Talwalkars Better Value Fitness

CMP Rs203, Target Rs241, Upside 18.5%

Talwalkars Better Value Fitness (TBVF) is amongst the largest fitness chains in the country operating 66 health clubs (including JVs/franchisees), serving over 55,000 members. Incorporated in April ’03, the company offers diverse suite of services including gyms, spas, aerobics and health counseling. Although TBVF operates in a fragmented and competitive market, it has ample room for growth on account of 1) under-penetrated membership rates 2) favourable structural factors and 3) pan-India presence. It plans to add 38 owned gyms in FY11 partly funded by IPO proceeds. Based on cumulative additions of 68 gyms in FY11-12 and estimated annual accrual of Rs20mn/gym, we project a 4-fold jump in PAT over the next two years. Recommend BUY.  

Fitness market: vast untapped potential on offer

The wellness industry covers a large number of services including personal health counseling, fitness, beauty services and others. Within this, fitness segment viz gyms market size is estimated at US$113mn and is growing at a healthy pace. However, India’s membership penetration rate of 0.4% has much scope to improve compared to Asia Pacific average of 3.7%.  

Fitness industry should benefit from several structural positives prevalent in the domestic market. Firstly, by 2016, about 40% of population would be in the 20-44 age groups. Secondly, increased prevalence of lifestyle diseases as also improved awareness about them can lead to heightened emphasis on exercise and diet. Lastly, rising income provides an upscale market for fitness centres to offer advanced value-added activities.  

TBVF is set to add 38 owned gyms (of which 27 funded through IPO proceeds) in the current fiscal. The full revenue impact would be visible in FY12 as majority of FY11 additions are likely to be back-ended. Based on a cumulative addition of 68 gyms in FY11-12, we forecast a 71%/102% CAGR in revenues/PAT. Recommend BUY.