Wonderla Holidays Limited is tapping the capital markets with its issue for 145 lac shares in a price band of Rs 115-125. The issue has opened on Monday the 21st April and closes today Wednesday the 23rd April. The issue is 98% subscribed as of yesterday and it appears the retail portion will get oversubscribed in terms of number of applications at the base minimum. It therefore makes sense to apply in retail category for the minimum of 100 shares only as allotment would be only 100 shares per person.

Business

Wonderla is one of the largest operators of amusement parks in India. It currently owns and operate two amusement parks under the brand name ‘Wonderla’, situated at Kochi and Bangalore and is in the process of setting up its third amusement park in Ranga Reddy District of Andhra Pradesh, Wonderla Hyderabad. It also owns and operate a resort beside the 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 33 land based attractions at Wonderla Kochi, situated on 93.17 acres of land and 20 water based attractions and 35 land based attractions at Wonderla Bangalore, situated on 81.75 acres of land. Wonderla recorded total Footfalls of 23.40 lakhs in Fiscal 2013 and 17.50 lakhs in the nine month period ended December 31, 2013 across its two amusement parks in Kochi and Bangalore. The total Footfalls across the two amusement parks have grown at a CAGR of 7.42% from Fiscal 2011 to Fiscal 2013. The resort operated under the name, Wonderla Resort, is a ‘Three Star’ leisure resort located beside the amusement park in Bangalore comprising of 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 centre and a well-equipped gym. Further, for setting up the proposed amusement park in Ranga Reddy District of Andhra Pradesh, it has acquired 49.57 acres of land.

Objects of the Offer

The objects of the issue is to set up an amusement park in Hyderabad (Andhra Pradesh) currently.

Financials

The company has reported revenues of Rs 114.52 crs an Rs 139.71 crs for the years ended March 2012 and March 2013. For the nine month period ended December 2013 the revenues are Rs 121.52 crs. The net profit after tax for the respective periods are Rs 29.86 crs, Rs 33.48 crs and Rs 30.98 crs.

Comparisons

The advantage Wonderla has is that there are no listed entities in the space in which it i. For name sake there is a company Nico Park in Kolkata which is listed but the size and scale of operations is fairly limited. On the other hand you have Essel World in Mumbai which is doing well but its ownership is not in any direct listed entity, hence details of its financial performance is unavailable. Also there are many single park companies in the country and there is healthy competition but not comparisons available.

I believe this company is a fair comparison with Just Dial and on the face of it looks steeply priced.

Valuations

The price band is Rs 115 to Rs 125. The EPS for the year ended March 2013 based on the pre-IPO capital was Rs 7.97. This translates into a PE of 14.43 at the lower band and 15.68 at the upper band on the old capital. The EPS for the nine months ended December 2013 was Rs 5.48 and if the same is annualised and adjusted for post IPO, the fully diluted EPS is Rs7.31. At this EPS the PE is 15.73 times at the lower end and 17.09 times at the upper end. Considering the fact that this industry has some amount of newness in the listed space, the asking price is a shade expensive and could have been better priced. However the company has a track record and the asking price could be considered as one for an existing profit making company.

Risk

The current land which has been acquired for the Hyderabad project has some pending disputes and is also awaiting clearances. As we are aware that the state of Andhra Pradesh post the current round of elections would be split and be bifurcated into two different states of Seemandhara and Telengana. One is not sure how quickly the clearances would come once the states are split. The project envisages a lead time of roughly 24 months from zero date for being operational. The ZERO date is the one which is not certain.

Footfalls have been fairly static in the nine month period ended December 2013. The main reason for that has been inclement weather and amusement parks being open air parks, weather plays a very important part. One witnessed very heavy rains in the state of Kerala and Kochi airport had to be closed because of flooding. This has led to a fall in footfalls and subsequently the drop in anticipated revenues. Leaving this apart one should not expect a major jump in revenues from footfalls but the key factor would be the growth that could come from higher occupancy of the resort at Bengaluru. Currently the same has muted occupancy as this is the first year of operation.

Drivers

As mentioned above the key driver is revenues from the resort in Bengaluru as the incremental revenue would to a great extent flow to the bottom line as all other fixed costs are already accounted and taken care of. The next big driver is of course the Hyderabad project which would see revenues jumping. The concern of course is the zero date and then the two year waiting period. In short the immediate kicker is the improvement in occupancy rates of the resort in Bengaluru and the longer term driver which is clearly anything from 24-30 months away is the opening of the Hyderabad Park.

Conclusion

There is an issue which has come after a long time in the primary market offering appreciation as there is something on the table for investors. The valuations are decent and certainly not overpriced. There is retail interest in the issue as subscription figure after two days indicate. The allotment system adopted by SEBI makes it redundant and unattractive to apply fopr more than the minimum lot of 100 shares.

I recommend that investors looking to make money in the immediate short term apply for the minimum 100 shares and if successful in being allotted may make even 40-50% returns. In the medium term retaining those levels may not quite be possible and there could be stagnation in prices as revenues and profits post IPO would not rise immediately. Long term which is over 2 and ½ years would be the Hyderabad Park which I believe is likely to get delayed based on the new priorities of the two bifurcated states.

SEBI Disclaimer :- I intend to subscribe for 100 shares of the above issue.