Talwalkars Better Value Fitness (TBVF) offers a unique opportunity to play the growing importance of fitness combined with increased penetration of organized players. TBVF itself has been on a strong growth momentum as reflected in 1) ~2x jump in owned gym base and 2) robust revenue/PAT cagr of 36%/68% over FY10-12. In addition, company has unveiled fresh initiatives like â€˜HiFiâ€™ gyms (for rural reach), â€˜NuForm Studiosâ€™ (standalone high street studios aimed at upper end of consumer strata) and â€˜Zumbaâ€™ (aerobics) which would increase penetration and raise brand awareness. We project consolidated gym base of 199 by end of March 2014 of which 13%/17% would be housed in subsidiaries/HiFi gyms. Stock currently trades at the lower end of its historic 1-yr fwd PE range; valuations are supportive at ~11x FY14 PE given an estimated 35% PAT cagr over FY12-14. We retain our BUY rating with a revised 9-mth target of Rs235 (earlier Rs190).
Healthy growth to continue in core gym business
TBVF has managed a robust 27% gross revenue cagr in its owned gym business over past two years on the back of ~2x jump in owned gym base to 90 in FY12. Although, the pace of owned gym expansion would not mimic FY10-12 rise, we still expect standalone gym revenues to post a 22% cagr over FY12-14 on an owned gym base of 122 by FY14.
New initiatives to ensure revenue buoyancy continues
A slew of steps undertaken in FY12-13 would ensure that revenue momentum continues beyond FY13. These include 1) HiFi gyms introduced as no-frills gyms in rural areas that would not support full-fledged Talwalkars gym 2) NuForm studios at premium locations aimed at upwardly mobile for weight loss though Electro Muscle Stimulation. We expect these initiatives to account for ~15% of gross revenues in FY14 from a negligible level in FY12. Key risks to our reco include higher than estimated rental costs and lower per unit revenue from gyms in rural areas.
|Y/e 31 Mar (Rs m)||FY11||FY12||FY13E||FY14E|
|yoy growth (%)||43.0||28.6||31.7||27.3|
|yoy growth (%)||106.0||37.5||28.4||42.3|
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