Imagicaaworld Entertainment Limited (IMAGICAA) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to Business Update Conference Call of Imagicaaworld Entertainment Limited. This conference call may contain forward-looking statements about the company which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements do not guarantee the future performance of the company, and it may involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Jai Malpani, Managing Director of Imagicaaworld Entertainment Limited. Thank you, and over to you, sir.

Thank you. Good afternoon, ladies and gentlemen. A very warm welcome to our acquisition update conference call. Along with me on this call, I have Mr. Dhimant Bakshi, CEO; Mr. Mayuresh Kore, CFO; and SGA, our Investor Relations adviser. Before we commence, I would like to express our gratitude for this valuable opportunity to address our esteemed investors and analysts today, marking our first interaction since the restructuring of our operations a couple of years ago. We deeply appreciate the unwavering support from all those who have believed in us throughout this journey, and we look forward to continuing our engagement moving forward. India has been witnessing a very strong economic growth. Household income is also increasing significantly and expected to increase in high single digits, leading to high discretionary spending in India. India is on the cusp of multi-decade growth in some of the consumer discretionary categories. In the last decade, India's infrastructure investment has considerably improved connectivity, boosting domestic tourism. Over 40 cities with populations of over 1.5 million have been -- have formed clusters, fostering economic and cultural exchange. Additionally, increased consumer demand for leisure-related activities puts us in a very pivotal position. Having a dominant position in India's theme and water park market, we aim to reach a diverse audience with adhering to our 3C strategy, that is focusing on urban clusters, expanding catchment areas and locating in strong connectivity areas for sustained growth and success. At Malpani Group, we have been actively involved in the park business since 2005, consistently running all our parks with success and profitability. Post our acquisition of Imagicaa in 2022, I am thrilled to share that the company has undergone a remarkable transformation over the past 2 years, emerging as a beacon of innovation and excitement in the park industry. With strategic vision and dedication, we have revitalized operations to create a new identity that captivates and delight guests of all ages. To further enhance the offering, I'm delighted to announce that we are acquiring a total of 4 operational parks, including 2 water parks under the brand name of Wet'nJoy Waterpark in Lonavala and Shirdi; one amusement park in the brand name of Wet'nJoy Amusement Park in Lonavala; and one devotional theme park, Sai Teerth, which is one of its kind park in India for a consideration of total INR 630 crores, which is payable over a period of 30 months. The acquisition also brings headwinds arising from the recent CapEx of approximately INR 25 crores incurred in these parks by Giriraj Enterprises, which is a Malpani Group entity. Additionally, the company is also acquiring an upcoming water park in Indore for a consideration of INR 140 crores from Malpani Parks Indore Private Limited. These acquisitions are a part of our strategic goal to combine all our park businesses into one entity and a cornerstone of our vision to emerge as the leading and the most dominant name in the entertainment sector across India. These acquisitions mark a significant increase in the bouquet of offerings, encompassing a diverse array of attractions, including India's largest theme parks, a devotional park, an amusement park, a luxurious 5-star hotel and a total of 5 water parks. With the combined strength, Imagicaa will have presence in 5 locations with 8 parks, a total of 2.8 million footfall and over INR 400 crores of revenue, more than INR 175 crores of EBITDA. This expanded range of offerings allows us to cater a wide spectrum of guests, ensuring that everyone, regardless of their preferences, can find an experience tailored to their desires within our establishments. Building on a dominant position in Maharashtra, we are expanding our footprint into other states. With the successful launch of our Aquamagicaa Water Park in Surat last year and the upcoming addition of one more water park in Indore, our aim is to replicate success and establish a strong presence in these new territories, mirroring the dominance we have achieved in our existing parks. With these acquisitions, all our park businesses will be consolidated under one entity, making us the largest player in the industry. Going forward, all the expansions and acquisitions for the park business will be done under the listed entity only. With unwavering commitment and boundless potential, we embark on this journey united, ready to redefine the standards of excellence and create unforgettable experiences for all our guests. I now hand over to Mr. Mayuresh Kore who will take you through the deal contour and operational synergies.

Thanks, Jai. Good morning, everyone. It's a pleasure interacting with the investor community after a few years' gap. Today, as we speak, we are seeing a completely new avatar of Imagicaa, with a stronger and experienced management, stronger financials and a commitment to deliver unforgettable experiences to guests nationwide. To start with, I would give a brief on the numbers and the time line of completion of these acquisitions. Firstly, on the acquisition of the 4 Wet'nJoy parks. This transaction comprises of acquisition and purchase of the business undertaking pertaining to 2 water parks, 1 devotional theme park and 1 amusement park owned by the flagship company of Malpani Group, which is Giriraj Enterprises, and this is on a slump sale basis. These parks are located at Lonavala and Shirdi in the state of Maharashtra. The aggregate lump-sum purchase consideration for this transaction is INR 630 crores. The transaction is on a debt-free and cash-free basis. The consideration is to be paid over a period of 30 months beginning April 2024. The transaction is being done at arm's length based upon independent valuation reports. Talking more about the financials of these parks. All these 4 parks reported a combined revenue of INR 148.7 crores and an EBITDA of INR 84.6 crores with EBITDA margin standing at a solid 57%. These numbers are on a trailing 12-month basis. Thus, this acquisition is being done at an attractive valuation of 7.4x at EV/EBITDA basis. Coming to the second transaction, which is the acquisition of upcoming Indore water park. This transaction comprises of purchase of the assets and properties pertaining to the water park being constructed by Malpani Park Indore Private Limited, which again is a Malpani Group entity. This transaction comprises of purchase of all the properties in this project, except the underlying land, and the aggregate consideration will be INR 140 crores. The park is spread across 18 acres of land, which will be on a long lease from Malpani Parks Private Limited, and annual consideration will be rental of INR 3.8 crores and a security deposit of INR 1 crore. To give you a brief about this location, we all know that Indore as a city is a well-known business and a tourist destination. It ranks as the 15th largest city in terms of population. And this gives us a great opportunity to offer our experience to the people of Indore as well as the rest of Madhya Pradesh and Central India. The location where the park is coming up is a prime location between 2 major cities, 15 kilometers away from Indore and it's about 45 kilometers away from Ujjain. The park will have 20 world-class water rides and 3 multi-cuisine restaurants along with banqueting space. This transaction is expected to be completed in the month of March 2024, and the park is set to commence its operations in Q1 of FY '25. Post this acquisition, we will double our footfall and EBITDA increases by 1.5x. We are confident of generating strong cash flows in the combined entity. These acquisitions are to be funded through a combination of internal cash flows, debt and equity. The numbers for these acquisitions will be consolidated in our books with effect from 1st April 2024. This acquisition strengthens our financial position with a larger balance sheet size, robust revenue growth and enhanced profitability. It also aligns with our strategic focus, allowing us to consolidate our strength across various entities, streamline business operations and drive seamless expansions. With a strong geographical presence across Western India and plans for further expansion into Central and Northern India, our brand visibility and market dominance are set to soar. Additionally, we anticipate significant business synergies. We will leverage cross-park offerings, optimize resources, negotiate better procurement deals, leverage our expertise and share the IPs that are held in these various entities. Together, these synergies pave the path for unprecedented success, innovation and guest satisfaction, and we expect these will catapult us to the forefront of the entertainment industry. With unwavering commitment and immense potential, we embark the journey united, ready to redefine the standards of excellence and create unforgettable experiences for all. Thank you for joining us on this thrilling adventure towards a brighter and more captivating future. This call is only related to the present acquisition, and we would expect Q&As on this subject only. With this, we open the floor for questions. Thank you.

[Operator Instructions] The first question is from the line of Dhruvesh Sanghvi from Prospero Tree Financial Services.

Congratulations to the team. And pardon me if there is a little bit of background noise on my end. I have a couple of questions. One being the -- so am I audible?

Yes. Yes, you are.

Yes. So with this entire exercise, is it like expected to get completed in 6 to 12 months or more?

Yes. So the exercise, we mean the transaction and the documentation are expected to be completed in the next 2 months. And of obviously, we have a deferred payment schedule. So the integration of these parks commercially will start with effect from 1st April 2024. So the effective date will remain at 1st April 2024. And we are expecting shareholders' approval to be there in place within a month's time in the month of March and definitive agreements will be executed at that juncture as well.

Okay. Great. The second thing is that in general, Malpani Group is a very cash-rich or very balance sheet positive group. So the kind of money that is going to the Malpani Group, is it expected in the future that similar sort of land buying will happen on the personal entity, which will be leased out to the Imagicaa entity or, I mean, if there is something on that line? Because I'm sure you will be trying to expand the number of parks by double in the next 4, 5 years. So just some thoughts around that. That is it.

So currently, we are open to all sorts of possibilities. We're even exploring lands with governments in case they lease out lands to us on a long-term basis. So we are currently open to all sorts of possibilities on all the fronts.

[Operator Instructions] The next question is from the line of Parin Gala from SageOne Investment.

I just have one question. Our CEO mentioned that this transaction will be a combination of internal cash plus equity and debt. Can you just give some kind of a breakup, what will be used where? And when you say equity, so is there going to be a round of fundraising?

Yes. So currently, we are a debt-free company, and we are open to a moderate level of debt, which will not exceed 2x of EBITDA. The balance contributions will be funded from a mix of internal accruals and if any external equity required, because the timing of the structuring is done such that the payment is to be over a period of 30 months, so we don't anticipate too much of requirements apart from that. But yes, we are open to a moderate level of debt, and we have good internal accruals combined from both of these projects which will help us fund the consideration.

So no fresh fundraising, right, no fresh equity?

We are exploring various options at this juncture. And as of now, we have time to decide that. So we will keep you posted in the near future.

The next question is from the line of [ Vipul Kumar Shah ] from Sumangal Investments.

I hope that this practice of organizing calls is continued after every quarterly results. So my question is, can you share the EBITDA and revenue numbers of entities we are acquiring for the last 3 years, sir?

Yes. So just to give a brief background, the flagship water park -- these parks have opened at various points. So the park at Shirdi has been operational since 2005 at, call it, Wet'nJoy. The Wet'nJoy Waterpark opened in 2016. The amusement park opened at Lonavala in 2017-'18, and there's been a WIP and then COVID came. So what we are referring to is the current trailing 12-month numbers. We can share the full FY '23 numbers as well, which actually makes sense because the parks were under a ramp-up phase, especially the Lonavala amusement park. So I think we can share that in due course.

In due course, yes.

So -- okay. And regarding the...

That is why -- yes, so the -- since the query has come in, so FY '23, the EBITDA was INR 73 crores. And the trailing 12 months, as we mentioned earlier in the call, is INR 84.6 crores for this park to be acquired.

So INR 73 crores for previous year for all 4 entities together?

Yes.

So it's almost 58% kind of EBITDA margins.

And regarding your Indore parks, so the acquisition, why this land is not transferred along with the -- and land will remain with the Malpani Group only, right?

Yes. So that's a very valid question...

So what is the rationale of not transferring the land also?

Yes. So that's a very valid question, and we appreciate that. So at this juncture, while we've done a slump sale of all the existing parks for the Wet'nJoy operational parks, and the slump sale, we include all the assets, we cannot cherrypick the assets. But in case of going-ahead expansions, we are looking at options wherever we don't have to deploy significant capital into land. And if there are lease options, be it even with government entities, we are discussing at various state governments. So we will prefer lands wherever they are available on lease where we can focus our capital deployment on the -- creating the entertainment value in terms of the rides and attractions rather than blocking money into the underlying land wherever there is an option.

And so the term gives an option to the company to acquire the land. So that option is still there. So currently, looking at the cash flows, we thought it's easier -- it is better for the company to lease it and then potentially buy it at a further point in time.

And sir, my last question is, what should be the gross block of these 4 entities and the Indore park when it becomes operational? What kind of gross block it will have?

So in our books, the consideration for the acquisition of INR 630 crores, which is -- will be there, and plus INR 140 crores for the acquisition of the Indore park, which is basically we are only reimbursing or the actual cost incurred for this project, under-construction water park is what we are buying from the Malpani Group. So combined of this, this is INR 770 crores.

No, no, that is the acquisition value in rupees, I'm talking about gross block, sir.

So this is the gross block, it will come into my books.

Next question is from the line of Tushar from KamayaKya Wealth Management.

Congratulations for your mega consolidation. Sir, my question is in regards to debt. As you recently signed the MOU with Goa and Uttarakhand government, I just want to understand how the peak debt would look like in FY '25, FY '26? So that would be my first question, sir.

Yes. So glad to note that you have been tracking the expansion or the discussions of the company. So Goa, we have not signed an MOU. We are in discussions with the industry's department for looking at various options. In Uttarakhand, we have signed an MOU, which is an in-principle interest to set up a park in the state of Uttarakhand. So both of these have not moved ahead into definitive stage. But yes, answering your question, in the medium term, we are not expecting debt levels to increase more than 2, 2.5x of our EBITDA, and that is something we are -- we will continue to stick to it in the immediate future.

Tushar, do you have any follow-up questions?

Yes, sir. Sir, in terms of your like branding, like the marketing expense as a percentage of your sales, how do you see that in the next 2 years? And how do you are planning to leverage the Imagicaa brand going forward?

Yes. So the overall marketing expense, when we look at advertising, marketing and the sales distribution, we think we will be able to maintain it sub-10% kind of an overall cost to acquire. And with new parks such as Indore where we would require the additional marketing impetus considering an introduction to a new city, yes, we think with the combined synergies, sub-10% is what we will be able to maintain. As you would have seen that over last 2 years, we've been able to constantly monitor the spends very effectively and targeting and utilizing digital media as a stronger medium as you would see the overall impact. Thank you.

Fair enough, sir. Sir, just want to understand this devotional amusement park in -- what EBITDA margin is the range for this business?

So for the devotional park in Shirdi, we're in the range of 30% to 40% of EBITDA margins. And that park has a good potential to grow because it's a very new park. The concept is new altogether. So going ahead, we'll see a good increase in footfall in Shirdi park as well.

Fair enough, sir. And sir, this new park near Indore, so what sort of margin profile are we seeing? Is it accretive? Like how is your plan?

So the margins for the upcoming Indore park will be in line with the current Imagicaa margin structure to begin with considering the new introduction would require that additional impetus as well as the time for the format to mature in the city of Indore. So we think it will be in the region of about 40%, 45% kind of a margin structure to begin with. And as and when you see over a period of 2 to 2.5 years, the margins will start improving northwards.

Fair enough, sir. Sir, just my last question. Do we have any land bank near Imagicaa?

I'm sorry?

Do you have any land bank near Imagicaa?

Yes, yes. So in the current park, we have kept elbowroom expansion of almost 7.5 to 8 acres of land available. As well as in the current theme park, we have 3 -- we have space for 3 attractions that we can introduce as such. I hope I answered your question, sir?

Yes, sir.

Next question is from the line of Rusmik Oza from 9 Rays EquiResearch.

Sir, my question was on the Indore property. I think we have spent around INR 140 crores, I think that's the acquisition cost, so -- and still work in progress. So what is the total CapEx for this Indore park until the time it gets commissioned?

So the total CapEx will be INR 140 crores. So it's not we are taking it on as is. It's a completed park once we -- all the costs which are factored in will be included in this INR 140 crores. And currently, it's at a very advanced level. But it's -- it will not cross INR 140 crores to begin with.

Okay. Good. That's nice, sir. And second question, sir, any debt of the acquired entity that is coming in the books of Imagicaa?

No, no. No, there is no debt. And essentially, it is debt-free.

Okay. Okay. Okay. And sir, last question from my side is, do we have any excess land available near this Khopoli Imagicaa park, which can be monetized in future?

So the current amount of land bank which I mentioned is kept for elbowroom expansion, and there is no further land for monetization, and we do not see any immediate requirement to have so.

Next question is from the line of Gaurav Gandhi from Glorytail Capital Management.

Congratulations for a great turnaround of the company. Sir, my first question is, can you explain the rationale behind the decision? Because this theme park at Lonavala, which we have acquired, is only at a distance of 1 hour. So why should pay so much price to acquire in that same area? Why not develop the park in a different state or a different area where there will be more potential? Because this is in the immediate vicinity, I see. Can you explain the rationale behind that?

Yes. So there are 2 the rationale, if I were to answer your question, sir. One is that as a group, the overall objective and the focus is to put all the park businesses and the entertainment verticals under one umbrella of the listed entity and -- so that the group's focus is always on to building the listed company as an entity. So that's being one. And second being, if you look at world over, places such as Orlando or the Gold Coast kind of places where there are multiple parks within one region, but all the parks continue to do well. So we believe that by doing this integration and consolidation, the group has a stronger presence in the Western region. And the synergies that would kick in for the group would be better rather than operating having 2 separate teams doing separate activities or there is sales and marketing unification. There are various levers that you will see being added and primary reason being group's commitment and focus to build a listed company as a bigger organization and what you've been really focusing for.

And Gaurav, just to add to that, from Imagicaa perspective, the revenues and cash flows start flowing into Imagicaa from day 1. Usually, parks -- to make 4 different parts at this scale will take a good amount of time. So for Imagicaa, it's a beneficial deal because at a good price, the cash flow -- there's no risk of execution at that point in time. These are parks with historic performances and proven EBITDA. So adding those into Imagicaa will give more cash flow to Imagicaa itself.

Okay. Fair enough, sir. And this Shirdi water park, which we have acquired, is like a matured park now. So how we are going to drive the growth in footfalls there? Also, can you share how much footfall growth and average revenue per user growth do you expect in FY '25 in overall terms, including the Indore Park?

So for Shirdi water park, as you rightly said, we are adding -- actually, we have spent INR 25 crores in this current -- in the last current financial year, adding new attractions and rides across all our parks. So in Shirdi water park, we have added 8 new water slides to revamp the park and kind of give our guests a new reason to come back to the park. So with 8 new water slides, we are seeing increasing in capacity of the park as well as repeat footfall should go up significantly over there. So we see some good growth in that particular park. Along with that, we have also added a lot of retail, which will start from 1st of April, and a lot of new F&B options. So our ARPUs are expected to go up because of these new additions as well.

And how much footfall the Indore park will be adding in FY '25, a ballpark figure can you give?

I think it will be a better thing to say FY '26 because by that time, the park would have really seen the full year of operations. So we think it's somewhere around 3.5 lakhs, around that number is what we expect in the first year of full operations.

All right. All right, sir. And just a suggestion to keep watch on the equity dilution happening for investors, and that's it. All right. All the best. It's actually a proud feeling for us that such a new big group is emerging from small towns of the country. All the best.

Next question is from the line of Anant Mundra from Mytemple Capital Advisors.