Adlabs` valuation expensive; avoid, says Angel Broking

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Adlabs Entertainment IPO Note by Angel Broking

Adlabs Entertainment (AEL) is promoted by Manmohan Shetty and Thrill Park Ltd. AEL owns and operates Imagica – The Theme Park, which is one of the upcoming theme parks in India. It features a diverse variety of rides and attractions of international standards, food and beverages (F&B) outlets, and retail and merchandise shops, designed to appeal to a broad demography of the Indian populace. Adlabs Mumbai includes Aquamagica, a water park, which became fully operational on October 1, 2014, and a family hotel - Novotel Imagica Khopoli, the first phase of which is expected to be completed by March 2015. Imagica – The Theme Park is a one-of-a-kind offering in India and currently has 25 rides and attractions, which are spread over six theme-based zones. AEL proposes 287 key hotels; the first one - Novotel Imagica Khopoli is to comprise of 116 rooms.

Outlook and Valuation: Given that the company is in its initial stage of business operations, the operating costs are high and utilization level is low. Also, currently the company has a sizable debt of Rs 1,256cr on its balance sheet. The debt levels are likely to remain high even after IPO proceeds are utilized to pare debt. Lower utilization coupled with higher interest and depreciation is likely to keep the bottom-line in the red in the near-term. For FY2014, Adlabs Imagica reported a top-line of Rs 103.7cr and a loss of Rs 52.4cr on the bottom-line front. For 1HFY2015, the company has reported a top-line of Rs 72.2cr and a net loss of Rs 53.3cr.

Further, even at the lower end of the price band, the company looks expensive compared to its close peers like Wonderla Holidays which is already making profits and has a healthy balance sheet. On the EV/sales front, the company is valued at 13.6x (at the lower end of the price band) while its peer Wonderla Holidays is trading at 6.9x on the basis of 9MFY2015 annualized numbers. Hence, considering all the above factors, we recommend an Avoid on the issue.