After surging 60% in six months, is the carnival over for Wonderla Holidays’ investors?

Isn’t a rollercoaster’s climb exciting? You wait with bated breath for the drop and the adrenaline rush that comes with it. The scrip of Wonderla Holidays has been on such a climb. The share price has surged 62 percent in the past six months and 83 percent year-to-date.

It is currently trading near the Rs 390 level on the National Stock Exchange. It started the year at Rs 208.

Wonderla Holidays operates three amusement parks in Kochi, Bengaluru and Hyderabad. Apart from that, it also runs a resort in Bengaluru. In recent times, an important trigger for the company has been the demand comeback for leisure activities with a vengeance. But, that’s not all.

?Here are some other reasons why the stock has been on fire:

New projects in pipeline

The company has signed a memorandum of understanding (MoU) with the Odisha government for the development of an amusement park in the capital city of Bhubaneswar. The land has been leased for a period of 90 years and the company plans to build the park with an investment of less than Rs 125 crore.

In Q1FY23 earnings call, managing director Arun Chittilappilly said, “The park in Odisha will be an asset-light model and our ticket price also will be probably about 60 percent of what we charge in our larger parks so maybe about Rs 600–Rs 700.”

“We are also talking to Goa, Gujarat and a bunch of different states for other projects,” he added.

Growth in footfalls

For the existing parks, the total footfall is currently around 2.5 million. The company targets to increase this to 3 million. And, with the addition of new parks, the target for FY2025 is to achieve 4 million footfalls.

“We have experienced something truly phenomenal as total footfalls grew by 24 percent compared to FY20, which was our last normal pre-pandemic quarter. Now, we are entering a new dawn of value creation and growth,” said Chittilappilly in the Q1FY23 earnings call.

In the quarter gone by, the Hyderabad theme park saw 39 percent growth in footfall, Kochi witnessed 38 percent growth and Bengaluru saw 7 percent growth.

Hike in ticket prices

To boost profitability, the company is also looking at price hikes in the second half of the fiscal year. “Because we do not have a direct comparable for our offering, I think pricing has always been one of our strong points,” said Chittilappilly. This means that the company can increase prices without worrying about declining footfalls.

Also Read: Wonderla, Imagicaa script a turnaround as theme parks experience a revival

“Besides increasing footfalls and ticket prices, focus will be on adding new attractions and renewing the food and beverage offerings to drive growth going ahead. This will also add to bottomline in FY2023/FY2024,” believes Kaustubh Pawaskar, Analyst, Sharekhan by BNP Paribas.

Sharekhan has a Buy recommendation on the stock with a target price of Rs 425. “We like the management’s focus on footfalls, stringent cost management, and maintaining a lean balance sheet in an uncertain environment,” said Pawaskar.

However, it’s not all rosy.

Uncertainty on the Chennai project

Investors have been awaiting details on the Chennai project, which has been in the works for seven years now. According to reports, the MoU with the Tamil Nadu government was signed in 2015 but the project is yet to take off due to the local body tax (LBT) that is levied by the State.

Basically, amusement parks have to pay a local body entertainment tax of 10 percent under the Tamil Nadu Local Authorities Entertainment Tax Act, 2017 over and above the GST of 18 percent. Wonderla Holidays has requested for the tax to be waived off and is awaiting a response from the government. “Hopefully, the matter will be solved within the next one quarter” said Chittilappilly.

Once the Chennai project starts, the company might also take some debt on.

Buy or sell: A technical perspective

After hitting a 52-week high of Rs 455 on September 20, the stock has seen some selling pressure. According to Milan Vaishnav, CMT, MSTA and founder of Gemstone Equity Research, “The recent price action shows the stock slipping under consolidation. There are possibilities that the zone of 380-400 may be tested while the stock consolidates.”

“The last phase of the up move from 375 to 455 has come with a bearish divergence of the RSI against the price. For investors, those who are long in this stock it would be advised to protect and book profits; if not entirely then at least partial. Fresh entry in this stock would be triggered only if the stock takes out its previous high,” he added.

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