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Review By Emkay Global on March 9, 2015

Price Band: Rs 221 - 230
Issue Opens: 10th March, 2015
Issue Closes: 12th March, 2015
Issue size: 20.3 mn Shares
Issue Size: Rs 4.49 - 4.68 bn.
No. of Shares Pre-issue: 61.57 mn
No. of shares Post issue: 79.90 mn
Post issue market cap: 17.7 – 18.4 bn

Issue Structure:

QIBs: 75%
Non-Institutional Category: 15%
Retail: 10%

Objects of the Issue

The main objective of the IPO is partially repay/ prepay the Consortium loan. Other stated objective is utilize the balance proceeds for general corporate purposes such as strategic initiatives and joint ventures.

About The Issue

1. Adlabs IPO size is of Rs 4.7bn, with a primary objective to retire portion of the consortium loan and to de-leverage its balance sheet. Post IPO the promoters holding will decrease from 77% to 57%

2. Imagica, Aquamagica and the hotel are situated in an enviable location between the cities of Mumbai and Pune. It is set to become a multi-day destination by not only providing visitors with Imagica/Aquamagica, but also by activating the hotel and near-by locations such as Lonavala and Khandala

3. Key concerns include risk of accidents that have a detrimental effect on brand value, competition from new theme parks in the region and outbreak of contagious diseases

4. While it is yet to turn profitable Adlabs demands a discount on EV/CE basis when compared to domestic and global peers. We assign a Subscribe rating to the IPO


Adlabs Entertainment Limited (Adlabs) is promoted by Mr Manmohan Shetty, who has more than 30 years of experience in Indian media and entertainment industry. He is the former promoter of Adlabs Films Limited, one of India’s largest entertainment companies and was instrumental in introducing multiplexes in India.

Adlabs owns and operates two theme parks (Adlabs Mumbai) on the Mumbai-Pune expressway, namely, Imagica Theme Park (Imagica) and Aquamagica Water Nation (Aquamagica). The company also owns a hotel managed by Novotel which is expected to start operations in March, 2015.

The concept of Imagica and Aquamagica is based on providing a theme park of international standards with an Indian flavour. Although India has various amusement/water parks, it has so far lacked a theme park on the lines of Universal Studios or Disney Land. Inspired by the success of these theme parks, especially the Universal Studios in Singapore, the promoters sort to source all the equipment for the park as well as the core team from abroad to set up a theme park in India.

Adlabs owns a land bank of 300 acres in Khalapur, about 74km from Mumbai and 90km from Pune on the Mumbai Pune Expressway. Imagica, Aquamagica and the hotel currently occupy about 110 acres, and Adlabs has an additional 20 acres for any extension to the theme park it might want to do at a later date. The company intends to develop a township on the remaining ~170 acres of land.
Apart from the promoters, ICICI ventures and Jacob Ballas have invested Rs 1.44bn and Rs 500mn respectively. The capital structure currently consists of Rs 11bn of debt and Rs 5.5bn of equity. The primary objective of the IPO is to retire a portion of the debt and to de-leverage the balance sheet to afford the company into looking at further investments in the theme park space.

Adlabs IPO will be an issuance of 20.33mn shares which includes an OFS by the promoters of 2mn shares with a price range of Rs 221- Rs 230 per share. On the upper end of the range the issue size is to the tune of Rs 4.7bn. Post issuance, the promoter holding in the company will decrease from 77.02% to 56.85%. Retail investors have been offered a discount of Rs 12 to the IPO price.

Investment Rationale

Quasi play on demographics and consumption With India’s population becoming more urban with higher disposable income, there is a strong case for theme parks being a quasi-play on demographics and consumption. World Bank studies indicate that the urban population of India at ~32% of the total population. The urban population share is expected to grow to 40% by 2031 thereby increasing the target demographic for theme parks.

In the past decade urban India has moved towards nuclear families with two earning members per family. This has had a positive effect on the per capita income in India’s tier I and tier II cities
and therefore an increase in discretionary spending. The additional spending power of urban India along with a general growth in urban population sets a good launch pad for a consumption driven play such as a theme park.

Enviable location

Located between the cities of Mumbai and Pune, Imagica and Aquamagica have positioned themselves in a very enviable location. The catchment size from just these two cities is to the tune of ~25mn. The extended catchment area also includes Gujarat and other parts of Maharashtra, and the company estimates the catchment of approximately 35mn. Taking into account only the Socio-economic classes of A and B (high socio-economic class), the theme park has an addressable market of ~16mn. With an activation rate of 20%, the company estimates an annual footfall of 3mn. The size the addressable market allows the park to maintain the same rides for nearly 4-5 years to ensure “freshness” in the visitor experience.

Unique proposition

Imagica has the first mover’s advantage in the space of theme park. It has been classified as a large format theme park comparable to the likes of Disney World and Universal Studios in Singapore. Due to this value proposition, Imagica is at the liberty to price its ticket at 2.5x to other amusement parks in the region. Imagica became fully operational in November 2013 and Aquamagica opened its doors in October 2014. The 287 key hotel (operations to start in March 2015) will be managed by Novotel and will provide amenities such as banquet halls, conference rooms, speciality restaurants etc.

Seasonality and footfall

The two parks together have a combined daily capacity of 20,000 visitors. Imagica is an all season theme park with over 70% rides and queuing areas covered allowing the park to be open even during the monsoon months. The two parks provide a natural hedge with regard to weather conditions (Aquamagica in the summer/monsoon months and Imagica during the rest of the year) albeit with a smaller capacity in Aquamagica.

The company possesses an initial capital of Rs 16.5bn, largely funded by Rs 11bn of debt and Rs 5.5bn of equity. Two Private equity firms, namely ICICI Ventures and NYLIM Jacob Ballas, have invested Rs 1.44bn and Rs 500mn respectively. Of the total Rs 16.5bn, Rs 13bn has been invested in the theme park (Imagica), Rs 2bn in the hotel and the remaining Rs 1.5bn in the water park (Aquamagica).

As of H1FY15, the company’s standalone revenues stood at Rs 722mn with an EBITDA of Rs 34mn. It reported a loss during H1FY15 of Rs 535mn. The standalone gross debt as of September 2014 stood at Rs 12.6bn with a cash of Rs 191mn. However, these numbers do not reflect the revenues from the now fully operational Aquamagica and the soon to be completed Hotel, which would substantially improve the company’s financial performance.

The initial payback period is estimated to be 5-7 years (which is a large entry barrier for competition). The current ARPUs stand at Rs 2000 with tickets contributing Rs 1500, food sales contributing Rs 350 and the balance from merchandise. Adlabs Mumbai has had a footfall of ~1.7mn (as of Jan 2015) with a total annual capacity of 7mn and an expected utilisation rate of ~60% (peak capacity of Imagica is 15,000 visitors a day and Aquamagica is 5,000 visitors a day).

Key concerns

Adverse publicity due to accidents
A key cause of concern for any amusement park/theme park is the risk of accidents on any of the rides. This has a detrimental effect on the brand value of the park and could cause a steep fall in the number of visitors. Imagica has already had an incident in the past when a rollercoaster ride “Bandits of Robin Hood” tipped to a side injuring two visitors. Though the company believes the accident was caused due to a manufacturing defect and has issued a legal notice to the vendor, the media coverage on the incident did dent the image of the theme park.

Competition from theme parks in western India

Though the business of building and operating a theme park has high entry barriers (primarily due to gestation period, payback period and a knowledge base that is currently unavailable in India), any competition from a new theme park in the region will cause a decline in footfall. Until recently Atlanta Limited had plans of setting up a 3,200 acre theme park near Surat (bigger than Disneyland in California). Though the project later got scrapped, it reflects the untapped market potential of a large format theme parks in the country.

Outbreak of diseases and service tax

Another key cause for concern is the threat of contagious disease such as the recent H1N1 outbreak can cause a steep decline in footfalls. The Union Budget 2015-2016 has brought amusement and theme parks under the ambit of service tax. We expect Adlabs to pass on the costs thereby increasing the ticket price.

Conclusion / Investment Strategy


Adlabs is looking at valuations of Rs 4.7bn on the upper-end of the price band. On an annualised H1FY15 financials, the stock demands an EV/Sales of 18.1x and EV/EBITDA of 382.6x. However we are of the opinion that EV/CE is a better multiple to judge the valuation since the industry is highly capital intensive and Adlabs has many underutilised assets (namely Hotel and Aquamagica) that do not reflect in the financials. The company demands an EV/CE of 1.7x.

The closest and only competitor in the listed space in India is Wonderla which trades, on an annualized H1FY15, at 6.9x EV/Sales, 13.7x EV/EBITDA and 3.8x EV/CE. Comparable companies in a more mature market such as The United States trade at a similar range of EV/CE multiples; Cedar Fair Entertainment commands a CY14 EV/CE of 2.8x while Six Flags trades at CY14 EV/CE of 4.8x.

Theme parks have high operating leverage and we believe that Adlabs stands to gain from integrated package of Imagica, Aquamagica and the hotel. Once all three properties are fully functional the increased footfall is likely to cause an expansion in the ROCEs. At an EV/CE of 1.7x we note that Adlabs demands a significant discount to its peers, both domestic and global. We assign a Subscribe rating to the stock.

Reviewer recommends Subscribing to the issue.

Review By Emkay Global on March 9, 2015

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