Promoter’s pedigree justifies price-band though IPO’s success hinges on managers’ skill!
Even while as many as 37 SMEs succeeded in listing their shares during the fiscal 2014 notwithstanding many of them having questionable credentials, the market saw only three main-frame (book-building) IPOs during the fiscal. Of these three, just one, Just Dial (JDL), actually succeeded. Despite a steep IPO-price, JDL eventually fetched fabulous returns (135% in less than a year). As compared to JDL’s ultra-high valuation, the forthcoming IPO, Wonderla, looks dirt-cheap. Will Wonderla live up to its name? The track record of the promoters’ maiden public venture does exude optimism, though the success of a main frame IPO in these days largely depends on the managerial skill of the investment bankers.
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OFFER AT A GLANCE |
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Name |
Wonderla Holidays Ltd |
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Public Offer |
Fresh issue of 1.45 crore shares of Rs 10 |
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Offer % on Total Equity |
25.66% on Rs 56.50 cr |
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Post-IPO Promoter Stake |
70.97% |
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Offer Price |
Between Rs 115 and Rs 125 |
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Offer Amount |
Between Rs 166.75 cr and Rs 181.25 cr |
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Application Quantity |
100 & Multiples of 100 |
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Bid/Offer Opens |
April 21, 2014 |
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Bid/Offer Closes |
April 23, 2014 |
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Listing |
BSE and NSE |
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Rated By |
CRISIL |
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Rating |
4 out of 5 |
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Book Running Lead Managers |
Edelweiss Financial, ICICI Securities |
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Registrars |
Karvy Computershare |
The IPO
The present offer is a fresh issue of 1.45 cr equity shares of Rs 10 each made through book building route with a price band between Rs 115 and Rs 125. The issue constitutes 25.66% of the fully diluted post-IPO capital of the company. Investors should apply for a minimum of 25 shares and multiples of 25 thereafter. Edelweiss Financial Services and ICICI Securities are appointed as book running lead managers while Edelweiss Securities is acting as syndicate member.
According to the offer document, underwriting agreement amongst the issuer, book running lead manager(s) and the syndicate member would be entered into on or after the pricing date. Meanwhile the company claims to have finalized an allocation of 21.75 lakh shares (15% of the total issue) to three ‘anchor investors’ viz. HDFC Trustee Company (HDFC Mutual Fund), Aditya Birla Private Equity and TVS Shriram Growth Fund (TVS Capital) at a price of Rs 125 per share.
IPO Object
The main object of Wonderla’s IPO is to part-finance the company’s third amusement park near Hyderabad which is estimated to cost over Rs 255 cr. State Bank of Travancore has reportedly sanctioned a loan of Rs 50 cr for the project of which Rs 5 cr is said to have been disbursed by February 20, 2014.
Grading
CRISIL Research has assigned a grade of ‘4/5’ to the IPO of Wonderla. The grade indicates that the fundamentals of the IPO are above average relative to the other listed Indian equities. The grade is driven by Wonderla’s established position in the Indian amusement park industry and is supported by the company’s healthy operating margins and strong cash flow from operations. The grade has also taken into account risks such as the company’s inability to acquire suitable land parcels for future expansions, a likely decline in the company’s returns due to increase in scale of operations and competition.
Company Background
Wonderla Holidays Ltd (Wonderla), founded in 2002, is one of the largest amusement park operators in India. It currently operates two amusement parks situated in Kochi and Bengaluru under the brand name Wonderla and a resort in Bengaluru under the name Wonderla Resorts. The company is promoted by Kochouseph Chittilappilly (promoter of V-Guard Industries) and his son, Arun Chittilappilly. Promoters and the promoter group hold 95.48% stake in the company while the remaining 4.52% stake is held by employees of the group.
Wonderla commissioned its first amusement park in Kochi in 2000 under the name Veegaland and the second amusement park in Bengaluru in 2005 under the name Wonderla. Veega Holidays and Parks (P) Ltd, which owned and operated Veegaland, was merged with Wonderla with effect from April 1, 2008 and both the parks now operate under the name Wonderla. Wonderla also operates a resort in the premises of its Bengaluru-park since March 2012. Wonderla’s rides are a mix of imported, domestically procured and in-house manufactured.
Business profile
Wonderla’s amusement park revenue is seasonal with maximum footfalls on weekends and during school vacations. The April to June (summer vacation) and October to December (holiday season) quarters are typically the peak quarters accounting for 35% and 25% of revenue respectively. Revenue streams for the amusement parks are ticket sales, sale of products (mainly merchandise and packaged food) and revenue share from restaurants located inside the park. Ticket sales accounted for about 87% of amusement park revenue in FY13. The company sells all packaged food at MRP. It controls the menu-quality and pricing at the restaurants present in the premises of the park, and also has a team for overall supervision of operations.
Financial Performance
Wonderla’s top line has grown at a four-year CAGR of 22% to Rs 139 cr in fiscal 2013. The company has been able to maintain an operating margin of over 40% in the past five years. Bottom line has been impressively high (around Rs 30 cr or more) for the last four years against an equity base of Rs 42 cr. The operations have generated considerable cash flow which has helped the company to reduce the net debt to equity to 0.2x in FY13. What’s more, though the book value of the company’s tangible assets stood at less than Rs 150 cr at the end of FY13, the intrinsic value of the asset is estimated to be over Rs 800 cr at the current market value of the company’s land holdings.
Woderla’s impressive past performance could be largely attributed to the company’s prudent cash management. It has a low debt-gearing and also lower capex and maintenance cost. To leverage the operational experience in the amusement park industry, Wonderla has developed an in-house manufacturing facility in Kochi to construct the rides used in its amusement park. The company has reportedly constructed 42 rides till date. This has helped to reduce capex incurred on the rides. It is claimed that the cost of a ride manufactured in-house is only one-third of the cost of procuring the ride externally.
Prospects
Of late, Amusement Park industry is attracting many big-ticket investments. Bollywood-fame Manmohan Shetty’s theme park, Adlabs Imagica, set up near Khopoli (73 km from Mumbai) at a total capex of Rs 1650 cr has become operational since April 2013. Mumbai-based infrastructure company Atlanta, in association with the Government of Gujarat, is reportedly setting up a theme park under a public-private partnership near the sea coast, 20 km from Surat, at an expected investment of Rs 9500 cr for the entire township. International Amusement, which operates the Appu Ghar amusement park in New Delhi, has proposed to set up amusement parks at Rohini (Adventure Island and Metro Park), Noida (Entertainment City), Jaipur (Mega Tourism City) and Gurgaon (Appu Ghar) at a total cost of more than Rs 2500 cr. The massive investment proposals by big names do enhance the scope for existing experienced players like Wonderla.
For its future growth, Wonderla has chosen two fast-growing markets of south India namely Hyderabad and Chennai. The Hyderabad project consisting of 49.57 acres will initially have a park spread across 27 acres which is expected to be operational in September 2015. Even though Hyderabad already has Ramoji Film City (a film-based theme park), Mount Opera and Ocean Park, Wonderla believes that an amusement park of its scale could attract significant footfalls in Hyderabad. The company has also drawn plans to set up a park in Chennai and is looking for a suitable land.
According to Woderla’s management, currently, there are no amusement parks planned at locations where Wonderla is present. Even at the new proposed locations such as Hyderabad, the company is likely to have an edge over any new entrant in the industry due to its vast experience in running amusement parks. Also, the in-house ride manufacturing and maintenance capabilities are expected to keep Wonderla’s costs (both capex as well as maintenance) lower than that of competitors which would enable the company to competitively price its entry tickets.
Valuation & Perception
Wonderla’s price band (Rs 115-125) values the company Rs 650 cr to Rs 706 cr which discounts the company’s earnings about 15 times. The promoters’ maiden public venture, V-Guard Industries, which offered shares at Rs 82 in 2008, brought negative returns in the first year in terms of capital appreciation. Nevertheless, subsequently, it fetched a compounded annual return in excess of 84% including dividends over a period of six years. Currently, V-Guard is quoting above Rs 485. In fact, had the company not frozen its dividend at 35% for the past three years, the returns would have been higher. As compared to V-Guard, though not a dividend paying company, Wonderla’s profit ratios are far more attractive and its pricing is comparatively less aggressive.
Perhaps, one factor that may go against Wonderla is the track record of the amusement parks industry as a whole. The offer document of Wonderla claims that there were no listed companies in the country that engaged in a business similar to that of Wonderla. But, this is not true. During the late 80’s and early 90’s about half a dozen amusement parks hit the capital market. However, none of them except Nicco Parks could put post a credible performance. As matter of fact, Ajwa Fun, Funworld & Tourism, Surya Funcity, South Asian Enterprises, etc. have failed to get a regular quote on the stock exchange leave alone fetching capital appreciation.
Even after so many years, Nicco is quoting at just Rs 13 despite being in the dividend list. Its operating margin is almost one-tenth of Wonderla! Amusement Parks have failed to attract the investors as most of them have reported wafer-thin margins. Since a significant portion of the industry’s revenue is derived in hard cash, the promoter’s credibility plays a major part. Thus, though many a big-ticket amusement park is coming up, how many of them would disclose the real profitability is anybody’s guess.
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HOW WONDERLA COMPARES |
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COMPANY NAME |
M-CAP |
P/E |
P/BV |
P/R |
P/NB |
RONW |
OPM |
YLD |
PRICE |
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(Rs Cr) |
(x) |
(%) |
Rs |
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V-Guard Industries |
1,451 |
24.8 |
5.6 |
1.0 |
8.9 |
22.4 |
6.3 |
0.7 |
486 |
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Wonderla (Hi-band) |
706 |
15.7 |
4.3 |
3.8 |
3.5 |
38.1 |
45.6 |
0.0 |
125 |
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(Lo-band) |
650 |
14.4 |
4.0 |
3.5 |
3.2 |
38.1 |
45.6 |
0.0 |
115 |
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Nicco Parks & Resort |
61 |
25.6 |
3.3 |
2.1 |
4.4 |
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4.8 |
1.2 |
13 |
Lead Managers’ Track
The failure of two out of three book-building IPOs of fiscal 2014 has once again brought back the focus on investment bankers’ capability. For managing its IPO, Wonderla has hired two leading names in the field viz. Edelweiss Financial and ICICI Securities whose track record is a mixed bag. Whereas the issues managed by these merchant bankers have sailed through without any devolvement, the post-issue record of the issuers is quite scary.
Both the merchant bankers could not bring out any fresh IPO during the whole calendar of 2013. During the preceding three years Edelweiss had lent its name to twelve IPOs of which just two are currently quoting above the offer price. In fact six IPOs are languishing more than 50% below the investment value.
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EDELWEISS-ASSOCIATED IPOs |
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ISSUER NAME |
IPO |
FV |
IPO |
CURRENT |
GAIN |
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DATE |
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PRICE |
PRICE |
% |
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Man Infra |
18-Feb-10 |
10 |
252 |
100.55 |
-60.1 |
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United Bank |
23-Feb-10 |
10 |
66 |
31.00 |
-53.0 |
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NMDC |
10-Mar-10 |
1 |
300 |
149.05 |
-50.3 |
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Mandhana Ind |
27-Apr-10 |
10 |
130 |
231.65 |
78.2 |
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Hindustan Media |
5-Jul-10 |
10 |
166 |
133.00 |
-19.9 |
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Electrosteel |
21-Sep-10 |
10 |
11 |
4.44 |
-59.6 |
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Comm. Engineers |
30-Sep-10 |
10 |
127 |
13.06 |
-89.7 |
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Claris Lifesciences |
24-Nov-10 |
10 |
228 |
156.55 |
-31.3 |
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MOIL |
26-Nov-10 |
10 |
375 |
248.05 |
-33.9 |
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Future Ventures |
25-Apr-11 |
10 |
10 |
4.68 |
-53.2 |
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MCX |
22-Feb-12 |
10 |
1,032 |
609.90 |
-40.9 |
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CARE |
7-Dec-12 |
10 |
750 |
801.75 |
6.9 |
The record of the high profile ICICI Securities is still worse. I-Sec was associated with nineteen IPOs during the years between 2010 and 2012. Of these, save two public sector undertakings namely Power Grid Corporation and Rural Electrification, all are quoting at a discount. As many as ten IPOs have lost more than 50%. Predominantly FIIs-supported Parabolic Drugs has turned sick in no time after the IPO and its investors are facing a massive capital loss of 92%! Parabolic, whose IPO was priced Rs 75 in June 2010, finds no buyer today even at one-tenth of the IPO price. The much talked about A2Z Maintenance, where the so called `Big Bull’ had a significant stake, is trading at a disastrous 97% discount! A2Z’s offer, managed by half a dozen investment bankers including I-Sec, was priced at Rs 400 in December 2010. Today it is available at less than Rs 11.
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ICICI SECURITIES-ASSOCIATED IPOs |
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ISSUER NAME |
IPO |
FV |
IPO |
CURRENT |
GAIN |
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DATE |
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PRICE |
PRICE |
% |
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NTPC |
3-Feb-10 |
10 |
201 |
122.60 |
-39.0 |
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Rural Electrification |
19-Feb-10 |
10 |
203 |
238.10 |
17.3 |
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Shree Ganesh Jewel |
19-Mar-10 |
10 |
260 |
38.55 |
-85.2 |
|
Nitesh Estates |
23-Apr-10 |
10 |
54 |
12.63 |
-76.6 |
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Jaypee Infra |
29-Apr-10 |
10 |
102 |
21.75 |
-78.7 |
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Parabolic Drugs |
14-Jun-10 |
10 |
75 |
5.90 |
-92.1 |
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Engineers India |
27-Jul-10 |
5 |
290 |
235.00 |
-19.0 |
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Comm. Engineers |
30-Sep-10 |
10 |
127 |
13.06 |
-89.7 |
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Power Grid Corpn |
9-Nov-10 |
10 |
90 |
107.50 |
19.4 |
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Claris Lifesciences |
24-Nov-10 |
10 |
228 |
156.55 |
-31.3 |
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Shipping Corpn |
30-Nov-10 |
10 |
140 |
44.00 |
-68.6 |
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A2Z Maintenance |
8-Dec-10 |
10 |
400 |
10.86 |
-97.3 |
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Punjab & Sind Bank |
13-Dec-10 |
10 |
120 |
46.45 |
-61.3 |
|
PTC India Financial |
16-Mar-11 |
10 |
28 |
14.10 |
-49.6 |
|
Muthoot Finance |
18-Apr-11 |
10 |
175 |
170.15 |
-2.8 |
|
Future Ventures |
25-Apr-11 |
10 |
10 |
4.68 |
-53.2 |
|
Tara Jewels |
21-Nov-12 |
10 |
230 |
109.65 |
-52.0 |
|
CARE |
7-Dec-12 |
10 |
750 |
801.75 |
6.9 |
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Bharti Infratel |
11-Dec-12 |
10 |
220 |
193.50 |
-12 |