The Wonderla IPO is on. This is an company that owns theme parks in Kochi and Bangalore, and is very small IPO in the whole scheme of things (raising less than Rs. 200 cr. – $33 million).

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Wonderla has two theme parks and is building a third. The company made 121 cr. of revenue in the 9 months to December 2013, and a net profit of Rs. 31 crores in that time. That’s an Earning Per Share of Rs. 9.8, and the company is offering shares between Rs. 115 to Rs. 125.

I would buy this IPO, if only because it’s priced well and I believe that the industry has scope. The promoters look clean. The IPO is available till 23 April 2014.

The Numbers

The Kochi theme park has

  • 55 rides (22 water, 33 land)
  • 93 acres of land, of which only 29 acres is used
  • 11-12 lakh footfalls, 4% CAGR
  • 400-600 rupee all inclusive entry fee
  • 7 restaurants (food is not included in entry fee)
  • 270 employees
  • 48 cr. revenue (9 months to Dec 2013)

The Bangalore park has

  • 55 rides (20 water, 35 land)
  • 82 acres of land, only 39 acres currently used
  • 11-12 lakh footfalls
  • 600-800 rupee all inclusive entry fee
  • 7 restaurants (food is charged extra)
  • 306 employees
  • 48 cr. revenue (9 months to Dec 2013)

They also own a resort at Bangalore, which made about Rs. 4.7 cr. of revenue with 84 rooms.

Wonderla owns a manufacturing facility where they make stuff for their parks. These are not the complicated equipment (which is usually imported) but things like rafts for rides like a water based Lazy River, or a wave pool etc.

The books are like this:

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The Offer

They are offering:

  • 1.45 crore shares (new). Takes total share capital to 5.65 cr. shares.
  • Price band of Rs. 115 to Rs. 125 per share
  • Applications in multiples of 100 shares
  • Retail investors (upto Rs. 200,000) get 35% reservation.

What will they use they money for

They need the money to build a theme park in Hyderabad. They’ll use Rs. 173 cr. to build it, and it’ll cost around 220 cr. to build. About 50 cr. of the money needed will be borrowed at around 12.5%.

They have around 50 acres of land in Hyderabad.

Notes

The issue is for a small cap. Even at Rs. 125, the company will be valued at Rs. 700 cr. and will have a P/E of around 12.71 (annualizing the last 9 months of earnings). This isn’t too high.

The promoters have earlier founded V-Guard, which makes voltage stabilizers, etc. But V-Guard, even if it’s a listed entity, will not benefit – the promoters own their stake in Wonderla on a personal basis.

In India their biggest competition is Essel World but there are 150 theme parks in competition. Since they generate most of their revenue from entry fees, the presence of a competitor will directly hit their topline revenues because they’ll have to cut rates.

One problem is water. Most cities in India face a water shortage. In particular the area around the Wonderla property in Bangalore is seeing a lot of real estate development. Should that increase, the water table in the area will drop and they’ll need to pay a lot more for water.

Looking at comparables like Six Flags in America (which is listed) we can see their current valuation is about $4 billion for their 18 property conglomerate. Those properties are much bigger (150 to 300 acres) and entry fees are much higher ($66 per person). Six Flags is valued at $4 billion with a P/E of 33, and has over 25 million footfalls, which is 10x the size of Wonderla.

(At Rs. 125 WonderLa’s pre-IPO valuation is about Rs. 500 crore, or Rs. 85 million, for two properties. This is about 1/40 of Six Flag’s valuation, so there seems to be some room for growth)

They might have trouble acquiring the land in Hyderabad. There’s litigation going on. And then, there’s the whole Telangana thing. It’s complicated, but it’s a risk.

If there’s an accident the company will have serious trouble. But hopefully as it is public it can rebuild an image fast.

My View

I’m buying into this, a little bit. I expect that as an early listed theme park they will have some premium. The new park should add about 30% to revenues. There isn’t much more pricing power though unless inflation in India continues to go up.

There is acquisition potential, as some of the larger overseas players might want to expand into India (and would find a listed player more visible). I also think this is a well priced IPO compared to the P/E=30 companies with very low growth potential we have seen in the recent past.

There are marginal upsides of having a resort (for multi-day stays), of being able to raise a lot more debt, their ability to buy into other theme parks if those are overleveraged (might sell at low prices) and of expansion into other richer territories.

But obviously this is not a recommendation or financial advise etc. Don’t believe even for a moment that I’m suggesting that you buy. Plus, I have no relationship with the company, other than as a happy customer.

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