPU:

It is expected that ticket/non-ticket ARPU will grow by 6%/8% respectively between FY23E-26E, which should result in a ~7% CAGR in ARPU during the same period.

WONH has experienced substantial growth in its average revenue per user (ARPU) over the past decade. The company's ARPU has grown at over 10% CAGR (~INR 400 in FY09 vs INR 1091 in FY20). This growth is probably attributable to WONH’s strong brand equity partially offsetting any price sensitivity. In FY23, the management has taken multiple price hikes and the ARPU is likely to reach ~INR 1,227. We expect overall ARPU to see a ~7% CAGR between FY23E-FY26E. Per capita gross national disposable income (GNDI) in India grew by 8% CAGR from FY13-21. We estimate a similar trend going forward and this will benefit the amusement park industry and WONH will see similar growth in ARPU on the back of it. WONH has set up three amusement parks across South India and plans to set up additional two parks by FY26. With the commencement of the Chennai park, WONH will have sufficient internally generated cash flows to fund the capex of additional parks. Compared to other domestic players, WONH is the only pan-India player.

The primary obstacle to creating new parks is the acquisition of land, which can be difficult to find in urban areas, especially in required quantities. Additionally, the cost of importing and maintaining rides makes the process of setting up an amusement park an expensive proposition. Moreover, if the land is located far away from cities, it can negatively impact visitor numbers, while parks closer to urban areas will result in higher capital expenditure, which will be passed on to consumers in the form of higher ticket prices.

Shifting to Asset Light Model:

The company operates three amusement parks in Kochi, Bengaluru, and Hyderabad. The company's long-term goal is to operate ten parks by FY30 and to achieve this, it plans to construct two more amusement parks (Bhubaneswar and Chennai) by FY26. In addition, the company is in talks with a number of other state governments to set up an amusement park in their respective jurisdiction (Eg: Madhya Pradesh). In comparison, all other competitors are regional in nature with one or two large parks with no focus on expanding in the next 2-3 years.

The Bhubaneswar park will be on an asset-light model, where the Odisha state government has provided the land on a long-term lease at a reasonable price to promote tourism. Management has stressed that all future parks will follow the same asset light model. This will reduce the upfront capex cost by ~40% as the company will save on land costs, and this will help to cater to a larger audience with a value-based offering. WONH has a dedicated manufacturing facility in Kochi where it builds some of the rides for its amusement parks. The facility has produced over 42 out of the 160+ rides and attractions at the company's three functioning parks as of FY22. The company employs a team of qualified staff at the Kochi production site. According to management, domestically produced rides cost one -third of the cost of imported ones. WONH also buys used rides from amusement parks worldwide, refurbishes them at its Kochi facility, and installs them in its parks. This is a significant competitive advantage as it allows WONH to save 50-70% on the cost of rides and allows for in-house maintenance, reducing downtime, expenses and operational costs. Compared to its peers, WONH requires lower maintenance capex due to its in-house ride manufacturing plant.

Increasing Digital Marketing:

WONH spends over 8-12% of its total sales on advertising and marketing. Post-covid, company has shifted its focus from traditional marketing to digital marketing. Company has experienced increase in retail traffic from increased social media content, the involvement of social media influencers, Park- plus events and enhanced online marketing strategies. Management mentioned that they are focusing on increasing walk-ins and hope to improve the ratio of walk-ins to 75% in the future (vs 65% in FY23E).

Technological solutions addressing ticketing, capacity, and queueing were accelerated during the pandemic. The company is investing over ~INR 50 million in CRM for its Bengaluru park on a pilot basis that will help the company to gather more data on customers inside the park. This will help the company to efficiently manage cluster formation, reduce queuing, improve spending on non-ticket items and introduce payments through wearables. The company has also introduced EZ Pay bands, an e-wallet and used for payment for food, gift shop purchases, photographs, etc. by simply using the wristband. This will also help in increasing spend per head, improve customer engagement, collect data for analytics and improve time management. The company will be able to use data analytics to retarget and remarket to its core customers. Management expects this to be operational by Q2FY24.

 The three Wonderla parks have all received certification from Bureau Veritas Certification (India) for upholding highest levels of safety, including BS OHSAS 18001:2007 safety standards and ISO 14001:2015 environmental protection standards, in the operation and upkeep of their land- and water-based attractions as well as for the associated amenities. Over 90% of its employees received training on health and safety procedures, and over 85% of them took part in skill development activities in FY22. All rides are subject to daily pre-opening checks as part of the risk management program, and these checks are followed by thorough monthly and annual checks.

For water rides, a fully equipped internal laboratory is available to guarantee water quality, and water quality in swimming pools and treatment facilities is regularly checked to comply with IS standards. The company uses reverse osmosis technology to ensure that the water is secure, hygienic, and of the highest quality. Additionally, a zero-discharge water treatment technology that separates the treatment of raw water, pool water, restaurant wastewater, and sewage water is used. In addition to these inspections, a dedicated audit team conducts independent riding checks and submits findings to higher management for any necessary action. Moreover, the safety components are periodically reviewed by the ride risk review committee.

Lack of Big Competitor:

Internationally, amusement parks are dominated by large US players like Disney World, Universal Studios, Six Flags & Sea World. Most of them have used their intellectual property rights in the form of major film franchises, characters and other entertainment to their advantage. The economics of the park also differ; the international parks make only 35% of their revenues from entry fees, while the rest are from resorts, foods, and merchandising.

In India, the economics are: 75% from entry fees, while services like food and merchandising account for 25%. The difference is largely due to the lower discretionary spending power of the target audience. Hence, it is unlikely that a Disney or Universal Park would be a threat to them in the short to medium term.

Management Profile: 

Financials:

Balance Sheet:

Profit & Loss:

Cash Flow:

Valuation:

We expect 28%/21%/19% CAGR growth over FY23E-25E in revenue/EBITDA/PAT respectively based on: 1) addition of Chennai and Bhubaneswar parks, resulting in five operational amusement parks by FY26, 2) 19% CAGR in footfall, 3) 8% CAGR in ticket prices, 4) 9% CAGR in non-ticket prices, primarily driven by higher price growth in F&B segment. Hence, we expect WONH to deliver strong cash flows, higher asset turnover due to lower capex requirements (asset-light model and in-house manufacturing-maintenance facility), and simultaneously become self-sufficient in funding future parks, maintain a strong balance sheet.

Key Risks:

• High capital-intensive business: WONH is a debt free company and will finance the upcoming two parks with internal accruals. Going forward, WONH has shifted to asset light model where they will focus on leasing the land which will help in reducing over 40% of upfront capex. The company has an in-house ride design and manufacturing facility in Kochi. In-house ride manufacturing facility leads to a lower capex and maintenance cost.
• Affordability: Company’s focus is on offering value-for-money offering and targeting middle class. Typical middle-class family spends over INR 5000 per trip. All three parks have an average ticket price in the reasonably priced range of INR 800-1200 for one day experience and the customer can enjoy both water and land rides on the same ticket. Low asset cost due to in-house manufacturing and adopting asset light model will allow WONH to charge low entry fees and make it value for money offering to its visitors.
• Land availability, location and connectivity issues: All the three parks are situated between 15-25 kms from the main city premise and good connectivity to the main highway. Even the upcoming two parks (Chennai and Bhubaneswar) are within the same distance from the main city and close to the highway.

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