Stock Pick From Miscellaneous Sector

·         Continued focus on enhancing footfalls to improve profitability

·         Focus on diversifying its revenue stream

·         An attractive valuation compared to peers after correction in the stock

The Indian weekend holiday industry is likely to see a spurt in growth with the turn of economic cycle as discretionary spending grows with rising average disposable income according to World Travel & Tourism Council. Amusement parks are currently one of the most exciting sectors in India. According to Euromonitor estimates, annual revenues from India's amusement park business currently stands at around Rs 2000 crore which is projected to grow at four per cent to touch Rs 4000 crore by 2020. Growing population of young Indians, evolving lifestyle and a greater willingness to spend on leisure have together given a boost to the amusement industry. Adlabs Entertainment with its vast experience and expertise is expected to lead the way forward.

Adlabs Entertainment owns and operates Imagica Theme Park and Aquamagica Water Park. Adlabs has created a one stop entertainment destination with a theme park, water park and a family hotel under the name Novotel Imagica, which is operated by the Accor Hotels. Currently, the hotel operates with 116 rooms and subsequently will add another 171 rooms by the first quarter of FY17. In Imagica, the company owns and operates an array of food and beverage outlets and retail merchandise offerings. Adlabs plans to launch a snow park adjacent to Imagica in January 2016. Going ahead, the company plans to add three to four rides and attractions over the next five years.

The most important performance indicator to gauge the success of theme park is the footfall. Imagica, is expected to get two million visitors this year. Adlabs is targeting to significantly enhance its footfalls, which will help it improve the profitability in the coming years. The company has also been trying to project Imagica as an ideal destination for weddings and corporate events. The company is developing the theme park as an integrated holiday destination. The company derives 75 per cent of the revenue from the sale of tickets, close to 18 per cent from food & beverages and the rest from merchandising. The company in future, aims to utilise the remaining 170 acres of 302 acres to develop into a township project.

Financially, the company has seen an improvement in its sales figure over the period of time due to increase in footfalls. Company’s revenues increased by 4 per cent in Q2FY16 from Rs 35.71 crore to Rs 37.21 crore. Operationally the company has been improving. The company has not yet turned profitable but it is expected to take few more quarters to show profits, given the capital-intensive nature of its business with long gestation periods.

On the valuation front, the company appears to be comparatively favorable as compared with its peers listed in India. Adlabs Entertainment is trading at Price to Book Value of 1.69x, which is lower compared to peer like Wonderla Holidays (5.76x), which are trading at a substantial valuation. Given the strong business model and the huge untapped demand potential of the business the company is a great ‘BUY’ at current levels.