2 Smallcaps Potentially Set for a 'Great Ride' 

Hello Viewers

If you have subscribed to this Youtube channel you would have noticed that insider buying is one of the metrics that I'm tracking to find potential opportunities in this overvalued market.

You see, tracking insider activity can offer interesting insights into the prospects of the industry, well before the industry data is published and market rushes to act on it. If there are multiple insider buying cases in a particular industry segment or sector, there are chances that the whole sector is likely to do well.

There is a specific sector where I have seen insider buying recently across key stocks. And in today's video, I'm going to share these stocks with you.

The sector is entertainment. Within it, recreation and amusement parks stocks are witnessing high insider buying by promoter group.

Before I get to stock, let's understand the dynamics of this industry.

Setting up and running amusement parks is a tough business. The investment for a decent sized park with enough rides to be a tourist attraction requires huge capital investment. And even for ones that could afford that, setting up a park is relatively easy. The challenge lies in successfully running it.

What keeps a park going is marketing strategies, footfalls, positive customer experience, functioning rides, addition of rides, queue management, safety protocols, hygiene and ensuring no leakage in collections. Not every management is cut for that. Those who have taken big bets, for instance the founders and earlier investors in Imagicaa, have burnt hands.

That said, in India, the opportunity in amusement business is immense due to huge population, rising urbanisation and affordability, and favourable demographics.

Most importantly, due to underpenetration and lack of interest from big global entities like Disney.

The market size of the Indian amusement park sector is around USD 500 million and is estimated to grow at a 10% CAGR between FY22 and FY27. The size of this industry in India is ~1% of the global industry suggesting underpenetration.

And yet, the likes of Disney do not consider India as a viable destination, as Indian incomes don't support the ticket price they aspire for and enjoy in other nations.

This leaves great opportunities for Indian players that have shown good execution and management.

Wonderla Holidays is one among them. The company finds mention as one of the top attractions in Bangalore by different travel websites. It has more than two decades of experience in running the parks profitably.

The company has a track record of setting up three parks across different location across states - Kochi, Hyderabad, and Bangalore. And all this while maintaining a debt free balance sheet.

With the right location and management, this business can throw huge amount of cash. It enjoys negative cash conversion cycle, with most revenue collections being upfront.

Along with an early mover advantage and a huge land bank with spare capacity, Wonderla is uniquely placed due to its ability to set up inhouse rides that saves costs. It's going to be a tall task for any fresh entrant today to level up on these fronts.

In FY24, its three parks together witnessed a footfall of 32.52 lacs with an average revenue per user of Rs 1430. And then there is income from food and beverage segment and organized events.

It has recently launched a new park in Orissa, well ahead of schedule. And it is planning one more in Chennai in FY26. The Chennai Park is expected to be as big as Bangalore Park.

Further, the company is getting invitations from multiple state governments to set up parks to promote tourism in the respective states. More are in the pipeline across different states.

Wonderla is focused on using an asset light expansion approach, where it goes with long term leased land model than purchased land, especially in lower tier cities, like in case of Orissa Park. This will reduce the payback period and keep its parks affordable - allowing the company to grow without adding debt to the balance sheet.

The stock has witnessed insider buying in last six months. The promoters have purchased the stock at an average price of Rs 864. As I record this, the stock is available at a discount to that price.

The second stock which has seen insider buying trend in the same industry is Nicco Parks & Resorts, a microcap company in the amusement industry. The company has a park by the same name in Kolkata. A total of 14.45 lakhs people visited Nicco Park in FY23.

Besides ticket income, the company earns revenue from rentals and food and beverages.

The net profit for the company in FY23 stood at Rs 250 million, almost 2.8 times of the profit in FY19, the pre Covid year. I'm comparing it with FY19 as amusement park business was one of the worst hit segments in the pandemic. The company enjoys a debt free balance sheet with return on equity at 34% and return on capital employed at 49.5%. The dividend yield on the stock is 1.15%. The stock is trading at a PE of 27 times.

Coming to insider buying details, the promoters have bought1.3 lac shares from the open market at an average buy price of Rs 143. As I record this, the stock is trading at the same price.

Do not consider today's discussion on the stocks does not imply any view like Buy, hold, or sell.

The industry has some inherent risks like a complete shut down in case of health scare like Covid, dissipation of pent-up demand post Covid, and competition from other forms of entertainment, such as streaming services and video games, cinema etc. The need to invest in new attractions and experiences to keep up with changing consumer demands.

So do keep in mind these risks along with margin of safety in valuation.

With this, I have come to the end of the video. Let me know in the comment section if you found this information useful. Thank you for watching. Goodbye.