Adlabs: High risk bet for listing gains, says Ajcon Global

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Adlabs: High risk bet for listing gains, says Ajcon Global

Ajcon Global's research report on Adlabs Entertainment IPO 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). Imagica is an all season theme park with over 70% rides and queuing areas covered allowing the park to be open even du ring the monsoon months. The theme park does 40% of its business in the first half of the year and the remaining 60% in the second half indicating a seasonality factor in the business. The Company‟s objective is to take advantage of cross selling opportunities offered by these two different entertainment experiences. It intends to position Aquamagica as a destination for young party-goers and host Bollywood and electronic dance music events where popular Indian and international artists and DJs perform at its„ #gowiththeflow‟ weekend events. For the period commencing on September 25, 2014, when some of the rides and attractions were open to the public, up to December 31, 2014, the total number of guests hosted at its water park was 90,940. AEL has also entered into a memorandum of understanding with ACME Entertainment, which will conceptualize, construct, install, erect and run on a build, own, operate and transfer basis, a snow park at Adlabs Mumbai and share a portion of ticket sales for the snow park with AEL. With addition of the water park, the soon-to-be-launched hotel and the snow park, the management believes it will be able to enhance guest experience at Adlabs Mumbai and position Adlabs Mumbai as a wholesome entertainment destination. "At the upper band of the issue price, AEL is valued at 2.10 x Post issue Book Value and 3.36x (pre IPO). With due consideration to factors like a) play on India‟s consumption story, b)uniquely positioned to capitalize on the increasing propensity of Indians to spend on entertainment, c) strategically located in an attractive catchment area, d) competitive advantage through entry barriers (the initial payback period is estimated to be 5-7 years (which is a large entry barrier), e) enjoys high operating leverage and underutilized assets like Hotel and Aquamagica would contribute significantly in future financials and improve return ratios, f) debt repayment post IPO would improve capital structure, g) pre IPO placement to ICICI Venture and NYLIM Jacob Ballas instills confidence on the Business Model and Promoters quality, we recommend “High risk investors can subscribe for listing gains", says Ajcon Global research report.