Two Fundamentally Strong Smallcaps from a Promising Sector

I specialise in smallcaps and of you have been a regular reader of my articles, you would have noticed I closely track insider activity.

You see, tracking insider activity can offer interesting insights into the prospects of the industry, well before the industry data is published and the market rushes to act on it.

If there are multiple insider buying cases in a particular industry segment or sector, there are chances that the whole sector is likely to do well.

There is a specific sector where I have seen insider buying recently across key stocks. And today, I'm going to share these stocks with you.

The sector is entertainment. Within it, recreation and amusement parks stocks are witnessing high insider buying by the promoter groups.

Before I get to the stocks, let's understand the dynamics of this industry.

Setting up and running amusement parks is a tough business.

The investment for a decent sized park with enough rides to be a tourist attraction requires huge capital investment. And even for ones that could afford it, the real challenge lies in running it successfully.

What keeps a park going is marketing strategies, footfalls, positive customer experience, functioning rides, addition of new rides, queue management, safety protocols, hygiene, and ensuring no leakage in collections.

Not every management is cut for that. Those who have taken big bets, for instance the founders and earlier investors in Imagicaa, have burnt hands.

That said, in India, the opportunity in amusement business is immense due to the huge population, rising urbanisation and affordability, and favourable demographics.

And most importantly, due to underpenetration and lack of interest from big global giants like Disney.

The market size of the Indian amusement park sector is around US$ 500 million (m) and is estimated to grow at a 10% CAGR between FY22 and FY27. The size of this industry in India is only about 1% of the global industry.

Yet, the likes of Disney do not consider India as a viable destination, as Indian incomes don't support the ticket prices they can charge in other nations.

This leaves great opportunities for Indian players that have shown good execution and management.

Wonderla Holidays is one among them. The company finds mention as one of the top attractions in Bangalore by different travel websites. It has more than two decades of experience in running the parks profitably.

The company has a track record of setting up three parks across different location across states - Kochi, Hyderabad, and Bangalore. And all this while maintaining a debt free balance sheet.

Due to the right location and good management, this business generates a huge amount of cash.

Along with an early mover advantage and a huge land bank with spare capacity, Wonderla is uniquely placed due to its ability to set up rides that saves costs. It's going to be a tall task for any new entrant today to level up on these fronts.

In FY24, its three parks together witnessed a footfall of 3.25 m. And then there is also the income from food and beverages as well as organised events.

The company has recently launched a new park in Orissa, well ahead of schedule. And it is planning one more in Chennai in FY26. The Chennai Park is expected to be as big as the Bangalore Park.

Further, the company is getting invitations from multiple state governments to set up parks to promote tourism in their states.

The stock has witnessed insider buying in last six months. The promoters have purchased the stock at an average price of Rs 864.

The second stock which has seen insider buying trend in the same industry is Nicco Parks & Resorts, a microcap company in the amusement industry.

The company has a park by the same name in Kolkata. A total of 1.45 m people visited Nicco Park in FY23.

Besides ticket income, the company earns revenue from rentals and food and beverages.

The net profit for the company in FY23 stood at Rs 250 n, almost 2.8 times of the profit in FY19, the pre Covid year. I'm comparing it with FY19 as amusement park business was one of the worst hit segments in the pandemic.

The company enjoys a debt free balance sheet with return on equity at 34% and return on capital employed at 49.5%.

Coming to the insider buying details, the promoters have bought 130,000 shares from the open market at an average buy price of Rs 143.

Please note this discussion on these two stocks does not imply any view like buy, hold, or sell.

The industry has some inherent risks like a complete shut down in case of health scare like Covid, dissipation of pent-up demand post Covid, and competition from other forms of entertainment, such as streaming services and video games, cinema etc.

The need to invest in new attractions and experiences to keep up with changing consumer demands, is also a challenge.

So do keep in mind these risks along with margin of safety in valuation.

For more such updates, subscribe to Profit Hunter.

Warm regards,


Richa Agarwal
Editor and Research Analyst, Hidden Treasure
Equitymaster Agora Research Private Limited (Research Analyst)