Wonderla Holidays Q4FY17 Concall Summary

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Company Background and Quarterly Performance

  •  Wonderla Holidays Limited operates three largest amusement parks in Kochi, Bangalore and Hyderabad; and the Wonderla resort in Bangalore under the brand name Wonderla.
  • The company has decided to reposition itself as a complete entertainment and hospitality brand in order to fulfill its larger ambitions and to grow as a National player.
  • In Q4FY17, the company has witnessed flat footfalls at Kochi and 13% decline in Bangalore Park. This is primarily due to weak consumer sentiment, due to the challenges in the IT industry which form a customer base for Wonderla's parks, and also because a shift in some of the exam timings. Sometimes, holidays start in March and for example, last year it was in March, the holidays started earlier whereas this year it shifted a little bit and that also had an impact on footfalls.
  • Hyderabad has shown a good traction and achieved about 6.2 lakh visitors for FY2017. Company is expecting to reach the target of 8 lakh foot falls in FY 2019.
  • For Bangalore Park, over a considerable period of time, between 2012 & 2017, the footfall has remained mainly flat. 
  • There were 1.08 million footfalls in Bangalore Park in 2012 and 1.04 million footfalls in 2017. Company believes it is because of the pricing strategy wherein company has been increasing the prices 10%-15% every year and with GST, they would have to aggressively hike prices in FY 2018 as well. Thus, company expects foot fall to remain flat.
  • Wonderla's reviews and ratings, NPS scores are all in perfect and favorable condition
  • Coming to customer profile, In older parks, there are 50% repeat customers. Out of which 20% repeat within a year and others in 2-3 years
  • Company has been hiring top level management resources and has formed a new team and some positions are still vacant and company expects to stabilize this process in 6 months.
  • Company expects employee cost to come down as a percentage of top line. That is also because the new park at Hyderabad had very high attrition which generally is the case with a new park. 

Financial Highlights

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  • Revenue from operations grew by about 37% to INR 61 crore, driven by 10% growth in the average revenue per visitor and 26% growth in footfalls. 
  • EBITDA declined by 10% YoY to INR 9.8 crore in and EBITDA margins decreased from 24.7% to 16.2% mainly due to factors like higher direct operating expenses, employee expenses and advertising and promotion expenses, pertaining to the Hyderabad Park and also rebranding strategy. 
  • Other expenses were higher primarily due to provisioning for disputed tax liabilities.
  • PAT declined by 54% YoY to INR 3.4 crore in Q4, FY 2017 and PAT margin decreased from 17% in Q4, FY 2016 to 5.6% in Q4, FY2017. 
  • Q4FY17 cash PAT marginally declined by 4.3% to Rs9.9 crore which highlights company's focus on maintaining healthy operating cash flows. 
  • Company is implementing F&B (Food & Beverages) model in Bangalore & Kochi in a phased manner and has also implemented that model in Hyderabad. Gross margin for owned restaurants is ~60% and for outsourced restaurants which run on a revenue sharing basis, it is 25%-30%
  • The non-ticket revenue as a percentage of our total revenue continues to be growing very fast.
  • Company's non-ticketing revenues for Bangalore and Kochi have gone up significantly by 45% and almost 50%. That is because the company has enforced a dress code in Bangalore and Kochi starting from February. That has led to one more sale of costumes and swim wear and related stuffs. Also, F&B sales have gone up and F&B yield per footfall has increased
  • Other expenses for the company has increased significantly by 77.9% YoY, from INR 110.3 million in Q4, FY 2016 to INR 196 million in Q4, FY 2017. It happened because of the provision made for disputed tax liability.
  • Rebranding is costing company INR 2 crore extra which company expects to be over by Q2, FY 2018
  • Hyderabad facility has remained EBITDA positive in FY 2017 and company also pocketed cash by about Rs8 crore. It is because company had depreciation of about Rs17 crore, that EBIT turned negative for Hyderabad. Otherwise it has been cash profit.
  • Company's business and cost structure is such that cost is mostly fixed in nature. In case of Hyderabad, fixed cost is close to 70% but with growing footfalls grow and increasing yields which is basically the ticket price. Company expects fixed costs to come down.
  • Company's pricing has been very fluctuating in the last couple of years primarily because of GST and the service tax, and it has gone up quite a bit
  • Pricing cumulatively has gone up by almost 25% to 35% in past two years. It is a huge price hike taken by company and it is expected to continue with GST.
  • Company hikes the price 8%-10% normally every year and this year it has already taken the price hike across the parks. In Bangalore and Kochi, prices were increased by 11% and 14% respectively.
  • However, in Hyderabad, prices were increased by 30% as prices were discounted in the first year. Thus, new ticket prices for Kochi is around INR 1,000, for Bangalore it is around INR 1,100–1,200 and for Hyderabad it is INR 950–1,000. Bangalore is company's biggest park with maximum number of facilities and rides.
  • Company is expecting marketing costs to be only marginally lower in FY2018 as compared to FY 2017
  • Company launched Hyderabad Park in FY 2017 and thus had to incur huge advertisement and marketing expenses. Since company is not planning any launch in FY 2018 so cost on marketing will be less. But It will be only marginally as there will be costs incurred on rebranding, marketing in Telangana and Tamil Nadu as a new project is coming up there in next 2 years
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GST Impact

  • Company will be making provisions for one more quarter as post GST annuity rates are different, the working would be different and hence company might not be required to continue with this kind of a provision
  • With GST at 28%, company will have to increase prices, and company is working on details of how to increase the prices across parks as there is an anti-profiteering clause there as well.
  • Pricing will not see any change for Hyderabad as Entertainment tax in Hyderabad is 25% and service tax is 20% so already heavy amount of tax is being paid, so GST will have no tax impact.
  • Kochi will have a huge increase as company was paying lower taxes there and even after GST, company would have to pay some local tax over there and Bangalore will be somewhere in between.
  • Company will face tax impact of 7%-8% after taking the input tax credit
  • GST impact on F&B and merchandise sold at parks in Bangalore & Kochi is going to be flat. But there could be an impact in Kochi, as company is paying there on composite basis.

CAPEX

  • Company has finalized location for its Chennai facility and is in the process of land acquisition and expects to start the construction by Q3, FY 2018 latest. Company plans to complete the project by H1, FY 2020. This project has got delayed by 2 quarters due to delay in land acquisition and related stuff.
  • The land for this facility would be around 56 -58 acres.
  • CAPEX for this facility would be around INR 300 cr. - INR 350 cr. Out of this total capex, around INR 70 cr. would be spent in FY 2018. 
  • The capex would be funded by a mix of internal accruals and debt. Company is estimating debt portion to be roughly INR 130-150 cr. for financing this capex. 
  • The debt will be back end loaded which means it will be taken in the last year of construction. The debt will be raised through a consortium of banks or similar arrangement.
  • The total capex for the company as a whole would be at about Rs100 crore including Chennai.
  • Rs 137 crore is the total capex, which includes the new rides, some rides for Chennai, some rides for Kochi all that put together.
  • Company has added few new rides at its Bangalore & Kochi Park and they have shown good footfalls.
  •  Cost of acquisition of rides is very low for the company as company busy refurbished rides which many other companies don’t because of the risk involved but Wonderla is able to do so as it has its in-house team to actually refurbish its own machines also. And this team has done the refurbishment job many times in the past as well.
  • In fact, all the three roller coasters bought for Parks are all refurbished and come at roughly a 50% discount compared to what if they were to buy them new. So that is one advantage that company has in purchasing new rides.
  • Wonderla does not have any maintenance capex plan as such because that is an R&M cost and it is charged to P&L. Company will be adding few rides to Kochi. It will be spending close to about Rs30 crore on a new rollercoaster, a refurbished one, and then it has also started buying rides, some refurbished rides for Chennai. Company managed to find some rides from a park, which was going bankrupt in the Middle Eastern country, so It has managed to salvage a lot of rides from there which it will be refurbishing and then as Chennai land acquisition will be complete, company will move some of those rides to Chennai. Some of those rides will be used in Kochi. Some of those rides will be used in Bangalore and Hyderabad. That is the way company is planning it. Company has already spent INR 20 crores on that initiative and may be adding another Rs.5 crore to Rs10 crore
  • Company has a lot of vacant land in our Bangalore and Cochin Park, which will be kept as a back up to accommodate the growth of park in future. Thus, Company has no plans to sell it off this land as also company has acquired this land at a very low cost.

Growth Prospects & Future Outlook

  • Company expects to improve EBITDA margin by 5%-10% in FY 2018 on account of improved performance of new parks
  • Company has target of keeping EBITDA above 20% in FY 2018.
  • Company is trying to add rides, improve the customer experience, using more digital technology to reduce queues. Company is planning a lot of IT initiative for the year and has goal to go cashless in all its parks by FY2019. RFID rollout has already happened in all the parks and company is still perfecting the system. It has got some glitches and company is also in the middle of ERP rollout.
  • But despite all these initiatives and efforts, uncertainty remains on increase in footfall on account of these measures in short term.
  • However in long term, Company sees good scope for the industry to grow further. It is very small in India. Very few players are doing anything concrete in this industry. Company thinks that if there is a uniform tax regime and even if it is a high tax, company like Wonderla will eventually benefit from it in long run but short-term challenges are still there to tackle
  • Company is expecting to reach the target of 8 lakh foot falls in FY 2019.Company believes that Hyderabad Park will be able to mirror the Bangalore park numbers eventually and would cross 1 million foot-falls in its 3rd to 4th year
  • Company does not see any competition from the smaller indoor entertainment centers like PVR bluO or Smash, which is in almost 9-10 cities, as the rides offered by the company can never be offered by these smaller centers based out in Malls.
  • Despite having presence across malls for years, these Indoor centers have never impacted the business for company and thus company does not see them as direct competition. However, In case of inclement weather and similar situation, some cannibalization may occur, but these are no threats on a long term basis.

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