Mumbai based Adlabs Entertainment Ltd has been promoted by the erstwhile promoters of Adlabs Cinemas. The company runs India’s first theme park, Imagica, which is spread across 132 acres and has over two dozen rides targeting visitors of all age groups, with an estimated daily capacity of over 15,000 guests. It also operates a water park, Imagica, which has 14 water slides and wave pools. Imagica also has a snow park, which is considered to be one of India’s largest with 100% natural snow. Imagica is one of the leading listed holiday destinations in the country, with excellent brand recall. Since the opening of the theme park in April 2013, more than 6 million people have visited it. Adlabs Entertainment plans to develop an integrated township across 170 acres of surplus land, for which it has already received the necessary government approvals. High cost debt is a concern for the company’s balance sheet, but the management is focused on reducing debt by monetising non-core assets.
Even though the EBITDA grew 53% from Rs 39.8 crore in FY16 to Rs 60.7 crore in FY17, it could not achieve the targeted cash break. There are many positives for the company, like strategic location, global scale, international quality, huge entry barriers, world class design and safety. But the management expects the company to break even and start generating free cash flows from Q4FY19. 100% foreign direct investment in theme parks is a big boost for players like Adlabs Entertainment Ltd. The company’s hotel assets were monetised successfully in November 2017, reinforcing the ability of the management to convince and attract investors. Many analysts and experts tracking the entertainment sector expect steady and growing footfalls in the future for the company, with projected revenue and EBITDA to grow at 106% and 122% CAGR, respectively from FY19 to FY21.
The Adlabs stock currently trades at attractive valuations, considering the market cap as compared to the expected FY18 sales of around Rs 275 crore. The stock can be bought at the current market price of Rs 53 for a 40% price appreciation in a one-year time horizon. Portfolio investors can accumulate the Adlabs stock at every decline for multi-bagger returns in the long-term.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.