Adlabs Imagica: Rising footfalls crucial for turnaround

Growth potential of industry, company's expansion plans are some positives for Imagica

Adlabs Imagica, a theme park started in April 2013 across 132 acres, with 25 rides and another 14 water slides at its water park, AquaMagica (started in September 2014), is coming out with initial public offering (IPO) worth Rs 467 crore. Although the financials are not inspiring, given the long gestation nature of the business, the company’s plans and business potential, patient investors with some risk appetite could subscribe to the offer.

The IPO will open for retail investors on Tuesday. It aims to garner up to Rs 468 crore, of which Rs 330 crore will be used for partial repayment of the total debt worth Rs 1,100 crore. The IPO includes a fresh issue of 18.3 million shares and an offer-for-sale of two million shares by the promoters. Since a large part of the company’s capex is already done, the loan repayment will help lower interest outgo.

In addition to the theme parks, the company is setting up a 287-keys hotel, to be managed by Novotel (Accor group). Phase I (116 keys) will be operational by next month.

Positively, the park, with an estimated hourly capacity of 15,000 (Imagica) and 5,450 (AquaMagica), is strategically situated between Mumbai and Pune. A strong brand name, own intellectual property (not licensed) for all rides, merchandise and characters, surplus land of 170 acres and diverse revenue streams are some strengths.

Adlabs Imagica gets 66 per cent of its revenues from ticket sales. The rest comes from food and beverages (F&B), retail and merchandise, digital photos and parking. The park has three restaurants, providing multiple cuisines and two bars/cafes. It also sells Imagica branded merchandise via six retail stores, along with real-time photos of visitors while on the rides. The company plans to increase revenue contribution from the F&B and merchandise businesses, further diversifying the revenue mix.

It also plans to expand the product portfolio and promote the park characters. It plans to tie up with vendors on a revenue-sharing basis to monetise additional land by adding a Snow Park, Adventure Tower and other attractions.

School/college trips and corporate groups are its key focus markets and it plans to get more customers with attractive offers to this target market, which for some of its competitors like Wonderla account for about two-fifths of footfalls.

Notably, about two-thirds of Imagica’s revenues come in the second half of the financial year, as this period includes the summer vacations of schools/colleges. To reduce this revenue skew, the company plans to turn Imagica into a multi-day destination once its hotel property becomes operational.

On the financial performance front, high fixed costs such as depreciation, power/water and interest have hit profitability and exposes the company to any economic downturn. The company registered 820,000 footfalls in FY14, with revenue of Rs 104 crore and an earnings before interest, taxes, depreciation and amortisation margin of 6.5 per cent. However, it made a net loss of about Rs 53 crore in FY14.

This is also far from Wonderla’s FY14 performance, wherein average footfalls in each of its two parks were 1.15 million and the Ebitda margin was 46 per cent. For the first half of FY15, while Imagica’s revenues were a healthy Rs 72 crore, Ebitda margins stood at 6.2 per cent, the latter partly due to start-up costs of the water park. Hence, it posted a net loss of Rs 54 crore.

This is despite Imagica’s high ticket prices, 2-2.4 times of Esselworld or Wonderla, its nearest competitors. One reason for the weaker profitability is the relatively higher capital expenditure and project size, besides being in the early stages of operations. Thus, stepping up of footfalls is key for a turnaround. While it is taking a host of initiatives to push footfalls, these might bear fruit only in the next one to two years.

After considering a retail discount of Rs 12 a share, the issue is valued at a market capitalisation to FY14 sales ratio of 16.1-16.8 times on a post offer basis versus 10 times the FY14 M-cap/sales for listed peer Wonderla. Even on an enterprise value (EV) to sales basis, Adlabs Imagica was valued at 20.1-20.8 times versus 12 times for Wonderla in FY14. However, the two parks are very different in terms of their offerings. Also, Adlab Imagica’s AquaMagica has just become operational and the hotels (Phase 1) will start in a month.

Additionally, the company’s plans to promote Imagica as a two-three-day destination for events such as weddings, birthdays and weekends, and opening of the hotel will enable it to increase revenue and profitability. So, as these measures bear fruit, the ratios will look better. Strong growth potential for the amusement/theme park segment is another positive.