Express Idea: Talwalkars Better Value Fitness

India Infoline News Service | Mumbai |

Talwalkars has taken several initiatives to extract higher profitability from its existing gym base, in addition to focus on volume growth as a revenue driver.

CMP Rs123, Target Rs138, Upside 12.2%,

Focus on same store sales growth to drive profitability   

Talwalkars has taken several initiatives to extract higher profitability from its existing gym base, in addition to focus on volume growth as a revenue driver. It has introduced three new offerings-‘NuForm’, ‘Zumba’ and ‘Reduce’ to improve same store sales growth which would translate in to higher incremental EBIDTA, RoCE per gym.


For instance, NuForm services start at Rs36,000 pa, which is more than 2x the rate for a regular gym membership. Similarly, Zumba and Reduce weight loss program are priced at least 3x-7x their respective counterparts currently offered in a regular gym. Moreover, capex requirements for these initiatives are at the most half of that for a full service gym and hence provide a leg up to incremental margins and return ratios.  


Owned gym expansion to continue at steady pace

Talwalkars would continue to expand its core gym base on ownership basis even as it looks to expand brand reach/awareness through franchisees, HiFi and NuForm studios. It ended FY13 with about 100 owned gyms and an overall gym base of 144 which included 15 HiFi (‘no frills’) gyms. We expect the company to add another 20 owned gyms over the next two years which would drive a steady revenue growth in the core gym business. In addition, HiFi gym roll out would accelerate penetration in Tier II and III cities and towns without burdening the balance sheet.

 

Stock correction provides an attractive entry point

Talwalkars has underperformed the benchmark index by 12% over the past 3 months. At current valuation of 6.5x FY15E PE and 4.4x FY15E EV/EBIDTA, the stock is trading at the lower end of its historical 1-yr forward PE bands. Although management expects to foray in to the sports and recreation club business, we do not foresee any immediate impact within our forecast period. Given a 23% earnings cagr over the next two years, we believe current valuation provides an attractive entry point; recommend BUY.


Financial summary
Y/e 31 Mar (Rs m)
FY12
FY13
FY14E
FY15E
Revenues
1,194
1,522
1,851
2,227
yoy growth (%)
28.6
27.5
21.7
20.3
Operating profit
543
739
892
1,073
OPM (%)
45.5
48.6
48.2
48.2
Reported PAT
221
301
350
457
yoy growth (%)
37.5
36.3
16.5
30.5
EPS (Rs)
9.1
12.5
14.5
19.0
P/E (x)
13.4
9.9
8.5
6.5
P/BV (x)
2.1
1.5
1.3
1.1
EV/EBITDA (x)
8.0
6.2
5.5
4.4
Debt/Equity (x)
1.1
0.8
0.8
0.6
RoE (%)
16.3
17.0
15.7
17.6
RoCE (%)
15.2
16.7
17.3
19.0
Source: Company, India Infoline Research
BSE 304.00 3.60 (1.20%)
NSE 303.40 2.60 (0.86%)

***Note: This is a NSE Chart

 

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