Wonderla Holidays Limited (WONDERLA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '21 Earnings Conference Call of Wonderla Holidays Limited, hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Adhidev Chattopadhyay from ICICI Securities Limited. Thank you, and over to you, sir.

Yes. Good morning, everyone. On behalf of ICICI Securities, I'd like to welcome everyone to the Q2 FY '21 results call of Wonderla Holidays. From the management, we have with us Mr. Arun Chittilappilly, the Managing Director; and Mr. Satheesh Seshadri, the Chief Financial Officer. I'd now like to hand over the call to the management for their opening remarks. Over to you.

Hi. Good morning, everyone. Thank you for the introduction. Welcome you to the conference call to discuss the second quarter of financial year, FY '21. We realize that many of you may be still working from home, and we hope that everyone is staying safe and healthy. The COVID-19 pandemic continues to have unforeseen impact on individuals, families, communities, businesses and the world at large, as you may already know. Let's take a moment to salute the heroic efforts of people who are on the front line, working around the clock to make sure that we are all safe. Our parks remained closed for operations during the second quarter due to the lockdown. However, the entire team has been working on alternative scenarios preparing for the resumption of businesses. We used this time to implement significant changes in the way we operate, reengineered our processes and expanded into related lines of business, incorporating changes in our leadership and Board of Directors. First, let me talk about certain changes to the leadership team. Mr. George Joseph, who was our JMD, has retired from active management due to the travel and health-related restrictions caused by the pandemic, and now he is the Non-Executive Director on our Board. In his tenure as Joint Managing Director, he initiated some great cost optimization efforts and set up foundation for expanding into new cities. The company recorded its highest ever EBITDA and significant margin expansion and profit generation. We thank him for his stellar leadership. Now I have taken over as the Managing Director, and I'm excited to lead the company on its next journey of growth and transformation so as to thrive in this post-pandemic world. I will be partnering with one of our Board members, R. Lakshminarayanan, who I also consider as a mentor, who has been designated as non-Executive Vice Chairman. My father, Kochouseph Chittilappilly, our Founder and Promoter, has retired from the Board as well. He will continue to guide us as a mentor and Chairman, Emeritus. At Wonderla, we are financially strong and resilient and are committed, and we have competent and dedicated workforce. We recognize that the business environment is changing in a fundamentally irreversible and rapid manner and are preparing with multiple strategic initiatives, not just to anticipate the benefit from this change, but to actively drive it for our short- and long-term competitive edge. The leisure, entertainment and experiential businesses will grow substantially. And we see the clear trend towards customers willing to pay a premium for world-class experiences. In a world where people have been confined to their homes for over 6 months, there will be a significant demand for healthy and active outdoor fun, safe and hygienic travel. And we are eagerly waiting to welcome back our guests to our parks and resorts. We are in the process of an enterprise-wide digital transformation. We have just kick-started that process. It will impact the effectiveness and efficiencies across every function and department. With technological advances focused on data analytics and creation of more interactive, dynamic and immersive attractions, Wonderla is moving towards a more personalized and magical experience. We have been regularly engaging with customers throughout the lockdown via social media, but we would like to step up those efforts in a significant way going forward. During the lockdown, we have leveraged our existing infrastructure and in-house capabilities for some experiments in new business areas like a cloud kitchen, which we have started in the month of June. We have 4 outlets currently, 2 in Bangalore, 1 each in Hyderabad and Cochin. It's still at a very incubation stage, so we don't -- we are still learning as we go along. We also -- in Q2, we also test launched a new initiative called Wonder Garden, which is a plant nursery-based offering. Our hope is that -- it was inaugurated by my father and the Founder, Mr. Kochouseph Chittilappilly. It offers a range of plants and -- indoor and outdoor plants, which we already have a garden setup in all of our parks to maintain our parks. We felt that this could be something that people could be looking at in the future. But of course, we want to do it in a slightly different way, but still it's an incubation stage. Many entertainment parks across the world have resumed operations, albeit in a much lower scale. Some parks in the U.S. saw good response during the Halloween festivities last week. Despite suffering a crippling blow during the pandemic, I think the global industry looks optimistic. On 30th September, under the Unlock 5 guidelines, Ministry of Home Affairs has issued guidelines for cinema halls, entertainment parks, schools, so on and so forth. We are planning to open our parks around middle of November. Lastly, guidelines are extended till 30th November. So accordingly, we have resumed the operations at our resort in Bangalore from 15th October. As a gesture of respect and gratitude to the COVID warriors, we will be offering free entry to them from November 9 to 12 in our Bangalore park. The park will be opened to public from 13th of November. We have strengthened our safety protocols and details are in the presentations. All our rides have been maintained with optimal conditions throughout the lockdown. As the rides are spread out over a vast stretch of land, social distancing measures will be easier for us to implement. During these unprecedented times, we continue to optimize our costs, and I think the efforts have led to significant drop in expenses. We have vacated -- we have continued to optimize our costs, and we will -- we have reduced our costs to a bare minimum. As a result of these measures, our monthly expenses have reduced from INR 10 crores in March 2020 to less than INR 3 crores in August 2020. Amusement parks fulfill a fundamental and universal and timeless human desire to roam, play and experience thrills as a cohort, for which there will not be a real substitute. We don't see a permanent change because of the pandemic for the amusement park industry. I think we will come back. They will continue to provide unique and irreplaceable source of memorable experiences to cherish for a lifetime. As a team, we are united and optimistic to face the challenges and benefit from the opportunities. And our team spirit and ingrain culture bind us to understand the environment [indiscernible]. Thank you very much. Over to the next person.

Shall we start with the question-and-answer session, sir?

Yes, please.

[Operator Instructions] The first question is from the line of [ Rahul Ramaswamy ] from [ Perfect Research ].

Sir, I have some questions. I'll be listing it together. Sir, assuming we are operating in normal times, free of COVID in the long run, my first question is, given Kochi's population is 30 lakhs and our target audience generally being the local population, what do you think is our long-term potential size of the Kochi park in terms of annual footfall? Next, parks globally have a merchandising contribution of 25% of revenues. How are we looking to increase our share in this vertical? Like, for example, Disney, are we trying to create our own mascots or use Indian characters? Next, can you throw some light on customer loyalty schemes and the grip on customer data analytics? Do we maintain data on repeat customers and spending patterns? Lastly, sir, is it right to look at global parks in terms of the size of opportunity given the climate is not extreme there. And given our extreme summer and winters, do you think the addressable market is much less in India? That's all, sir.

Sorry, you have too many questions, so I will answer what I remember. I think definitely, India doesn't have an extreme climate. I think, especially where our parks are situated, I think we have pretty tropical weather, and tropical weather is the right place to do an amusement park. If you look at all the global parks, the ones which are in tropical whether are the ones which usually do the best business because they can open -- be open throughout the year. And I think we are -- our parks are all in areas where we can be open 365 days. So I think that takes care of one question. Cochin, so we don't look at only footfall from Cochin. Cochin may be having a population of only 30 lakhs, but we used to get about 1 million visitors in our parks. It doesn't mean 1/3 of the city is coming to our park every year. [indiscernible] attract footfall from that area. So I don't think we have really -- even -- I don't think we have exhausted our market potential. Data analytics on customer loyalty. Currently, we don't have much data. We have a loyalty program, but it was -- it's a pre-digital, old kind of loyalty program. We have about 1.5 lakh people who are in the loyalty program, but we are now going to revamp that completely to a more digital system. We have just started work on that, so I cannot speculate more on that right now. I hope I have answered all your questions?

Sure, sir. Sir, last on the merchandise, if you could throw some light on that.

Yes. Merchandise is an area of -- I mean we have not really focused on it yet, I think, properly. But definitely, there is a huge scope to improve that as well because people when they come to an amusement park like this, they are not making a rational decision, they're all emotional decisions. So I mean -- so there is a lot of spur-of-the-moment spending that happens, and we need to be able to capitalize on that.

[Operator Instructions] The next question is from the line of Tejash Shah from Spark Capital.

Three questions from my side. First, this and then the reduced offering and scale that we'll be opening our parks from 13th November, what will be the breakeven footfall that will lead to achieve our neutral state on profitability?

I will let Satheesh answer that question.

Tejash, see, we are going to launch this park -- Bangalore park on 13th of November to the guests, and we are also planning at a special price, which will be in the press release very soon. And it is going to be only the dry park and not the water park, okay? And this -- we will be extending it for a few weeks. And this is to reestablish and opening our park. And post opening, where I'm saying a situation where we have all the 3 parks opening and running, our cash breakeven will be around INR 1,300 crores, INR 1,350 crores.

Okay. And in terms of footfall, it will be how much that will be...

Yes, in terms of footfall, the breakeven will be around INR 1,300 crores -- cash breakeven, one park per day.

Okay. Okay. Got it. Per park per day. But we'll be operating only for weekends, right, so not the weekdays initially?

Initially, that's what. When we start the Bangalore Park on 13th of November, we are planning to open only for Friday through Sunday and holidays. And only dry park is allowed now by the Government of Karnataka. So henceforth, there will be a limited dry park operations and experience to the guests at a special price. And I think going forward, slowly government will open up other water park looking at the measures what we are taking. And also, we are awaiting the approval from Telangana Government and the SOPs from them to allow us to open the park. And Cochin, as you know, the Section 144 is in many of the parts of Kerala. So we are not opening now. So once everything stabilizes, we are planning to open the parks. And once all the 3 parks are operational and we are at the optimum level, we will be spending -- we will be having a breakeven point of around INR 1,300 per park per day. That's what we are looking at.

Sure. Second question, Arun, in the opening remarks, you spoke about some of the cost-cutting measures that you have taken. So some of this cost cutting across businesses we are seeing are tactical in nature and not structural. But if you can call out some of the cost measures that we have taken, which will remain with us even when the normalcy comes back. If you can call out some of those.

I think most of our cost cuts are impacted because our biggest costs are people costs. So I think we have a significant number of contract employees who we are not paying salary for right now. We are only paying salary for some critical employees and, of course, people on our payrolls, but everybody has taken a pay cut. So I think they are tactical, but that's what we need to survive, right? So once the business comes back, I think a lot of the costs will come back. But I'm hoping that we will be -- it will be in a phased manner, and we probably can maybe -- I don't know to what extent we can say. We'll have to wait and see.

Sure. But measures like shifting your head office...

There are no plans as a part of it. As Arun sir said, the -- if on a park normal running, the major expenses will be the wages and employee -- staff cost and the operational expenses, repairs and maintenance will be some of the major expenses. And this will -- once the park is operational, we have to see how we'll take it forward, number one. And -- but strategically, yes, there could be a few components on how we approach the operations and the efficiency what we have built up now. And also something like overheads, what we are able to negotiate with the vendors. But these are not sizable because Wonderla philosophy and the DNA has been cost-prudent. So we have always been a very cost-prudent company. And you will not see a big change in that. But yes, there will be some efficiency improvement there.

Great. This is very helpful. Last one, if I may. What is the status of Chennai Park and Odisha water park also? Any development there? Hello?

Ladies and gentlemen, we have lost the line of Mr. Arun. Please give me a moment while we reconnect them. Ladies and gentlemen, the line of Mr. Arun has reconnected.

Yes. Sir, just last one. On Chennai Park, has the tax benefit been extended there or not? And what is the status of the park? And whether we'll need -- how much debt will we need to complete the project in Chennai and even Odisha that we are planning to?

So we have not -- we have to [indiscernible] change in the tax. Obviously, because of COVID, we've not been able to start work there and things like that. So we will be -- we will have to kind of renegotiate that whole thing with the Chennai's Government because we feel like the LBT is an unfair tax as such. So we will definitely be looking into that. Once that clearance is approved, we will start construction. And then at that point, we will decide whether we need debt or -- so that's the way we are looking at it.

And sir, Odisha?

Odisha still is at a very early stage. So I mean, I don't see that being a very big -- we are still awaiting market studies on both the locations, but we've not been able to complete them because of COVID. So whenever we are able to finish our preliminary work, and then we will proceed with that. But Odisha I don't see as a big investment, big-ticket investment, so I don't see -- once we are reasonably sure about the market potential and things like that, we can proceed with that. But Chennai will need to be -- yes, Chennai, we will definitely relook at the tax burden and things like that because that will have an impact on the business of the company. So we will be going back on that to the government.

The next question is from the line of Kaustav from Rare Enterprises.

I had a question on this Chennai land. So just wanted to get a little more into detail. So currently, we have the land. How long does it take for construction to happen? In general, let's say, there were no hindrances in the way, how long does it take to construct a park? And -- yes, you could answer that first.

It will take us about 18 months, 1.5 years.

Okay. So -- and when had you -- you had started construction, right, before the lockdown happened?

No, no, we just finished land development. We still have not got approval for -- to start consumption from the government yet. So whatever delays we are facing right now are all delays from the government.

Okay. But they had agreed to defer that tax by 5 years after your park opening, right? So where are we on that? I mean what makes you think that they won't agree to postpone it even more since they have been already postponing it for you guys...

We have to get it in writing because the government -- there's a huge tax implication. If it doesn't get done, and we invest in the project, it's a huge loss for us. So -- and we are thinking about renegotiating. We -- in our current this thing, we are not happy with the 5-year thing also. We have actually asked for a lifetime waiver of the tax, the LBT, because we feel that the tax is too high. So that negotiation is still going on. So once we have some clarity on that, we will start construction. But until such time, we will not.

Is there a possibility that this land just goes unutilized and we have to sell it in case they don't cooperate? Or do you think there is a low probability of that?

Yes, that's a very low probability, very unlikely because they have invited us to set up the park. So that's the way it has happened. But I mean as all government things and -- and there is no precedent to this also. There is no other company who has done this. So I think we'll have to pave the way for this because they do feel like a large-ticket investment cannot have a LBT tax on the tickets and things like that. So that's something that -- for us to look into again.

Okay. And on the Odisha park, this will be on lease, right?

Yes, the Odisha park is on lease and the land is -- and practically, there is no much land cost or anything. So we just have to look at the market potential and then decide on that. But again, all that has been delayed right now because we are not able to do any of those kind of surveys on our host cities.

Sir, won't you be able to tell me how much of the total fixed assets on your balance sheet is the Chennai land?

INR 109 crores, including the land.

How much is the land?

Land and land improvement is about INR 85 crores -- INR 88 crores.

Overall...

Overall is INR 109 crores.

INR 200 crores?

INR 109 crores. INR 109 crores is the overall Chennai CapEx as of date. Out of INR 109 crores, INR 88.9 crores is on the land and land development.

The next question is from the line of Manoj Dua from Geometric Securities.

My question is a little bit of longer term in nature. After IPO, I read your interview, in which you said the Wonderla model has been proved very viable. Now the strategy is to replicate at many locations at faster pace. So what has been the learning in the last few years in terms of scalability?

I think the biggest learning for us is the tax issue because of -- when we started -- when we went for IPO, the average tax on ticket on a Wonderla park was about 5% to 8%. Now because of GST, it's about 18%, which is very high. And places like Tamil Nadu, they charge more tax, 10% on top of that, 28%, which practically makes a project -- it's -- I don't think it makes it viable. And so that's the main change that has happened and that's what has slowed us -- our growth down. Trying to rectify that, especially in Tamil Nadu, and we are also trying, through the association, to change the GST slab for the entertainment parks itself because we feel that 18% is too high a tax on the ticket on something which is so high in CapEx. So other than that, I think the people's propensity to spend and all those things continue and will -- is continuing to get stronger. The other big change I see is that a lot of people are more digitally savvy now. So our marketing -- or we need to be more digitally savvy to sell, to retain loyal customers and all those things. So that is the other area I think that needs a lot of work for us.