MANAGEMENT DISCUSSION AND ANALYSIS Indian Economy The Indian Economy went through an extremely challenging phase in FY2013 and FY2014, as the country struggled with a slowdown in the economy, double-digit inflation and an unsupportive external environment. The already difficult situation was made worse as the Indian economy was rendered vulnerable by the widening twin deficits - current account deficit and fiscal deficit and dwindling foreign exchange reserves ($47 billion in March 2014). However, the Indian Economy turned a corner in 2014-15 with revival of growth, as India grew by 7.4% in FY2015 as compared to 5.1% in FY2013 and 6.9% in FY2014. FY2015 also witnessed a change in political leadership with the biggest landslide margin in three decades, heralding a new era for Asia's third-biggest economy. Source: IMF The recently concluded financial year began with a lot of promise, with expectations that the newly elected government would take concrete steps to reboot the economy, stamp out corruption and lure foreign investment by streamlining the country's complex regulatory regime. It has ended up by being a mixed-bag as the new Government's reform ambitions are far from realised as it approaches second anniversary in office. But there were significant developments on the plus side, as India continued its growth charge as GDP growth strengthened to 7.6% in FY2016 versus 7.4% in FY2015. Inflation further softened to ~5.0% in FY2016 (4.83% in March-16) from 6.8% in FY2015 and 9.5% in FY2014. The moderation in inflation was driven by falling commodity prices. Slumping oil prices and fiscal discipline followed by the Indian Government has led to shoring up of fiscal and current account deficits. One of the most important steps taken by the Modi government is opening up India for international business, including opening of sectors such as railways and defence which have helped draw record foreign direct investment (FDI) in 2015. Those inflows have helped lift foreign exchange reserves by $47 billion since the end of March 2014 to $350 billion at the end of December. However, on the downside FY2016 witnessed slow growth in the global economy, a second successive drought year and an inability of the government to pass through important reforms such as GST and the Land Bill. These negative factors led to decline in exports. In fact, Indian exports have been contracting for 15 consecutive months. Failed monsoons have compounded stress in the rural economy leading to lower consumption growth and rising NPA's for financiers in rural areas. The outlook for next year FY2017 is much more encouraging as per IMF data, with economic growth expected to sustain above 7.5% levels. This would make India the fastest growing major economy in 2016-17 ahead of China, at a time when global growth is facing increasing downside risks placing India in a sweet spot in the global economic landscape. Industry Overview: Global Parks Industry: An Overview The Attendance at amusement parks across the globe has shown steady improvement after a prolonged slowdown over the past few years led by weak economic growth in the west. The global amusement park industry is estimated at $25 billion. There are more than 800 amusement parks globally with an annual attendance of over 700 million visitors. USA by itself accounts for around 50°% of the parks and annual visitors. Europe has overall close to 330 amusement parks with the annual visitor count close to 165 million people. The amusement park Industry in both USA and Europe is at its peak level, however, Asia is still a largely underserved region and continues to see rapid growth. Asian region accounts for 10 of the top 25 amusement parks worldwide, and the inauguration of Disney Shanghai in China in 2015 is set to enhance the prospects of the park industry in Asia. Relatively more developed markets like Japan and South Korea are close to maturity and offer very little room for further development. However, countries like India, Thailand, Malaysia, Singapore and Indonesia have great potential for growth. Comparing the region wise distribution of global attendance at parks, Asia Pacific now commands a 42% of the world's major attractions in 2015, up from 35% in 2006. Indian Amusement Park Industry The origin of the Indian Amusement park can be traced back to 1984 when Appu Ghar, sbrad over 155 acres of land, was inaugurated in New Delhi. However, The Indian amusement park industry is still largely untapped and slowly growing asseen by the robust development year on year. India has a low park-to-population ratio, with only 150 parks for 1.21 billion people. The USA has 400 amusement parks for a population of 319 million, indicating the growth potential in amusement parks in India. Size of the Indian Amusement Parks Industry The amusement park sector in India is valued at USD 400 million as compared to the global amusement park segment which is worth USD 25 billion. The ~150 amusement parks in India account for more than 50 million footfalls annually. Most Indian parks have relatively substandard infrastructure in comparison to its global peers. However, the Indian amusement-park segment is going through a shift, with many new parks being developed throughout the country. New parks, new rides and attractions at existing parks are expected to revitalize the user experience at amusement parks across the country in the next few years. Competitive landscape of the Indian Amusement Park Industry Large parks typically require an investment of more than Rs. 0.7 billion and are sbrad across an area of 40 acres. Majorly most of the parks in India are small in size, catering to local population. Only 10-15% of parks in India are categorized as large parks, serving close to 15-20% of footfalls. With the rise in discretionary income levels and lack of options for outstation weekend travel, there is a significant opportunity for increase in footfalls and brsence of large parks. Ticket Prices: A majority of India's amusement parks are pricing the tickets in line with the international peers by offering a single pay ticket. Ticket prices at leading parks range between Rs. 600 and Rs. 1,500 per adult, and most parks usually offer 15-30% discount to children. Revenue Streams: Large share of the revenues at amusement parks in India comes from ticket sales (7580%). The proportion of revenue contribution from the sale of food and beverages (F&B), merchandise and accommodation is far smaller. However, the observations of global parks suggest that approx. 60% of the revenues come from entry fees and the remaining contribution comes from F&B, merchandise, accommodation and others. There is a scope for higher share of revenue contribution to come from non-ticketing revenue in India considering the inclination of consumers towards higher discretionary spends toward F&B and merchandise. Opportunities & Threats Strong Growth Potential Future prospects for the amusement park industry are very positive, with ~ 20% CAGR expected over the next few years. Favourable demographics in India offers a huge scope for building a strong base for the amusement park industry going forward. Integrated Parks Development of Integrated Parks, which includes parks combined with resort, F&B centres, retail centres and merchandise offering within the same establishment, are currently in flavour. The concept of integrated park is gaining prominence in India. The concept is being widely accepted by people backed by higher disposable income and better lifestyle which opens up the opportunity for more in-park spending, increasing the non-ticketing revenue segment. An integrated park helps in enhancing customer experience, growing brand equity and establishing a loyal customer base. The non-ticketing revenue segment constitutes only ~21% of Wonderla's net revenue, as compared with 40% contribution in the case of international amusement parks. This gap brsents a significant potential to grow the top line through this segment. Positioning of Parks as a Holiday Destination Positioning of these Amusement Parks as a holiday destination, rather than as a "one-day outing", encourages longer stay and generates significant revenue from the hotel/resort. Wonderla has already developed a three-star 84-room resortattached to its Bangalore park with the aim of creating India's first holiday destination park where families can come and relax, soak in the atmosphere, explore the park and city at a leisurely pace and gain a truly complete and wholesome entertainment experience. As the Indian economy grows and the net spend on entertainment and leisure increases, industry models from U.S. and Europe will be replicated in India. Parks will market themselves as a holiday destination and the revenue mix will also align itself with international peers. Accommodation-related revenues contribute a meagre ~5% to Wonderla's top line, compared with 35-37% contribution in the revenue mix of a typical International Amusement Park. This displays the considerable value which can be potentially tapped by positioning of Parks as a holiday destination. (Source: Industry & CARE Research). Rise in Tourism The Indian tourism and hospitality industry has emerged as one of the key drivers of growth among the services sector in India. The tourism and hospitality sector's direct contribution to GDP is USD42.8 billion in 2015. India's travel and tourism industry has huge growth potential. The direct contribution of travel and tourism to GDP is expected to grow 7.2 per cent per annum from 2015 - 25 to USD85.6 billion. Also, foreign arrivals in India is rising rapidly and over 7.1 million foreign tourists arrived in 2015 (January to November). By 2025, foreign tourist arrivals in India is expected to reach 15.3 million, according to the World Tourism Organisation. Favourable Government Policies The Indian Government understands the potential of amusement parks as a tourist destination offering a "complete family entertainment experience." As a result, it is keen on development of quality theme parks that have the capability to drive tourist inflow and earn more business. Increased Discretionary Spending The share of discretionary spending in India (rent, fuel & power, furniture, medical care, transport & communication, recreation & education) is seen increasing from 59% in 2010 to 67% by 2020. Spending on education, recreation and leisure activities is also expected to rise significantly. Leisure and Education spending is projected to quadruple from $ 71 billion in 2010 to $ 296 billion in 2020 -a CAGR of 42.9%. Threats/Risks and Concerns Highly Capital Intensive & Long-Gestation Development of large amusement parks typically require huge investment involving land acquisition, establishing of infrastructure and rides, and regular investment in creation of new rides. Due to its highly capital intensive nature, achieving the required footfall becomes highly critical, especially in newly developed parks, in order to break-even. However, both the existing parks of Wonderla at Bangalore and Kochi are generating sufficient revenue and have witnessed steady growth in footfalls over the years. The much anticipated Hyderabad park was launched in April 2016 and the overall capital expenditure for its development is around Rs. 250 Crores. Brand Dilution Maintaining brand equity is essential to expanding the business. Continuous investment is a must in branding and advertising efforts to help the brand brserve itself and evolve. Dilution of the brand can adversely impact our ability to compete and increase the number of visitors. Our Company has invested significantly in developing the brand and will continue to invest in marketing and advertising programs to communicate and interact effectively with its target audience in order to promote the brand. Maintaining Proper Safety Standards Ensuring customer safety is of utmost importance to the management of these Amusement Parks. Failure to ensure safety can damage the goodwill and trust substantially and expose the Company to possible financial liabilities and legal proceedings, resulting in adverse publicity. Our Company follows the "safety first" criteria for visitors. We have robust internal mechanism for proper maintenance of all rides and attractions, well trained personnel to take charge of emergency situations, conducting ride inspections by third party inspectors toensure an exciting, thrilling and safe experience for visitors. Our Company is one of the few amusement parks in India to implement OHSAS 18001:2007 safety standards. Maintaining cleanliness & hygiene Maintaining cleanliness and hygienic conditions at the Parks is a must, since unhygienic conditions can leave a bad imbrssion in the minds of guests. Considering that amusement parks involve congregation of people, outbreak of any epidemic or contagious diseases in the city may actually restrict people from visiting to public places, including amusement parks and can impact footfalls. Our Company takes adequate measures to ensure proper cleanliness and hygiene at the park. This is being done with extensive water filtering facilities, recycling systems for each pool and a quality control laboratory to carry out quality checks on samples of water collected at regular intervals. Competition & Concentrated Revenue Stream Tier 1 cities are witnessing a rise in the development of amusement parks. Also, with the Indian Amusement Park industry being in a nascent stage, there is a high degree of competition from other kinds of entertainment services and tourist attractions. A large portion of the revenue is dependent on income generated from sale of entry tickets. Hence, any competition which forces the company to reduce ticket prices will have an adverse impact on its financials. There are currently no other large parks operational in Bangalore and Kochi. Innovative rides and attractions have ensured that Wonderla continues to attract visitors and stay ahead of the competition. Inability to Identify Locations and Large Land Parcels to open Amusement Parks Future growth of our company depends on opening of amusement parks in different locations. Inability to identify the requisite location and get the required large land parcel to open and operate amusement parks on commercially viable terms can adversely affect our business model. SEGMENT - WISE OR PRODUCT-WISE PERFORMANCE During the fiscal year the turnover from amusement park segment was around Rs. 17,148.91 Lakhs as against Rs. 15,504.73 Lakhs during brvious fiscal registering growth of around 10.6%. The turnover from Resort segment stood at around Rs. 1,062.84 Lakhs as against Rs. 996.77 Lakhs in FY 2014-15 registering growth of around 6.6%. Outlook of the Indian Amusement Park Industry The Indian amusement park segment is forecasted to grow at 20% CAGR over the next five years to Rs. ~60 billion, led by new park development and favourable demographics. Investment of Rs. ~"170 billion has been planned for close to 12 major projects over the next 3-4 years. In addition to the existing parks, these new parks will also boost the footfall growth and is expected to grow 10-15% to 75million-80million in the next couple of years. The urban population of India is expected to rise from 31% of the population in 2010 to 35% by 2020, which will increase the demand for consumer services and discretionary spending. India has fast growing middle income segment, with higher disposable incomes and willingness to spend on recreation. Close to 40% of India's population fall under the 20-25 years' age bracket, suggesting an immense base of potential customers for amusement parks. A rise in the number of nuclear families and stressful working conditions has transformed the idea of a long family vacation to quick weekend getaways. Growth Drivers Rise in foreign tourist arrivals Considering the number of foreign tourists visiting India is expected to rise substantially from 7.7 million in 2014 to 15 million in 2020, it is a big positive for the amusement park Industry and should translate into higher footfalls. Demographic edge It is expected that by 2020, the median age of an individual would be around 29 years with 64 percent working population, which offers a huge potential for amuse park Industry. Growing urbanisation Level of urbanization is expected to increase from 27.81% in 2001 to 40% by 2030, increasing the accessibility of the amusement parks. Higher GDP The direct contribution of travel and tourism to GDP was around Rs. 2,222 billion in 2013, the total contribution is estimated at Rs. 7,416 billion in the current year. Increasing income levels India's per capital GDP (constant price) has gone up from Rs. 64,316 in 2011-12 to INR 87,748 in 2014-15, a huge boost to the consumption story in the country. Increased spending on tourism Capital investment in the travel and tourism sector is expected to amount to INR 5,459 billion by 2023. COMPETITIVE ADVANTAGES Strong Operational Expertise & Brand Equity Our promoters and senior management have over 15 years of experience and expertise in the amusement park business. We opened our first park in Kochi in 2000, second one in 2005 at Bangalore and the third one in Hyderabad in April 2016. We successfully created and built the brand "Wonderla", which is trusted, reputed and popular. We have been honoured with several industry awards including the 'Best Tourism Destination' and the 'Highest Number and Variety of Innovative Rides'. Ample Land Availability for further expansion of Existing Parks Our Company has large land parcels at Bangalore (81.75 acres), Kochi (93.17 acres) and Hyderabad (49.57 acres) within the proximity of the city. It has 39 acres, 64 acres and 23 acres land for future expansion at Bangalore, Kochi and Hyderabad respectively. Hence, the existing parks can be further expanded by developing peripheral infrastructure to create integrated parks, enhance visitor experience and build more revenue streams. In-house Design & Ride Manufacturing Capabilities Our Company has strong in-house design capabilities and ride manufacturing facilities at Kochi. This enables us ensure cost-effectiveness, improve maintenance efficiency of rides and enable customisation and modification of new rides purchased. In-house manufacturing leads to cost saving of up to ~30% as compared to rides purchased from a vendor. Our typical capex for a park is Rs. 250 - 300 crores, including land cost which is lower compared to industry standards. The Company has inaugurated two rides -RECOIL (India's first ever reverse looping Roller Coaster) and KORNETO (a thrilling water slide attraction). RECOIL is a high tech roller coaster imported from Netherlands, and has two track ramps that go up to 40 meters. The train climbs one ramp and accelerates to 80kmph in 1 second, before encountering a 'cobra roll' and a 'loop' in the tracks, climbing the second ramp, again to a 40 m height, and then doing it all over all again, only this time, it is Backwards! KORNETO is a ride in which the riders accelerate down a steep 1.5m diameter tunnel at a speed of 35kmph into the mouth of a large 12m diameter funnel. The momentum allows the riders travel high up the opposing wall of the funnel and experience momentary weightlessness as they oscillate back and forth in the narrowing funnel and then exit into a splash at the base. Service Responsibility Safety & Hygiene : Safety and hygiene of visitors are given prime importance at Wonderla. Stringent adherence to international safety norms at Wonderla provides safe environment for visitors. To ensure safety, safety checks are conducted on all rides on a daily basis. The park is provided with required number of life guards and security personnel. Fire extinguishers, luggage security check points, CCTV surveillance, emergency warning systems & first aid facilities are deployed inside our parks in Kochi, Bangalore and Hyderabad. While consumption of alcohol is prohibited, intoxicated persons are not allowed in the parks. Further taking customer feedback about their experience and suggestion is an important aspect at Wonderla for improving the facilities. Our parks have OHSAS 18001 certificate for safety. Energy, Water & Environment When it comes to water, Wonderla uses Reverse Osmosis Treatment Technology for treating water in pools. Reverse Osmosis is the same technology used by leading packaged drinking water manufacturers. The park has a full fledged water qualitycontrol laboratory which carries out 90 rigorous tests on a regular basis. Our parks are also equipped with rain water harvesting pits. Further to reduce the emissions, as much as possible, company encourages visitors to use state transport buses to reach the Bangalore park. A discount of 15% is offered to each visitor who travel by state transport bus to the park. Wonderla has instituted 'Wonderla Green Awards' at Bangalore and Kochi parks rewarding the schools which adopt innovative and combrhensive steps to conserve nature and natural resources. Our parks have ISO14001 certificate for eco-friendliness Social Responsibility As part of the CSR initiatives Wonderla Holidays Limited is involved in numerous community development programs. Through its CSR initiatives the company intends to uplift various beneficiaries covered under its programs. As part of CSR initiatives, Company regularly makes donations to NGOs working towards treatment of cancer patients, trusts for disabled people and children's homes. Further, the Company has initiated a project titled "Education - Enriching Lives" and as part of the said initiative, books, school bags, study materials and stationery were distributed to over 723 students who are studying in Government School, Bannikuppe Gram Panchayat, Bangalore, Karnataka and 703 students in Raviryala Government School, Raviryala Village, Hyderabad, Telangana for the academic year 2015-16. The Company is sponsoring education of 950 under privileged children in Tholur Panchayat of Thrissur District and Kunnathunadu Panchayat of Ernakulam District. |