Global economic overview
In 2017, a decade after the global economy spiraled into a meltdown, a
revival in the global economy became visible. Considering the realities, every major
economy expanded and a growth wave created jobs. This reality was marked by ongoing growth
in the eurozone, modest growth in Japan, a late revival in China and improving conditions
in Russia and Brazil leading to an estimated 3.7% growth in the global economy in 2017, 60
bps higher than the previous year.
Outlook
Global growth forecasts for 2018 and 2019 were revised upward by 20 bps
to 3.9%, reflecting an improved momentum and the impact of tax policy changes in the US.
(Source: WEO, IMF)
Indian economic overview
After registering a GDP growth of over 7% for the third year in
succession in 2016-17, the Indian economy headed for somewhat slower growth, estimated at
6.7% in 2017-18. Even with this lower growth for 2017-18, GDP growth averaged 7.3% for the
period from 2014-15 to 2017-18, the highest among the major economies. This was achieved
on the back of lower inflation, an improved current account balance and a reduction in
fiscal deficit-to-GDP ratio. The year under review was marked by various structural
reforms being undertaken by the Central Government.
Outlook
The World Bank projected Indias economic growth to accelerate to
7.3% in 2018-19 and 7.5% in 2019-20. Strong private consumption and a growth in the
services sector are expected to continue supporting economic activity. Private investments
are expected to revive as the corporate sector adjusts to the GST. Over the medium-term,
| Global economic growth for six years |
|
|
|
|
|
|
| Year |
2014 |
2015 |
2016 |
2017 |
2018 (f) |
2019 (f) |
| Real GDP growth (%) |
3.5 |
3.2 |
3.1 |
3.8 |
3.9 |
3.0 |
[Source: World Economic Outlook, January 2018] f: forecasted
GDP growth rates of emerging Asian nations
|
Cambodia |
Laos |
Myanmar |
Philippines |
Vietnam |
Thailand |
Malaysia |
Indonesia |
| 2017 |
6.8% |
6.7% |
6.4% |
6.7% |
6.7% |
3.5% |
5.8% |
5.1% |
| 2018* |
6.9% |
6.6% |
6.7% |
6.7% |
6.5% |
3.6% |
5.2% |
5.3% |
the introduction of the GST is expected to catalyse economic activity
and fiscal sustainability by reducing the cost of tax compliance drawing informal activity
into the formal sector and expanding the tax base.
Indian 3tness industry overview
The Indian fitness industry was pegged at H95,000 crore, growing at
~18%, whereas the value of the Indian fitness retail market stood at ~H7,000 crore in
2017. The health and fitness industry in India has come a long way, with global players
entering the market, and with home grown fitness startups and online apps becoming a part
of everyday living. The frequency of working out among people has grown over the years and
as of 2017 the percentage of people working out on a regular basis stood at 10%. People
between the ages of 20-30 are the biggest fitness enthusiasts accounting for 72% of the
total who work out while the balance comprises people who are =30. In terms of gender, 60%
of people working out are estimated to be male and 40% female. Alternative fitness regimes
like aerobics, zumba, martial arts, kickboxing, cross-functional and bodyweight training
have been there for some time. On the contrary, high-intensity interval training, pilates,
aqua fitness and body combat are still on the rise on the awareness index. Crawling
workout and total resistance exercises are fairly new and still have not reached the
masses. (Source: Economic Times)
Outlook
At the end of FY2018, revenues earned by the Indian fitness market were
pegged at US$908 million. The segment is estimated to grow at CAGR of 9.3% between 2018
and 2022, totaling a market value of US$ 1,296 million. A major portion of these revenues
will be driven by the consumption of fitness wearables.
(Source: Indian Retailer)
Emerging trends
Self-limiting movement: Self–limiting movement lets people
improve muscle imbalances and poor postures to perform better. The combination of
exercises aims to provide a solid foundation for musculoskeletal health that includes grip
strength, correct posture and balance.
Bodyweight training: Bodyweight training does not involve any type
of fitness equipment and can be practised anytime, anywhere. These are also easy to modify
and exercises like push-ups, squats, lunges and planks, among others, are e3ective for
working the muscles using ones own bodyweight.
Fitness for geriatrics: Several fitness programmes are being
created specifically for geriatrics so as to meet their needs to stay fit. As bone density
starts decreasing and muscles start losing their strength, staying fit is the only option
for people.
High-intensity interval training: People who love high-intensity
workouts seemed satisfied with their daily regimes but for people who want to achieve the
same but at a lower intensity, low-intensity interval training was brought in. While a
high-intensity session usually takes 15-20 minutes, a low-intensity session takes 30-40
minutes but still burns the same amount of calories.
Fitness boxing: Boxing is one of the best workouts for cardio
fitness, coordination, and fast-twitch muscles. Since the beginning of the year, fitness
boxing in India has exploded across the industry, with 52% of the population being
interested in the type of workout boxing provides.
Functional training: Functional training involves resistance bands,
kettlebells, free weights, ropes or body weight exercises with the goal to increase
mobility, improve core stability, balance muscle development on the right and left side of
the body, and improve endurance in both weight lifting and cardio.
Personal training: A one-on-one personal fitness coaching program
comprises a dedicated trainer certified for general fitness and committed to motivate
members in achieving their fitness goals. The program also includes personalised fitness
strategies customised to individual needs.
Circuit training: A form of body conditioning, also known as
endurance training or resistance training, using high-intensity 20-minute workouts is
ideal for losing weight while targeting strength building or muscular endurance. This form
of training is a workout style where a participant cycles through several exercises
targeting di3erent muscle groups with minimal rest in between and involves machines, but
can be carried out with dumbbells, barbells, balls or body weight exercises. The result is
a workout that taxes muscular strength, endurance and cardiorespiratory system.
Cross functional training: Cross-functional training is a
high-intensity, strength and conditioning workout. This functional movement exercise
program covers at least 10 fitness domains, which include cardiovascular and respiratory,
stamina, strength, flexibility, power, speed, coordination, agility, balance and accuracy.
The objective of cross-fit training is to form one full-body workout that needs no
standard cardio-workouts or hours at the gym and might be even done entirely without any
equipment or added weights. Its impact on the mind and the body encompasses better
conditioning and versatility, quicker weight-loss and a healthy workout regime.
Marathon training: Marathon, an endurance sport, is increasingly
popular among fitness enthusiasts as it is considered to be meditative. Besides, regular
exercise enhances physical and psychological well-being. Corporate o3ces have joined the
marathon fervour by encouraging employees to engage in half-marathons and longer, a trend
expected to grow.
Wearable 3tness technology: ‘Wearable gadgets like
Fit-bit help monitor the heart rate, steps taken during workout and workout objectives.
These gadgets are marked by user friendliness, connectivity with mobile devices and
integration into every-day lives.
Demand drivers
Demographic dividend: The population of India is 1.34 billion,
making the country home to the second-largest consumer base in the world. With the
expectation of India becoming the youngest country by 2020 with an average age of 29, the
country is likely to become the biggest prospective market for health clubs.
(Source: Worldometers)
Rising incomes: The GDP of the country was pegged at 6.7% in
2017-18. Correspondingly, Indias per capita GDP increased from H1,03,219 in 2016-17
to H1,11,782 in 2017-18, growing at 8.3%. The growth in GDP in turn has increased
disposable incomes, driving consumption.
(Source: Economic Times)
| Frequency of working out (%) |
|
| Three to five times in a week |
46 |
| Never |
15 |
| Everyday |
10 |
| Once or twice in a week |
29 |
| (Source: Economic Times) |
|
Obese population: By 2025, India is expected to have over 17
million obese children as compared to 14.4 million in 2017, and will stand second among
184 countries where the number of obese children is concerned. Furthermore, 21% of the
total population of the country is overweight which accounts for 155 million people. Also,
16% of adult men and 22% of adult women in the country are overweight. (Source: India
Today)
Gross under-penetration: In comparison to global markets, the
Indian fitness industry is grossly underpenetrated. Compared to ~36,180 fitness clubs in
the US (the worlds largest market), India has a paltry ~3,800 fitness clubs. This is
despite the fact that Indias population is more than 3x that of the United States.
Even when compared with China, the most populous nation, Indias penetration is only
0.15% with ~2 million members, while China with fewer clubs (~2700 fitness clubs) has a
penetration of 2.98% with ~4.52 million members. (Source: IHRSA Asia Pacific Health
Club Report 2018)
Awareness: The increasing awareness among the masses about the need
of staying fit and healthy has been ever increasing. Community centres in residential
societies and apartment complexes have started hosting gyms across Tier-II and III cities.
Furthermore, multinational fitness chains and gyms have also started taking the franchisee
route to enter the Indian subcontinent.
Peer in3uence: Fitness, as a social trend, has been gaining
momentum over the years. It is more than likely that members of a group will be influenced
by the lifestyles of others. The peer influence of the people leading a healthy lifestyle
has been driving demand for the industry for quite some time.
Growing urbanisation: Urbanisation is one of the major factors
behind the growth of the fitness sector. As migration from rural areas to cities continues
due to better job opportunities and education, the urbanisation of India as of 2018
(33.2%) and is expected to reach 36.2% by 2025. (Source: Worldometers)
Health issues: 70 million people in India are diabetic while 50
million are heart patients. Some 100 million Indians su3er from high blood pressure
because of stress, obesity, genetic factors and unhealthy eating habits. Some 89% of the
total population in India su3ers from stress compared to the global average of 86%.
(Source: Hindustan Times)
Awareness about alternative 3tness techniques (%)
| TRX suspension |
7 |
| Pilates |
29 |
| Rope workouts |
31 |
| Aqua fitness |
19 |
| Cross functional training |
37 |
| Crawling workout |
11 |
| Body combat |
18 |
| Martial arts |
56 |
| Bodyweight training |
51 |
| High-intensity interval training |
31 |
| Kickboxing |
51 |
| (Source: Economic Times) |
|
Risk management
Economic risk: A slowdown in the economy could impact the
Companys growth.
Mitigation: Talwalkars o3ers a full range of fitness services with
value-added services to its customers, enabling people from di3erent economic backgrounds
to buy into the services o3ered by the Company. This diversified portfolio enables it to
cushion itself from an economic slowdown, making it possible to report reasonable earnings
from each o3ering. The Company has a multi-brand strategy which encompasses all the
consumer segments.
Competition risk: Increasing competition could impact the
Companys market share.
Mitigation: The Indian fitness industry is largely underpenetrated
(0.15% in 2017), indicating that the scope for growth is immense. Talwalkars aims to
capitalise on these incipient opportunities by prudently expanding its presence across the
value chain. The Company aims to target the a3ordable fitness segment under the banner of
Power World Gyms and the premium fitness segment under the Talwalkars brand. Under the
banner of Hi-fi, the Company aims to extend its reach across Tier-III and IV locations.
Personnel risk: The lack of skilled instructors could a3ect the
quality of services o3ered by the Company. Mitigation: The Company provides
periodic training (online and on-site) across each of its gyms in South East Asia. This
has enabled the Companys personnel to hone their skills on a regular basis and stay
abreast of emerging sectoral trends.
Accessibility risk: Clients prefer a centralised and accessible
location and an inability to ensure that can be detrimental to the Companys
prospects
Mitigation: Talwalkars believes in locating its gyms at centralised
locations, making them accessible for all classes. As a means to this end, the Company
conducts studies with respect to location-specific demographic profiles before setting up
centres.
Financial risk: Unavailability of funding at competitive rates
could a3ect viability. Mitigation: The Company closely tracks funding requirements
and ensures the availability of su3cient reserves.
Financial review
Key performance metrics
| Parameters |
FY16-17 |
FY17-18 |
| Total Revenues (H million) |
2,272 |
2,592 |
| EBIDTA (H million) |
1,282 |
1,513 |
| Depreciation (H million) |
302 |
303 |
| Finance cost (H million) |
114 |
167 |
| Total tax expense (H million) |
306 |
356 |
| Net profit (H million) |
574 |
693 |
Total Revenues: Revenues increased by 14.07% to H2,592 million in
2017-18, compared to H2,272 million in 2016-17. EBITDA: Operating profit (EBITDA)
increased by 18.05% to H1,513 million in 2017-18 from H1,282 million in 2016-17, largely
because of operational synergies like rental reduction, optimum utilisation of personnel
resources and centralised marketing.
Depreciation:
Depreciation for the year under review stood at H303 million, compared
to H302 million in the previous year.
Finance costs: Finance costs for 2017-18 stood at H167 million
compared to H114 million of 2016-17. Total tax expenses: Total tax expenses for
2017-18 stood at H356 million, which included curr
ent tax worth H285 million, and deferred tax charges of H71.50 million,
compared to H306 million in 2016-17. Net pro3t: Consolidated net profit for 2017-18
stood at H688 million, compared to H556 million in 2016-17, registering a growth of 20.74%
over the previous year.
Internal control systems and their adequacy
The internal control and risk management system is structured and
applied in accordance with the principles and criteria established in the corporate
governance code of the organisation. It is an integral part of the general organisational
structure of the Company and involves a range of personnel who act in a coordinated manner
while executing their respective responsibilities. The Board of Directors o3ers its
guidance and strategic supervision to the Executive Directors and management, monitoring
and support committees. The control and risk committee and the head of the audit
department work under the supervision of the Board-appointed Statutory Auditors. The
system is under constant review by the Chairman, Managing Director, CFO and a few others,
which ensures any discrepancies are immediately noted and suitable action can be taken in
case of any lapses.
Human resources
While fitness may be a lifestyle choice for many, it unfortunately is
not the foremost career choice. Talwalkars believe that its competitive advantage lies
within its people. The Companys people bring to the stage a multi-sectoral
experience, technological experience and domain knowledge. The Companys HR culture
is rooted in its ability to subvert age-old norms in a bid to enhance competitiveness. The
Company always takes decisions which are in alignment with the professional and personal
goals of employees. The workforce stood at ~4,800 as on March 31, 2018.
Outlook
Talwalkars is one of the largest fitness brands in South East Asia,
marked by 251 centres in India and Sri Lanka – and now widening its presence across
South Asia. As the Company consolidates its leadership through the rollout of multi-brand
models, it will also focus on scaling same-stores sales growth through higher membership
penetration and increased personal training. The Company expects to increase the rollout
of gyms and widen its customer base, enhancing profitability, return ratios and
shareholder value.
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