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 ‘HiFi’ gyms (for rural reach), ‘NuForm Studios’ (standalone high street studios aimed at upper end of consumer strata) and ‘Zumba’ (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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