New Chennai Park Will Begin Operations Next December, Adding Income Stream

Key Takeaways

• The Chennai park launch and strategic investment in current parks could enhance revenues, diversify income, and improve guest experiences.
  
• Digital transformation and non-ticket revenue growth aim to increase profitability through operational efficiencies and higher margin streams.
  
• Adverse weather, increased staffing expenses, and reliance on government approvals are impacting Wonderla Holidays' revenue, profitability, and expansion timelines.

Catalysts

Operates amusement parks and resorts in India.

• The upcoming launch of the Chennai park, which is expected to begin operations by December next year, presents a significant opportunity for revenue growth as it will add a new stream of income.
  
• The digital transformation strategy, including revamped websites and increased online bookings, is expected to expand customer base and potentially improve net margins through better operational efficiencies and reduced dependency on third-party booking platforms.
  
• The expansion of non-ticket revenue streams, seen in the 9% to 12% growth in customer spend per head, indicates potential for improved net margins as these streams often have higher profitability than ticket sales.
  
• Continued strategic investment in current parks, such as the introduction of new attractions and resort expansion, is expected to drive footfall and revenue, enhancing overall guest experience and fostering higher earnings.
  
• The successful fundraise through a QIP process shows strong investor confidence, providing capital for strategic growth initiatives without immediate strain on profits, thus boosting future earnings potential.

Wonderla Holidays Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Wonderla Holidays's revenue will grow by 21.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 26.2% today to 25.9% in 3 years time.
• Analysts expect earnings to reach ₹2.2 billion (and earnings per share of ₹35.3) by about March 2028, up from ₹1.2 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₹1.6 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 49.0x on those 2028 earnings, up from 34.7x today. This future PE is greater than the current PE for the IN Hospitality industry at 32.6x.
• Analysts expect the number of shares outstanding to grow by 4.33% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.81%, as per the Simply Wall St company report.

Wonderla Holidays Future Earnings Per Share Growth

Risks

• The company's revenue for Q3 FY '25 has experienced a degrowth of 2% compared to the previous year, largely due to inclement weather and health concerns affecting footfall in key locations like Bangalore and Cochin, impacting overall revenue.
  
• Profit after tax (PAT) for the quarter has decreased by 45.7% compared to the previous year, with PAT margins reduced to 16.1%, indicating significant stress on net earnings.
  
• Bhubaneswar park's footfall has been adversely affected by weather events and cultural factors which may suggest a longer path to profitability and could strain the company's revenue generation expectations.
  
• Employee expenses have risen due to the addition of staff, further impacting EBITDA margin with a notable decrease to 33.3% from last year. The potential for declining operating leverage could impact overall profitability.
  
• Plans for expansion into new markets depend on government actions and approvals, introducing execution risk that could delay revenue realization and extend the payback period for new investments.

Valuation

• The analysts have a consensus price target of ₹973.333 for Wonderla Holidays based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1240.0, and the most bearish reporting a price target of just ₹790.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹8.4 billion, earnings will come to ₹2.2 billion, and it would be trading on a PE ratio of 49.0x, assuming you use a discount rate of 14.8%.
• Given the current share price of ₹660.55, the analyst price target of ₹973.33 is 32.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.