Talwalkars Better Value Fitness (Q1 FY13)

CMP Rs157, Target Rs190, Upside 21%

• Q1 net revenues grew 19.4% yoy (QoQ not meaningful due to strong seasonality) led by increase in owned as well subsidiary gyms; the consolidated gym base now stands at 130, of which 92 are owned and 10 are HiFi gyms
  

• EBIDTA margin was virtually flat at 36.5% as 30bps yoy decline in staff cost nullified by 48bps yoy rise in admin & other expenses related to opening of new gyms; a lower tax rate supported ~40% yoy surge in reported PAT
  

• New initiatives: Company has launched ‘NuForm’, a new category of health and fitness studio, which focuses primarily on weight loss and caters to affluence class with a membership fee (Rs42k p.a) higher than that of regular gym; currently 6 NuForm studios with a member base of about 400 are operational in Mumbai. In addition, Talwalkars has also launched ‘Zumba’ fitness program in 11 locations wherein average aerobics fee is ~Rs750/month while that for Zumba classes is Rs2,500 /month generating ~3x more of aerobics fee; company expects these 2 initiatives to improve average revenue per customer and widen membership base
  

• We broadly retain our FY13/14 estimates and forecast revenue/PAT cagr of ~24%/31% over FY12-14; maintain BUY with 9-mth tgt of Rs190.