Another industry grappling with its unique challenges is amusement parks. High capital investments and the need for seamless park management often make this a tough sector to navigate. These challenges are significant enough to deter global giants like Disney from entering the Indian market.
Yet, India’s vast population and favourable demographics present an underpenetrated opportunity. To understand how companies in this sector are tackling the challenges, let’s take a closer look at Wonderla Holidays, a leading player in India’s amusement park industry with over two decades of experience.
Wonderla Holidays: Riding the growth wave
Wonderla Holidays is a dominant name in the Indian amusement park landscape, with parks in Bengaluru, Kochi, and Hyderabad. The company generates the bulk of its revenue from ticket sales, supplemented by income from food, beverages, and merchandise. Additionally, events hosted within the parks add to visitor engagement and revenue streams.
What sets Wonderla apart is its in-house research and development team, which enables the company to manufacture rides internally, reducing costs and maintaining quality control. The business follows a seasonal pattern, with the first quarter (April to June) being the strongest, driven by school vacations, followed by the third and fourth quarters. The second quarter tends to be the weakest due to the monsoon season.
Wonderla’s business model is its core strength. The company boasts strong cash flows, negative working capital, and significant operating leverage due to its high fixed-cost structure. Moreover, it operates debt-free, thanks to robust cash flow generation.
High capital requirements act as a significant entry barrier, limiting competition in the amusement park space and allowing Wonderla to maintain its leadership position.
The company has weathered multiple challenges over the years, including the GST transition (the rate for amusement parks was once 28% but has since been reduced), floods in Kerala, the Sabarimala issue, and even the Nipah virus outbreak. Despite these setbacks, Wonderla has emerged stronger.
Wonderla has announced ambitious expansion plans, targeting the addition of 3 to 5 new parks across India in the next five years. To fund this growth, the company is raising capital through a qualified institutional placement (QIP).
Wonderla QIP
Earlier this year, Wonderla’s board approved a plan to raise ₹8 billion through various funding avenues. Last week, the company launched a Qualified Institutional Placement (QIP) at a floor price of ₹829.74 per share.
The issue saw strong demand from investors, resulting in the allotment of 6.8 million equity shares at ₹790 per share—a 5% discount to the initial floor price. The QIP opened on 3 December and closed on 6 December, raising capital to fund the company’s ambitious expansion plans.
The funds will be directed toward establishing five new parks over the next seven to eight ears. One of these parks, currently under construction in Chennai, is expected to be operational by December 2025. The management is also in discussions with state governments for additional parks in Indore, Mohali, Noida, and Ahmedabad.
In September, Wonderla inaugurated a new park in Bhubaneswar, Odisha, marking its entry into the state and reinforcing its expansion strategy.
A long-term contender
Building an amusement park is akin to planting a sapling—it demands significant time and resources before it bears fruit. The initial years post-launch are often challenging, as high construction, staffing, and marketing costs weigh on profitability. Visitors trickle in slowly, making the park feel like a liability rather than an asset.
However, as the park matures, the dynamics shift. Visitor numbers grow, operational efficiencies kick in, and the asset starts delivering steady, sustainable cash flows. Over the long term, companies that persevere through this phase enjoy a strong early-mover advantage.
Among listed peers such as Nicco Parks and Imagicaaworld Entertainment, Wonderla stands out. Neither competitor matches Wonderla’s scale of expansion, nor have they achieved the same consistency in earnings.
An additional advantage for Wonderla lies in its undeveloped land within existing parks, providing ample room for future growth and innovation.
With its robust expansion plans, strong cash flows, and proven track record, Wonderla positions itself as a promising small-cap contender for long-term investors.
Wonderla’s financials
Wonderla Holidays has demonstrated stable financials over the years, maintaining a track record of profitability and positive cash flows from operations—except during the exceptional Covid-19 year.
Over the past five years, the company’s net sales and net profit have grown at a compound annual growth rate (CAGR) of 11.4% and 23.3%, respectively. In FY24, Wonderla delivered a strong performance, driven by an increase in average revenue per user (ARPU).
However, the first two quarters of FY25 reflected challenges, as election season and heatwaves dampened footfall at amusement parks. Additionally, heavy rainfall and landslides impacted visitor turnout, according to the company’s latest earnings call.
The management also noted margin pressures arising from increased corporate staffing and marketing expenses. Despite these short-term challenges, Wonderla’s long-term prospects remain promising. The amusement park industry is projected to grow from ₹110 billion to ₹250 billion over the next 4-5 years, supported by rising urbanization, increasing consumerism, and favorable demographics in India.
Wonderla is well-positioned to capitalize on this growth with its focus on digital and social media platforms, along with its planned expansions. However, investors should monitor the company’s execution closely. Delays in projects, such as the 2018 setback in Chennai due to delayed tax exemption approvals and the pandemic, can materially affect performance.
Corporate governance is another critical factor investors should consider before committing to the stock. Robust governance practices are essential for long-term confidence in the company.
In the past five days, Wonderla Holidays’ share price has climbed 9%, while over the last month, it has gained 6%. The stock hit a 52-week high of ₹1,107 on April 8, 2024, and a 52-week low of ₹772 on August 14, 2024.
Over the past year, the stock has largely traded within a range, reflecting market caution amid evolving industry dynamics and the company’s expansion plans.
As Wonderla gears up for its next phase of growth, its stock performance will likely mirror the market’s confidence in its ability to execute its ambitious plans and navigate industry challenges effectively.
Here’s a table comparing Wonderla with its peers:
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Happy Investing!
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
