CRISIL Research has assigned a CRISIL IPO grade of '4/5' to the proposed IPO of Wonderla Holidays. This grade indicates that the fundamentals of the IPO are above average relative to the other listed equity securities in India.
CRISIL report on Wonderla Holidays IPO
CRISIL Research has assigned a CRISIL IPO grade of '4/5' to the proposed IPO of Wonderla Holidays. This grade indicates that the fundamentals of the IPO are above average relative to the other listed equity securities in India. However, this grade is not an opinion on whether the issue price is appropriate in relation to the issue fundamentals.
The grade is driven by Wonderla's established position in the Indian amusement park industry. The company has been present in the amusement park industry since 2002 and currently operates two parks – one in Kochi (Kerala) and one in Bengaluru (Karnataka). Over the years, by continuously adding new attractions, by keeping the entry charges affordable and by maintaining safety and hygiene standards, the company has been able to generate increased footfalls including repeat visitors as well as attract organised visits from schools, colleges and corporates. Footfalls have grown at 10.4 percent CAGR over FY09-13. The company has set up an in-house ride manufacturing facility which enables it to reduce capex and maintenance cost. Wonderla is further strengthening its position in South India by setting up amusement parks in Hyderabad (Andhra Pradesh) and Chennai (Tamil Nadu).
The grade is supported by the company's healthy operating margins, strong cash flow from operations and average RoCE of 40.1 percent over the past three years. It also takes into account Wonderla's highly experienced top management and strong second line of management. CRISIL Research believes that given the lack of avenues of entertainment in India, large youth population (who are the main visitors to amusement parks) and increasing spend on leisure and entertainment supported by rising income levels, the prospects of the domestic amusement park industry are bright.
However, the grade is moderated by risks such as a likely decline in the company's returns due to increase in scale of operations and competition. Considering the larger investments required in new parks compared to older parks and low returns generated by new parks in the initial years of operations, new parks are likely to pull down the company's overall returns. Also, increasing competition, especially a new entrant at its existing or proposed location, may impact footfalls in Wonderla's parks. Further, the company's inability to maintain safety and hygiene standards, decline in discretionary spends and change in seasonal patterns may adversely impact the business.
Wonderla's operating income has grown at 22 percent CAGR to Rs 1.4 bn over FY09-13, led by ~10 percent CAGR in footfalls. The company has been able to maintain its EBITDA margin at more than 45 percent during FY09-13. PAT has grown at a four-year CAGR of 27 percent to Rs 337 mn in FY13, while the average RoE over FY09-13 has been ~32 percent.
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