In today’s Finshots, we explain why India’s largest amusement park chain might finally have caught the attention of investors

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The Story

Across India, in April every year, the school bell rings one last time. Students rejoice because it’s the start of the summer vacation. It’ll be a couple of months before they have to hear the annoying sound of the bell again.

The only sound you hear instead is the buzz of everyone making plans. And there’s one plan in particular that crops up without fail — a trip to the amusement park! Sure, visiting a mall for a movie is great, but it’s not the same as screaming at the top of your lungs on a roller coaster, right? The mall’s AC isn’t the same as beating the heat by launching down a slide into a pool, too.

And one company has a monopoly on this kind of fun in India. We’re talking about Wonderla Holidays.

Okay, it may be a stretch to call it a monopoly because it just has 3 operational parks. One each in Kochi, Bengaluru, and Hyderabad. And there are 170 odd parks across India. But, look around and you’ll there isn’t anything else that operates at Wonderla’s size and scale. One with pan-India ambitions. Most of those 170 parks are small ones run by some regional entrepreneur or the other.

So from an investment standpoint, if you want to bet on the growth of amusement parks, you’ve only really got Wonderla.

But here’s the thing. Despite its might, Wonderla has had a bit of a bumpy ride since it went public in 2014. For 6 years, the stock price did nothing. It languished and barely returned 9% per year. It seems that investors just didn’t love the amusement park business. Even though brokerages kept releasing report after report about the growth potential in the country.

But maybe things have finally changed. Because in the past year, the share price has zoomed by 125%.

And maybe, Wonderla has the pandemic to thank for this change in fortunes.

See, we know that FY21 and FY22 were washout years. The government has placed restrictions to fight the pandemic and hobnobbing with strangers in a pool was the last thing on anyone’s mind. But FY23 was different. The pandemic faded away and Wonderla’s revenues rose by nearly 60% over the pre-pandemic period of FY20. The footfalls or the visitors to the parks soared by nearly 40%. People took to leisure with a vengeance.

And maybe investors believe that the pandemic was the catalyst for Indians to really enjoy life a bit more. Apparently, only 3% of our expenses go towards leisure activities. In China, it’s 11%. So maybe we’ll all spend a little bit more from now. We don’t know.

But one thing that we can say is that Wonderla has pretty much cornered the market for fun. It doesn’t have much competition. And that’s because setting up a large amusement park isn’t easy.

You have to acquire big land parcels which cost a lot of money upfront. Then you need to import all the rides and equipment. And then you have to hope that despite being away from the city, people will turn up in droves and pay the big ticket fee.

But over the years, Wonderla seems to have figured out the game.

Firstly, they actually began to manufacture their rides for the amusement park in-house. And apparently, the cost of in-house manufacturing is just 30% of what they’d have to pay if they were importing it instead. And you don’t need to rely on others to help with the maintenance either. So that reduces the cost a bit too. Now it isn’t self-sufficient in this aspect yet. But, 42 out of the 160 odd rides across its parks have been made in-house.

And now, they’re taking this cost-cutting to a whole new level. They want to turn into an ‘asset-light’ model.

Okay, we know that sounds confusing because it’s an amusement park that needs land and rides. But, Wonderla is now trying to convince state governments that it’s in their best interest to have a high-quality amusement park in their big cities. That it’ll attract tourists from nearby areas and such recreational facilities will improve the overall quality of life. So they’re trying to strike deals for a long-term lease (the 99 years type) and get it at concessional rates. This way, the company doesn’t have to buy the land outright. In fact, if you look at the most recent park in Hyderabad that was set up in 2016, 40% of the costs were for land acquisition. So, a lease could save quite a bit of cash. And that’s the route Wonderla has taken for the park that it is currently setting up in Bhubaneswar.

And if you think about it — competition isn’t intense either. Sure, regional parks could spring up but it’ll be tough for anyone to compete with the Wonderla brand name. When Monarch Capital decided to check the Google Trends results for theme parks in India, they found that Wonderla was receiving twice the interest of other big parks such as Imagicaa, EsselWorld, and Ramoji Film City. And in terms of costs, small players will find it hard to compete since they’ll probably have to buy the land outright and import equipment too — areas in which Wonderla seems to be excelling in for now.

Also, maybe people have realized that Wonderla is actually quite a recession-proof business.

Wait…what?

Okay, hear us out. there’s something very interesting about amusement parks. As per a report by Monarch Capital, amusement parks seem to be quite resilient to recessions. They looked at the number of visitors at these parks across the US, Europe, Asia, and South America and found that even during 2008 and 2009, when the world was going through its biggest financial crisis, the numbers held up. The parks kept seeing a steady influx of visitors. This played out even at Wonderla back then. Not only did the footfalls inch up, but they were even able to improve the average revenue per visitor.

It sounds quite bizarre, no? Why would people visit an amusement park when there’s a financial crunch and uncertainty?

Well, one reason for that could be that everyone opts to down-trade their leisure activities. Some folks might feel a trip to the amusement park is too expensive and opt for window shopping at the malls. So the park loses this business. But then there could be others who’re cancelling their fancy weekend trips and holidays and seeking more affordable alternatives. For them, an all-day outing to an amusement park can feel like an indulgence they can afford. And this segment makes up for the other business lost.

Quite interesting, isn’t it?

But yeah, we don’t know if this lucky trend will continue for Wonderla.

For starters, it’s still quite a seasonal business. Amusement parks typically make 40% of their annual revenues during the holiday season. And things like an early monsoon can often affect this significantly. Also, these places need a lot of water. And when Bengaluru faced a Cauvery water dispute in FY17, Wonderla had to close its gates for a while.

Also, Wonderla has not been able to get over its speed bump of ‘capacity utilization’. Its parks are quite massive and can easily accommodate over 10,000 guests per day. But if you look at the daily average visitors, it was roughly 2,000 guests. That means only 20% of the capacity is actually being utilized effectively. Remember, these are parks that aren’t in the city centre either and it’s quite a drive to even get there.

So how Wonderla can ramp this up is anybody’s guess. And that’s what investors will be keeping an eye on.

Until then…

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