Published on 21/06/2019 11:40:52 AM | Source: ICICI Securities Ltd

Buy Wonderla Holidays Ltd For The Target Rs.445 - ICICI Securities

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Focused marketing, digital ads to drive footfall

We recently interacted with the management of Wonderla Holidays (Wonderla) for a business update. Post a weak FY19 for Kochi park (footfall down 14% YoY) due to floods and Nipah virus, Wonderla has arrested footfall decline and expects a sharp turnaround in FY20. Allaying concerns of a recent slowdown in consumer spending, the management remains confident of low double digit overall footfall growth in FY20. Business re-engineering efforts – focused marketing through business development partners (BDPs) and shift to digital marketing – bode well for cost-efficient footfall growth. We maintain our BUY rating on the stock with a target price of Rs445 (unchanged) based on 18x Sep’20E EV/EBITDA.

* Focused marketing through BDPs: The business development efforts at Wonderla were completed revamped in FY19 with discontinuation of tie-ups with local travel agents. Non-performing BDPs were discontinued at each location while new BDPs have been appointed in underpenetrated regions. Currently, Wonderla has ~50 BDPs across key states. The company has increased its coverage of corporates through BDPs and has also setup in-house teams to target customers. Overall, BDPs comprise ~35% of total ticketing sales.

* Increased focus on digital: Wonderla changed its media mix and has increased its focus on digital channels to drive footfall growth. Its tie-ups with online portals (such as MakeMyTrip and Paytm) have been positive for cost-efficient footfall growth across parks. While it provides 5%/10% discount on regular bookings/advance bookings on its website, it pays 7-9% commissions to online portals. Wonderla saw a strong 30% growth in online ticketing in Q4FY19 and expects the pace to continue. Currently, online bookings comprise 10% of total ticket bookings.

* Ride addition continues across parks: Wonderla has planned two ride additions in each park in FY20 at a total capex of Rs220mn for six rides, including both land and water rides. In the past two years, Wonderla added the Recoil roller coaster at each existing park (capex ~Rs225mn each) and a space-themed virtual reality ride (capex ~Rs420mn) at the Hyderabad park.

* Chennai park: Wonderla is in advanced stages of negotiating a 10-year tax holiday from local body tax (LBT) with the state government. The company has already spent Rs1.0bn on the Chennai park for land acquisition and leveling. It estimates total capex of Rs3.5bn on the park. Chennai is the largest market for Wonderla and is expected to attract ~1mn footfalls within four years of launch.

* Maintain BUY with a target price of Rs445: We expect consolidated sales, EBITDA and earnings CAGRs of 11.3%, 12.7% and 13.5%, respectively, over FY19- FY21. We maintain our BUY rating on the stock with a target price of Rs445 (unchanged) based on 18x Sep’20E EV/EBITDA. At CMP, the stock is trading at 11.1x Sep’20E EV/EBITDA.


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