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Business News/ Market / Mark-to-market/  Will it continue to be a walk in the park for Wonderla shares?
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Will it continue to be a walk in the park for Wonderla shares?

Wonderla and Adlabs may find themselves in a sweet spot due to the small 'amusement park to people' ratio in India but that isn't reflecting in their quarterly results

A file photo of Adlabs Imagica. The firm posted healthy revenue numbers, but high interest expenses ate into net earnings. Photo: BloombergPremium
A file photo of Adlabs Imagica. The firm posted healthy revenue numbers, but high interest expenses ate into net earnings. Photo: Bloomberg

The ratio of “amusement park-to-people" in India is quite low compared with developed markets. For perspective, we have only about 165 amusement parks for a population of more than a billion. The US, on the other hand, has over 400 of these parks. In that backdrop, Indian amusement park companies Wonderla Holidays Ltd and Adlabs Entertainment Ltd find themselves in a sweet spot.

But that itself wasn’t enough for a good June quarter, for reasons specific to each firm. Wonderla’s revenue and net profit growth was far slower compared with growth rates seen in the last financial year. Wonderla’s June quarter revenue increased 5% to 67 crore versus 18% growth in fiscal year 2015. Growth was impacted on account of 7.6% lower footfalls due to unseasonal rains in April. Additionally, some strikes and protests during the busy months of April and May led to some loss in footfalls for both Kochi and Bengaluru parks. Net profit increased 13% compared to 27% profit growth in fiscal year 2015.

For Adlabs, the fact that both Imagica’s theme park and Aquamagica water park were operational together for the first time boosted footfalls, which increased a huge 200%, in sharp contrast to Wonderla. Accordingly, revenue increased 134% to 85 crore and it posted an operating profit against a loss in the year-ago quarter. Still, high interest expenses ate into net earnings. Adlabs reported a loss of 14.8 crore, albeit lower than last year.

Analysts reckon high debt and the resultant interest costs have played spoilsport on the stock, which has underperformed since listing in April. Adlabs Entertainment had issued shares at 180 a piece in its initial share sale and since then the stock has declined by about 20%.

According to Kapil Bagla, chief executive, Adlabs Entertainment, 250 crore of debt has been paid from funds raised via the share sale and currently debt stands at about 870 crore. In contrast, Wonderla hardly has any debt on its books. Also, Wonderla’s margins are much higher. For instance, in fiscal 2015, Wonderla’s operating profit margin stood at 44%, while in the June quarter, it was as high as 60%. For Adlabs, the measure was 11% and 29%, respectively. Analysts expect Adlabs’ margin to improve as and when footfalls increase in future considering that it is still in the initial phases of investment. The launch of hotel Novotel Imagica would be one of the things to watch out for in the near future.

For Wonderla, the launch of the Hyderabad park next year is crucial. Sure, Wonderla shares are down one-fifth from their highs in January, but investors are still sitting on a handsome 120% gain from its issue price of 125 a share in its initial share sale in May 2014. Considering the superlative gains and valuations of 26 times estimated earnings for this financial year, further near-term appreciation from these levels may not really be a walk in the park.

The writer does not hold positions in the companies mentioned here.

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ABOUT THE AUTHOR
Pallavi Pengonda
Pallavi is a deputy editor at Mint and heads the Mark to Market team. This column covers wide-ranging topics related to the stock markets, offering an in-depth analysis of financial reports of companies. She writes and edits across verticals, covering the breadth of the Indian stock market. Pallavi has done her master of management studies, specializing in finance.
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Published: 21 Aug 2015, 01:16 AM IST
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