Talwalkars Better Value Fitness Ltd. (TBVFL) Buy at CMP and add on dips to Rs. 235-247 :: HDFC Securities

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Healthy “SSS” drives margin expansion… • Talwalkars Better Value Fitness (TBVF) :: ICICI Securities, pdf link

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Talwalkars Better Value Fitness: Buy :: Business Line

TBVF - Q4FY13 Result Update - Centrum

Talwalkars Better Value Fitness

Rating: Buy

Target Price: Rs266

CMP: Rs155

Upside: 72%

Performance above expectations

TBVF posted better than expected Q4FY13 results with net sales at Rs498mn on the back of increasing traction in ZUMBA and weight loss program ‘Reduce’ which helped the company increase its same store sales growth. Price hike in the annual August scheme coupled with new fitness studios further boosted sales. Margin expansion of 122bps on the back of cost control helped the company post 33.7% YoY increase in operating profit, 19.6% above our expectations. Adj PAT was up by 32% YoY to Rs121mn. We maintain a strong BUY on the stock.

m  Q4FY13 results beat estimates: TBVL posted net sales of Rs498mn (up 30.7% YoY), 4.3% above our estimates on the back of strong traction in new services, increasing same store sales growth and opening of fitness centers. Operating margins expanded by a healthy 122bps on a consolidated basis on the back of tightly controlled admin & other expenses which grew by mere 17.2% YoY. Operating profit was up by 33%YoY (19.6% above our estimates) to Rs279mn while PAT was high at Rs121mn, up 32% YoY. For FY13 the company posted revenues of Rs1509mn (up 26.4%YoY), operating profit of Rs726mn (up 34% YoY) with margin expansion of 263bps and Adj PAT of Rs301mn (up 38.5%YoY).

m  Focus on increasing same store sales growth: New initiatives such as Zumba®, Reduce and NuForm have helped the company leverage on its current assets and enhance member base. The higher pricing for new initiatives compared to existing services is helping the company yield higher margins and increase RoCE. By FY14 the company is confident of opening 100 Zumba® centers from 29 centers currently and introduce Reduce programs in 75 fitness centers from 17 centers now. The company currently has over 150 certified Zumba® trainers with large corporates including MNCs opting for Zumba® program and Nuform. For Reduce, the member base has widened to over 500 with the product being offered as “Home based Reduce”, primarily catering to HNIs and corporates at their door step.

m  Gym expansion plans on track: During the quarter the company started 7 new fitness centers of which 6 were owned, and one under Hi-fi. For FY14, the management expects to open 20-30 fitness centres with most of them owned taking the total gym count to 207 by 2015E. New gyms opened in tier II and III cities have received positive response from customers reflecting strong latent demand. 

m  Margins continue to expand: During the quarter operating margins expanded by 122bps to 55.9% as the company maintained tight control on expenses. Admin & other expenses grew by mere 17.2% while employee cost was up by 48.3% on the back of newly recruited Zumba trainers and marketing for Reduce. We expect the margins to expand by 137bps in FY14E to 49.5% on the back of high operating leverage from new services such as Zumba and Reduce which have high margins.

m  Other highlights: During the quarter the company launched online Shop site for Zumba merchandising, nutritional supplements, Talwalkars fitness accessories and gift vouchers. D/E for FY13 has been reduced to 0.75 from 1 in FY12 while the company has been able to reduce debtors’ days to 43 from 62. The management maintains it will become free cash flow positive by FY14 end.

m  Maintain BUY: We have increased our FY14/FY15 operating profit by 5.3%/9.5% on the back of higher margins from new services such as Reduce & Zumba while PAT has been increased by 5% for FY15E on the back of higher operating profit. TBVF is currently trading at 9.06x FY14E and 6.51x FY15E EPS of Rs17.1 and Rs23.8 respectively. We continue to value the stock at 13x Sept 2014 and increase our target price of Rs266.

Investment Focus - Talwalkars Better Value: Buy :: Business Line

Investors can buy the shares of Talwalkars Better Value Fitness, which owns and operates the Talwalkars chain of gymnasiums and health centres across the country. The fitness and wellness industry itself is vastly untapped and Talwalkars, with a strong presence in smaller cities too, is the only listed player in the space.

At Rs 163, the stock trades at 15.7 times the trailing 12-month earnings, at the lower end of the three-year valuation band. Given that most stocks tagged with a consumer theme trade at much higher levels, Talwalkars’ valuations appear reasonable. That said, being a small-cap (market capitalisation of Rs 440 crore), the stock is risky and investors are advised to take limited exposures to it.

SMALLER TOWNS

Besides the flagship Talwalkars chain, the company also has a chain called HiFi. Smaller in size and priced about 40 per cent lower than the Talwalkars, the HiFi model is being used to push into tier-II and -III towns. The margins are lower in this model, but it helps faster expansion, especially in small cities where the fitness wave is beginning to spread.

Rising aspirational spending on fitness in smaller cities may mean better business for Talwalkars, which has a good presence in Tier-II cities. Talwalkars also has the first mover advantage in these cities. As of December, almost 70 per cent of its health centres were in Tier-II and III cities.

Talwalkars’ new initiatives this year include high-margin Zumba fitness classes, weight-loss programmes centring on diet, and a new form of exercise regime involving electrical muscle stimulation. These offerings have got good response. Health centre expansion has been put through at a steady pace, and the company has used franchisees for faster expansion, especially in the smaller cities. So far this fiscal, the company has added 22 centres taking the total count to 137. Addition of members and renewal of membership have been steady.

MARGINS IMPROVE

Sales have grown 26 per cent in the nine months to December 2012. The once-wavering operating margins have steadied, holding above a healthy 35 per cent. But the company’s huge debt, taken on to fund expansion, and the asset-heavy model have led to high interest and depreciation costs. Net margins, thus, have hovered around 10 per cent. Net profits grew 43 per cent in the April-December 2012 period.

The company raised Rs 42 crore in equity in the December quarter and this will reduce the need for debt and also trim the debt-equity ratio from 1.01 times (March 2012). A possible dip in interest rates will also help reduce the interest outgo.

Talwalkars, Q3FY13 Result Update :: Centrum

Growth drivers in place
TBVF posted strong operating results with net sales at Rs254mn (up 15.6% YoY) on the back of rise in same store sales complimented by new initiatives such as Nuform, Zumba® and Reduce. These new initiatives are highly EBIDTA accretive and helped the company to leverage and enhance its existing customer portfolio. This led to margin expansion of 212bps to 40.5% while PAT was up by 33% to Rs29mn. We maintain BUY rating on the stock.

Strong Q3FY13 results: TBVL posted 15.6% YoY growth in sales on a consolidated basis while growth on a standalone basis was even stronger at 19.9% YoY on the back of strong same store sales growth and increase in the number of fitness centers. Operating margins expanded by 212bps on a consolidated basis and 198bps on a standalone basis on the back of prudent cost management practices and turnaround in NuForm within 9 months of launch. Operating profit was up by 22% to Rs103mn while PAT was high at Rs29mn, up 33% YoY.

Expansion plans on track: During the quarter the company started 7 new fitness centers of which 3 were owned, 4 under JV/sub model and four Hi-fi. 4 legacy gyms were taken over by the company during the quarter. Going forward the management expects to open 10 to 14 fitness centers in the next 60-90 days, most of them owned. The company has signed Master Franchisee for 6 gyms in Maharashtra and is actively scouting for more such deals for faster rollout. NuForm turned operationally positive during the quarter with more than 1100 members

Talwalkars Better value fitness -Value Pick:: Anand Rathi

Talwalkars Better Value fitness

CMP 188                 Reco: Buy                Expected Value 242             Nifty Level 6058                     

- Pioneer in the Fitness Industry

One of the oldest and largest fitness brand in India.

 - Aims to become a holistic Fitness player

1.      Broadened its scope by introducing NuForm fitness studios, 2) ZUMBA® Fitness Program and 3) Reduce – weight loss diet program.

2.      Increasing focus on optimizing service offerings to leverage the existing infrastructure and enhance customer portfolio.

Talwalkars Better Value Fitness :: ::Centrum

From gym to fitness
We recently met with the management to ascertain recent
developments in the company. The management continued to
remain unaffected by the economic slowdown and is on track to
achieve its FY15E target of opening 250+ gyms. Its focus on going
asset light is bearing fruits while migration from gym to fitness will
significantly increase same store sales growth and help the company
become FCF positive by FY14. The company is also looking at an
opportunity to start its own recreation club and possible tie-up with
a global leader. We maintain our BUY rating on the stock.

Talwalkars - Q2FY13 Result Update - Centrum

Talwalkars Better Value Fitness

Buy

Target Price: Rs219

CMP: Rs191

Upside: 15%

Strong operating performance

TBVF posted strong operating results with net sales at Rs501mn on the back of robust August scheme where the company had a renewal rate of 76% after price hike of 6-8%. Increasing investments in ZUMBA and weight loss program ‘REDUCE’ too helped the company increase same store sales growth. Margin expansion of 438bps on the back of cost control and royalty income helped the company post 47% YoY increase in profitability. We maintain BUY rating on the stock.

Talwalkars Better Value Fitness Buy Target Price: Rs219 ::Centrum

Talwalkars Better Value Fitness

Buy

Target Price: Rs219

CMP: Rs149         

Upside: 47%

Raring to go

m  Industry in a sweet spot: Fitness and slimming market is Rs40bn industry and is set to grow by 18.9% to Rs80bn over 3 years with fitness services such as gymnasium comprising 50% of this market (Rs20bn). It is an under-penetrated market with less than 5% penetration of the urban population. Key growth drivers being i) increasing young population ii) booming middle class with growing discretionary spends iii) growing number of lifestyle diseases and iv) increasing realization of a need for healthy lifestyles.

Talwalkars Better Value Fitness :Buy Target : | 190 :ICICI Securities, PDF link

BUY Talwalkars Better Value Fitness Ltd: B P Equities

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Company Overview
Talwalkars Better Value Fitness Limited (TBVFL), is the largest chain of health centers in India having
115 health clubs spread across 56 cities and patronized by 113,000 members. Currently, it is promoted
by the Talwalkar and Gawande groups together. Out of the total number of health clubs, 79 are owned by
TBVFL, 10 are legacy gyms, 10 are part of subsidiary companies wherein TBVFL has a 51% holding, 6
are part of the JV with Pantaloon Retail and the remaining 10 are purely franchisee outlets operating under
the HI FI brand targeting the Tier II and III cities.
Investment Rationale
Introduction of HI FI Gyms results in accelerated expansion at zero capex cost
TBVFL is well positioned to increase its penetration into various parts of the country with launch of the HI
FI concept which is mainly targeting the middle income population in the Tier II and III cities. This has
helped the company to promote its brand and create an awareness in the smaller cities and also increase
the total number of health clubs at a faster rate. In case of the HI FI format, TBVFL does not require
capex though the royalty component is similar to the subsidiary model and additional upfront income of
Rs. 1mn resulting in higher revenue at zero capex and a faster roll out of health clubs.
Healthy sales growth supported by fast paced expansion and demographic mix
TBVFL is focused on increasing its total number of gyms particularly in HI-FI segment which is leading to
faster expansion on account of its attractive business model. TBVFL being benefitted from a surge in the
number of people aged 35-50 years who form a major portion of the population. We expect rising awareness
of the need to be healthy and maintain one’s physical appearance will be the major reason for increase
in membership. As per our projections, the sales are expected to grow at a CAGR of 19% from
FY11 to FY14.
Focus on franchisee Model to support RoCE going forward
TBVFL has a large gym base, in which the amount of capex varies depending on the level of ownership.
This optimal mix of owned, subsidiaries and franchisees on a pan Indian basis would support RoCE going
forward. As Franchisee model does not require capex, we believe the company’s focus is on expanding
its franchisee network to support RoCE.
Valuation and Outlook
The stock is currently trading at a P/E of 11.9x, P/BV of 2.1x and an EV/EBIDTA of 7.2x its FY13 estimates.
We have taken a discount of 30% to the average EV/EBITDA (8.9x) of its international peers as
TBVFL is in a growth phase and operates in an emerging market. Thus we have arrived at an EV/EBIDTA
multiple of 6.2x for valuing the company. Considering the strong business model and expansion plans
coupled with increasing awareness of health and fitness, TBVFL is well poised to deliver high growth rate
in the coming years and we expect it to grow by 30% and 29.7% for FY12E and FY13E respectively. We
initiate the company with a ‘BUY’ rating arriving at a target price of Rs. 205 (an upside of 37%.)

Talwalkars Better Value Fitness – BUY ‘Getting in shape’:: IIFL

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We spoke to Talwalkars’ CFO to gauge the near term outlook
for the company. TALW has rolled out 19 gyms in nine months
so far and expects to open another 16 gyms in the current
quarter. Management also stated that a plan for roll out of
clubs has been put on hold and it would retain focus on gym
expansion. Mgmt targets FCF +ve in FY14 as a large chunk of
gym base would then be operating in the mature state and
expansion through franchisees would gather pace. Roll out of
HiFi gyms through franchisee route will ensure deeper
penetration without concurrent capex needs. Company expects
benefits of operating leverage to kick in considering the large
share of fixed costs which would help improve margins. We
revise lower our estimates and now expect a 33% EPS cagr
over FY12-14; retain BUY with revised 9-mth tgt of Rs190.
Club roll out plan put on hold; to focus on gym expansion
Talwalkars Better Value Fitness (TBVF) mgmt stated that plans to roll
out clubs - a different format compared to gym requiring much larger
investments and longer gestation periods - has been put on hold. It
would continue to focus on gym expansion where it remains bullish on
the opportunity in the market given the low penetration rates for
organized players.
To end FY12 with total gym base of 126
TBVF has rolled out 19 gyms in 9M FY12 and it is slated to launch
another 16 gyms in Q4, a traditionally strong quarter for the fitness
business. This would take its total gym base to 126 of which about 90
would be owned and rest would be through a combination of
subsidiaries, franchisees/JVs and HiFi gyms. Company plans to add 8
HiFi gyms in the current year through franchisee route which would
not entail any capex for the company. We also revise lower our owned
gym addition count to 18 in each of next 2 years.
Cut earnings on reduced owned gym count but retain BUY
We cut earnings forecasts for FY12/13 as we reduce owned gym
additions and now expect ~18 gyms to be added in FY13/14.
Expansion in HiFi gyms through the franchisee route would gather
momentum over next 2 years which would lower overall capex
intensity and generate free cash flow in FY14. Retain BUY rating with
revised 9-mth tgt of Rs190.

PDF link: Initiating Coverage -Talwalkars Better Value Fitness ::ICICI Securities

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http://content.icicidirect.com/mailimages/ICICIdirect_TalwalkarBetteverValueFitness_InitiatingCoverage.pdf


B e t t i n g   O n   Y o u n g   I n d i a …

Talwalkars Better Value Fitness (TBVF) is one of the largest fitness service
chains in India owning more than 100 health clubs. TBVF is poised to
benefit from a bulging young population and rising awareness of ‘being
fit’ among the young population. With visible evidence of increasing
membership (32% YoY growth in FY11) on a pan-India basis, we believe
TBVF is well placed to benefit from being an early mover in the health
club market in India with a strong brand name and quality services. TBVF
further plans to expand its gym count to ~253 by FY14 by adding new HiFi gyms (budget category) in Tier-III and Tier-IV cities. We expect its net
sales to grow at a CAGR of ~31% to | 229 crore and net profit to grow
~36% to ~ | 40 crore over FY11-14E backed by new gym additions and
favourable demography. We initiate coverage on TBVF with a BUY rating.
Lower penetration + Young population = Ample opportunity
The fitness industry is highly under penetrated in India with mere 0.4%
(taken for top 7 cities) membership as compared to Asia Pacific average
of 3.7%. The industry, as a whole, is expected to benefit from rising
proportion of age group between 20 and 44 in India, which is expected to
be ~40% of India’s total population by the end of 2016. In addition, we
believe growing disposable incomes and rising lifestyle related diseases
would pent up demand for quality health and fitness services.
Healthy expansions plans to reap maximum benefits
The company has added overall ~32 new health clubs across India
(owned and franchisees), taking its total gym count to 101 (73 own gyms,
nine subsidiaries, eight franchises and 11 under licence agreement) with
nearly one lakh members. It has further plans to increase its count of
fitness clubs to ~253 by the end of FY14E. This includes addition of ~60
owned clubs and ~90 clubs through  the franchise route with a total
investment of nearly | 120 crore through a mix of internal accruals and
debt. With favourable demographics  and volume expansion, we expect
FY11-14E sales and PAT CAGR of ~31% and ~36% respectively.
Valuations
At the CMP of | 157, the stock is trading at a P/E multiple of 12.4x and
9.5x its FY13E and FY14E, respectively (i.e. 6.5x and 5.1x FY13E and
FY14E EV/EBITDA, respectively). We  believe the industry is still in the
nascent stage of growth. Also, considering the strong fundamentals of the
company, we have valued the stock at 11.5x FY14 EPS and arrived at a
target price of | 190 (2.1x FY14 book value and 6.0x FY14E EV/EBITDA).
We are initiating coverage on the stock with a BUY rating

BUY Talwalkars Better Value Fitness- Value fit:: IDBI capital

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Talwalkar Better Fitness Value (TBFV) is the largest health club player in the country and amongst top
twenty in the world. It is an early entrant into the health club market in India and has been able to build a
strong brand name by providing high quality equipment and service. TBFV is on an expansion spree and
plans to increase its owned gyms by ~2x to 143 by FY13 without any further equity dilution. TBFL will
have a CAGR in Revenue/PAT of 41%/38% during FY11-13 and will see its return ratios significantly
improving (RoE/RoIC~20%/13.7% in FY13). We believe TBFV to be a play on the growing healthcare
market in India and initiate with a BUY and a target price of Rs203 (16x FY13).
Investment Highlights
 Under penetration + Increasing income + growing health awareness = High growth potential
The penetration of fitness market in India is ~0.4% (taken for top 7 cities) as per IHRSA report
200809,
which is significantly lower than other nations (China 2.3%, Japan 3.1%). The growing
income, increasing urbanization and higher health awareness in India will result in higher penetration
of fitness market. As TBFV is the largest player in the market with a strong brand it will be a major
beneficiary of this growing market.
 Strong brand name + First mover advantage + Large reach = High growth
TBFV has a strong brand name in the health club market in the country. It has been able to provide
high quality equipment with good service which has thus enabled it to be a prominent player in the
otherwise fragmented market. TBFV is one of the first movers in the industry and has a pan India
presence (~50 towns) which will enable it to cater to the widespread market. We expect TBFV to
have a CAGR in Revenue/PAT of 41%/38% during FY11-13.
 Number of gyms to double by 2013 without any further dilution
TBFV will increase its owned gyms by ~2x to 143 gyms by FY13. TBFV had raised ~Rs774 mn in
2010 through an IPO to repay high cost debt (~Rs206 mn) and to fund its expansion plans for
27 gyms (~Rs502 mn). The company has been able to deploy the funds as per expected use and will
now require no further dilution for its future growth plans (35 gyms each in FY12/FY13). With no
further dilution required and the benefits of expansions to come, the return ratios are going to improve
(ROE/ROIC of 20%/13.7% in FY13).
 Attractive Valuations: BUY with a target price of Rs203
TBFV is a play on the growing healthcare market in India. It has a strong brand name and is now
capitalizing, with rapid expansion. There are not any listed comparable players and thus its closest
comparable peers are the consumption companies (Jubilant Foodworks, Page Industries, Titan
Industries etc) which trade at an average PER of ~28x FY13. As TBFV will have lower return ratios in
the near term and also its execution capabilities will be under scanner, we believe it will trade at a
discount (~40%) to the comparable peer set. We initiate with a BUY and a target price of Rs203 (PER
16x FY13).

read core thesis and other company covered: click link below

Consumption - A play on the evergreen, resilient theme: IDBI Cap

Talwalkars Better Value Fitness: Book profits:: Business Line

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The fitness bug has caught the fancy of not only India's masses but its stock market investors as well. The stock of the only listed operator of fitness chains, Talwalkars Better Value Fitness (Talwalkars), has almost doubled in price from its initial public offering last April.

TALWALKARS :: IDFC Emerging Stars Conference

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TALWALKARS 
UNRATED (RS224, MCAP: RS5.4BN / US$119MN)


• Talwalkars, a joint venture between the Talwalkars and Gawande families, is a prominent fitness and wellness player
in India. It was listed in May 2010, the first to do so in the space. Talwalkars started with five health clubs in 2003 and
now operates around 79 health clubs in India, with a total floor space of ~0.45m sqft as of 31 December 2010.
Talwalkars has a market share of approximately 8-10% in the organized health club market in India.
• Better control ensures quality service: Talwalkars uses the hub & spoke model unlike the franchised model adopted
by Gold Gym, its closest competitor. This enables it to have better control over its health clubs. Currently, Talwalkars
has approximately 80% of the health clubs under its ownership. It also has an employee training academy with a floor
space of ~25,000 sqft in Thane, Maharashtra, which ensures standardization of service quality across health clubs.
• Penchant demand: With the spurt of lifestyle diseases and higher disposable income, health clubs have seen good
traction in memberships. Talwalkars’ average membership fee is ~10% lower than that of its closest competitors. It has
a healthy membership renewal rate of ~ 70%. In line with its strategy of focusing on the middle-income segment, the
company is planning to increase its penetration in Tier II and Tier III cities.
• Drivers of profitability: Personnel expenses at 25% of revenues form the main cost element. The lease rates at which
the space for health clubs are secured is an important driver of profitability. The company pays an average rent of
Rs33-35 psf.
• Service extension strategies: Apart from offering gym services, Talwalkars has also started offering yoga and aerobics
in their health clubs. It has also initiated spa services and currently has 14 spas in operation. This has transformed
Talwalkars into a fitness chain that offers the entire gamut of services.
• Expansion plans in place: Talwalkars plans to increase the number of health clubs to 140 by FY12 from 76 now. The
management is anticipating a capex of Rs750m every year for expansion. The company incurs a capex of
approximately Rs18.5m-20m per health club and requires around 750-800 members to break even. The normal
payback period for investment is around four years after taking into account interest costs.