Professional Documents
Culture Documents
This post is in a way a follow-up of our promise made in the recent post
on Cera 4, where we mentioned we would discuss interesting fanatic
traits as we observe them in concalls that we participate.
"It is interesting to think how a majority of the things that we see today
and that dominate are the result of positive feedback loops or virtuous
cycles over a long period of time. The domination of our species, the
rise of agriculture, the prevalence of capitalism, the rise and
domination of science – all are a result of positive feedback loops. A
positive feedback loop or mechanism is where the output enhances
the original stimulus, which further enhances output, which further
enhances stimulus and so on.
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flywheel."
Before we dive into the conference call dissection, let us first discuss the
broad similarities between Wonderla and market driving firms. We first
wrote about market driving firms here 2 . Even though it was written in
2000, the paper contains a number of important insights which might
help students of business. As we mentioned in the article,
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Wonderla Holidays - Pattern Recognition and Concall Analysis (2Q2020) - Members Forum - Intelligent Fanatics 03/06/20, 12:30 PM
The authors observed that market driving firms succeeded due to radical
innovation on two dimensions –i) A discontinuous leap in value
proposition for the customer; ii) Implementation of a unique business
system
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An amusement park requires large land parcels. But India is the 2nd most
populous country in the world with the 7th largest land mass. So given
the population density land parcels near cities are pricey, not least
because of the rapid urbanization happening.
An amusement park requires large capital for land and for the rides.
The price point of the service has to be low to get enough volumes to
make the whole thing viable.
The first three points alone have the potential to make the ticket and
ancillary products’ prices high enough so that the parks would not
succeed. How did Wonderla manage? It managed due to Kochouseph
Chittilappilly and his team’s brilliance. As mentioned in our book -
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And thus, they came out with an offering which had a considerable value
proposition to the customer but at the same time created a hard-to-
replicate business system. There is considerable institutional knowledge
or culture (low cost amusement park that entertains audience) that is
hard to develop.
Why is all this important? Well, coming back to our initial thought process
of win-win relationships being the ultimate autocatalysis reaction, with its
strategy -
Wonderla pays full corporate taxes and given its service intensive
business, it generates a lot of direct employment (this does not
include the ancillary employment it generates). It also provides
discounts for people who come by public transport, has extensive
rainwater harvesting and uses solar power. This keeps the
government and the society happy.
The returns on capital on the mature parks are well above 25%-30%.
Over a long time, that should keep the shareholders happy.
So how does all this help in autocatalysis reaction? For that, we (finally)
turn to the recent conference call.
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Wonderla Holidays - Pattern Recognition and Concall Analysis (2Q2020) - Members Forum - Intelligent Fanatics 03/06/20, 12:30 PM
Odisha was not in our radar initially. There are no amusement park
worth mention in Odisha. There are couple of small water parks. They
are badly maintained. In our analysis we find that, being an asset-light
model and the ticket prices lesser than what we have in our other
parks, it will definitely be financially viable and we will have the same
payback period like other parks.
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Wonderla Holidays - Pattern Recognition and Concall Analysis (2Q2020) - Members Forum - Intelligent Fanatics 03/06/20, 12:30 PM
There are a few things that jump out in the excerpt above:
Optionality: Odisha was initially not even in the radar of Wonderla to set
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In case of Bengaluru and Kochi parks the payback period was about 7
to 9 years because the investment levels were also under control and
in case of Hyderabad park, we have invested about Rs.272 Crores, so
the payback period is going to be about 12 years. ROCE excluding the
reevaluation of land is about 6% to 7% now. If you only take Kochi or a
Bengaluru park, our ROCE is much higher. In case of Chennai park,
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Wonderla Holidays - Pattern Recognition and Concall Analysis (2Q2020) - Members Forum - Intelligent Fanatics 03/06/20, 12:30 PM
where the investment is going to be about Rs.350 Crores plus and the
major part is on the land, the payback period could be beyond 12
years. We are expecting ROCE on the parks to start with about 4% to
7% and go up to 10% to 12%. But at the same time, in the Odisha
model where the investment in land is minimal, we will pass on the
benefit to the people by reducing the ticket prices. But we expect
higher footfall on account of the affordable ticker prices. "
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“See, my returns are not that attractive, and I run my business quite
well. There is no incentive for you to come into my business in a
geography where I am present or for that matter anywhere in India. On
revalued land, the returns are not great.”
Sources:
Wonderla Concalls, Intelligent Fanatics Website
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