Fun Times Ahead For This Theme Park Operator 

Hi Guys, This is Aditya Vora here...

You know over the past 2 years, the hospitality industry is on a roll.

Be it airlines, hotels, or restaurants... the rush is insane. Apart from the fact that the occupancy levels have even crossed the pre pandemic levels, the pricing is off the roof.

I mean, 3 star hotels are quoting prices of 5 star hotels at tourist locations.

An air ticket from Bombay to Calcutta is the same as Bombay to Dubai or Bangkok as a matter of fact.

Domestic travel along with luxury accommodation has grown very fast.

Let me throw some numbers at you.

Indian Hotels that is Taj recorded its best operating margin in its history.

The average room rate is close to the highest at Rs 10,740 per night with operating profit margin of 37.6%

The occupancy in fact has reached 75% which is the best in a decade.

Lastly, the profit of the last quarter was more than the entire years profit.

This is the case with most hotel stocks, all of them are sitting at record profits.

Unfortunately, the stocks have also tripled from the bottom and are trading much above their average mean.

In my view doesn't make sense chasing such stocks.

While I am sure the demand is robust, however the risk reward for a fresh buy isnt favourable.

In that case let me talk about a stock from a similar theme which is financially better than most hotel stocks.

I am talking about the theme park space.

Now this space was badly hit due to Covid and has come back sharply just like the hotel stocks.

However, the stock I am going to talk about is much superior to the hotel stocks.

The stock I am talking about is Wonderla Holidays and in this video I will tell you why I prefer this stock compared to hotel stocks or any other re opening or revenge consumption stocks.

For starters, for people who don't know about Wonderla Holidays.

Wonderla has three amusement parks located in Bangalore, Hyderabad, and Kochi. It also owns and operates a resort in Bangalore.

Let's analyse this company on 3 aspects.

First is the operational parameters and where it stands

Second is the business potential going forward. Basically, why I like this stock.

And lastly the valuations and what the way forward when it comes to risk reward.

When you talk about business parameters for a theme park, You should monitor these 3 parameters.

The first is footfalls which is the most important, then comes average revenue per user, which is nothing but the spends which a customer does by buying a ticket and also spending money for foods and other add ons inside the park and the last one is EBITDA margin.

Also please note that since FY20, FY21 and some part of FY22 theme parks across India were shut due to Covid, for comparing real growth let us consider footfalls for the nine month period ended December 2020 and corresponding nine month ended December 2022, which is the latest quarter.

So let's start with the most important metric for a theme part which is Footfall.

Foot fall is the number of people which attend your park. Basically in manufacturing terms it is the volume growth of the company.

For the 9 months ended FY23, Wonderla had the highest footfall in the history of the company.

It crossed the magical number of 25 lacs in just 9 months this year which is a growth of 27% as compared to the corresponding pre covid period.

All the 3 parks contributed to this strong growth which tells you that the trend is secular throughout the country.

Also, business models of theme parks have a high operating leverage. What I am implying is that fixed costs like electricity costs and personnel costs remain same irrespective of whether there are 10 people in a ride or 50 people. In this case, as footfalls grow, profitability goes faster as fixed costs are spread on a higher base.

Now the second important metric is the average revenue per user of ARPU is what is called.

The 9 month ARPU was at Rs 1263 which grew by 14% from Rs 1110 pre covid.

Now, this ARPU is broken in to 2 things, the main component is the average ticket price while the second small component is the average non ticket revenue which is the amount spent on food and beverages and other paid attractions in the park.

The average ticket price varies from location to location and is the most sensitive amongst all the parameters.

If you look at Bangalore, the average ticket price was roughly Rs 1000 while the average non ticket price was Rs 330-340. Now if you look at Kochi, which is s tier 1 city and not a metro like Bangalore, the average ticket price drops to Rs 850-870 while the non-ticket revenue is at an average of Rs 260-270. While Hyderabad is somewhere in the middle as you can see in the slide.

From an analytical standpoint, it is relatively easier to get volume growth if things are broadly fine.

A lot of people told me that the pent up demand or revenge travel lasts for 1 year max. Well, if you look at the hotel industry and the theme parks, it is not pent up demand but sustainable demand. As it has been more than 1 and half years since Covid was a serious issue.

In my opinion, the real challenge for the management is to increase ticket prices, as that is the most sensitive factor.

There are 2 ways to look at Wonderla's ARPU, one is that over a 3 year period, the average ticket prices have gone up by 12-14% which is moderate as it implies 4-5% increase per year which is inline with inflation.

However, the other way to look at it, is that increasing ticket prices at the same pace before from here will be a challenge as Rs 1250 is already a decent pricing. Any adverse increase in ticket price will hit demand and footfalls first.

The third parameter to look at here is the EBITDA margin which is a function of the above to parameters and certain costs like power and manpower.

Wonderla has achieved an EBITDA margin of 52% for the 9 months as compared to 46% in the pre covid period.

In fact, the EPS is the highest in the history of the company.

Now that you are aware of the operational parameters of the company and its impact, let us look at the business case for Wonderla.

2 things which matter are one, growth forecast, and sustainability of the superlative performance which the company has seen and second thing is the expansion plan, that is where will the delta in growth come from.

When it comes to the sustainability of the performance going forward, let us break it down for footfalls, ARPU and EBITDA margins.

I believe, the demand trend is strong and footfalls historically during the pre-covid period have grown by 4-6% annually. Considering this time, the company is doing a lot in initiatives which I will discuss later along with new rides being added, the footfall can grow by 7-8% atleast for the next 2 years.

When it comes to ARPU, the real delta is from non-ticket revenues and ill tell you why...

Let's assume ticket prices grow by 2-3% max every year over the next 2 years but the non-ticket sales in my view will give delta in ARPU growth.

What Wonderla has done is that it has started a new vertical where the company wants to position its theme parks as a destination for thrill and parties. It organises concerts in its theme parks which range from Sunburn events to new year parties.

This not only leads to a higher footfall but also increases the ARPU.

Wonderla plans to increase the frequency of events and also organise small events every weekend.

This model in my view is likely to boost ARPUs and non ticket revenues going forward.

In that case lets assume ARPU s grow by 4-5%.

Also, Wonderla has a 84 rooms hotel in Bangalore in its theme park which has touched an occupancy 76%. This could also contribute to increase in ARPU and revenues going forward.

Now, that leads to a 15-17% revenue growth on a very high base over the next 2 years till the new parks come in.

Also, the EBITDA margins which we are seeing are all time high margins and there is no way the company can sustain margins at 51%.

While pre covid margins have been 40-42% on an average, I think going forward 45% could be a decent and achievable EBITDA margin.

Also, when you talk about growth, Wonderla is going to open a new theme park at Odhisa which will be half the size of the Bangalore park in 2025.

Also they are eagerly waiting for permission from the Chennai government to start construction for their Chennai theme park which is going to be as large as their Bangalore park. Once permission is received, the Chennai park can become open to public with 1 and a half year.

These 2 parks can add meaningful revenues from 2025 onwards.

Also, Wonderla is like the undisputed leader in the Southern cities which it operates due to its scale and the type of rides which it offers.

Wonderla keeps on adding new rides in its park keeping the consumer interest high.

So, in terms of competition it is a monopoly.

To end this lets talk about valuations,

The slide shows the assumptions I have made for the next 2 years and logically where earnings can grow over the next 2 years.

Please do understand that these are my assumptions and I can be horribly wrong with these.

So friends to end this, Wonderla is a debt free company with majority of future expansion also likely to be done by internal accruals.

Also the company is innovating with tech by testing wearable bands which reduces time for entry, exit along with giving options for purchases via the wearable device along with ride que management.

While the company since its listing hasent had a great run, the past 1 year the stock has risen sharply.

Thank you for watching my video and do let me know in the comments section.