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Sunday, April 20, 2014

Wonderla Holidays - IPO


Wonderla Holidays is one of the largest operators of amusement parks in India. It owns and operates two amusement parks under the brand name, ‘Wonderla', one at Kochi and the other in Bangalore. It is in the process of setting up third amusement park in Hyderabad. It also owns and operates a resort beside its amusement park in Bangalore under the brand name, ‘Wonderla Resort', which has been operational since March 2012.

The amusement parks offer a wide range of water and land based attractions catering to all age groups. It has 22 water-based attractions and 34 land-based attractions at Wonderla Kochi, situated on 92.95 acres of land and 20 water-based attractions and 33 land-based attractions at Wonderla Bangalore, situated on 81.75 acres of land. It recorded total footfalls of 23.40 lakh million in fiscal ended March 2013 (FY 2013) and 17.50 lakh in the nine-month period ended December 2013 across its two amusement parks at Kochi and in Bangalore. The total footfalls across the two amusement parks have grown at a CAGR of 7.42% from FY 2011 to FY 2013.

Wonderla Resort, is a three-star leisure resort located beside its amusement park in Bangalore, comprising 84 luxury rooms, with amenities including banquet halls, a board room, conference rooms, a multi-cuisine restaurant, a solar heated swimming pool, recreation area, kids' activity center, and a well equipped gym.

The company is coming out with an IPO for setting up its proposed amusement park in Hyderabad. The initial public offering comprises 1.45 crore of equity shares of Rs 10 each in a price band of Rs 115-125. At the lower price band, about Rs 166.75 crore will be raised, and at the higher price band, about Rs 181.25 crore.

The company intends to finance the setting up of the amusement park, Wonderla Hyderabad, through debt finance and from IPO proceeds. For setting up the proposed amusement park in the Ranga Reddy district of Andhra Pradesh, the company has acquired 49.57 acres of land, which has been mutated in the name of the company and has been converted from agricultural to non-agricultural land use. The company intends to deploy Rs 173.30 crore for setting up the amusement park from the Net Proceeds. It has also been sanctioned a loan of Rs 50 crore by the State Bank of Travancore for part financing of the amusement park project. It has utilized Rs 5 crore of debt for the project. The management confirmed that the amusement park to be operational by FY 2016

The promoter, Kochouseph Chittilappilly, in 1996 had incorporated V-Guard Industries, which is listed on the BSE and the NSE since 2008.

Strengths

India's increasing discretionary spending on the one hand and a large young population on the other work are in favour of the amusement park industry in general and Wonderla holidays in particular.

The proposed third amusement park in Hyderabad will be advantageous as Hyderabad is India's sixth largest city, with a population of about 7 million. Good infrastructure has encouraged the setting up of biotechnology, pharmaceuticals, IT and ITeS industries in the city. These industries typically attract a large number of young professionals.

Wonderla develops amusement rides in-house, which helps to maintain low cost. It has constructed 42 rides for its amusement parks till date. This has helped the company to reduce capex incurred on the rides. The cost of a ride manufactured in-house is one-third of the cost of procuring the ride externally. This has also equipped the company with in-house maintenance capabilities, thereby reducing the cost of maintenance and downtime for a ride.

The business is capital intensive and also requires large parcels of land, which are not easily available at good location. Wonderla has excess lands in Kochi (93 acres out of which utilized land is just 27 acres) and Bangalore (81.75 acres out of which utilized land is just around 40 acres), which will help in expansion in these locations without large investments.

Weaknesses

The company is involved in two litigations pertaining to 14.70 acres of land acquired in connection with Wonderla Hyderabad.

The company's business is seasonal with the maximum footfalls on weekends and during school vacations. The April to June quarter (summer vacations) and the October to December quarter (holiday season) are typically the peak quarters accounting for 35% and 25% of revenue, respectively.

Fall in level of discretionary spending due to any economic downturn, communal and terrorist events, political unrest or outbreak of contagious diseases will negatively impact the company.

Any major accident or mishap at any of its parks can not only affect the performance but also the reputation of the company.

Amusement parks are extremely land-intensive as large parks require around 40-50 acres with some of the current mega projects going up to 300 acres. Its inability to find locations to open and operate new amusement parks on commercially viable terms and successfully acquire the requisite land could adversely affect its future expansion plans

South India is prone to electricity cuts. Unavailability of adequate and uninterrupted supply of electrical power and water at a reasonable cost will hamper the company's operations.

Valuation

Net sales were Rs 137.95 crore and PAT Rs 33.48 crore in FY 2013. On fully diluted post-IPO equity share capital of Rs 56.50 crore, EPS for FY 2013 was Rs 5.9. Net sales stood at Rs 119.69 crore and PAT at Rs 30.99 crore for the nine months ended December 2013. Due to seasonality of business and the fact that the best two quarters have already passed (the company gets 35% of its total sales in Q1 and 27% in Q3 and the rest is equally spread between remaining quarters), it is very much likely that the actual EPS that the company will report for FY 2014 will be lower than the annualized EPS for the nine months ended December 2013. Thus we are not annualizing EPS for the nine months ended 2013. At the lower price band of Rs 115 and higher price band of Rs 125, the offer price discounts FY 2013 earning 19.4 times and 21.1 times, respectively. Though there is no listed company in the similar line of business, offer P/E close to 20 is steep.

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