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

�� -->



Future growth drivers in place: The company is expecting Zumba®, Reduce, and personal training programmes to significantly increase same store sales growth over the next 3-4 quarters. By FY14 the company is confident of opening 100 Zumba® centres from 15 centres currently and introduce Reduce program in 75 fitness centres from 5 centres now. Currently under Zumba it has 300 members and for Reduce 400 enrolments; it has increased the products basket to 43. Higher realization in Zumba (Rs2000/month) and Reduce (Rs15k-20K/quarter) will drive same store sales growth and increase margins further.

Margins continue to expand: Operating margins expanded by 212bps to 40.5% as the company maintained its tight control on expenses. Employee cost as a percentage to sales reduced by 250bps on the back of operating leverage. The company’s focus on going asset light also helped in margin expansion on the back of royalty income from HiFi and subsidiary gyms.

Other highlights: During the quarter the company successfully raised Rs424mn through QIP at Rs205.18/share. It also entered into collaboration with David Lloyd Leisure, Europe’s leading health sports and leisure club chain to form “Talwalkars David Lloyd Leisure Consulting”. The collaboration is a zero equity venture and aims at offering execution, management, operation and consulting services for leisure and sports clubs.

Maintain BUY: We have marginally reduced our FY13 estimates but increased FY14E and margins. TBVF is currently trading at 15.4x FY13E and 10.1x FY14E EPS of Rs11.2 and Rs17.1 respectively. We value the stock at 13x Sept 2014 and maintain our target price of Rs258. We continue to remain positive on long term growth prospects on the back of new service offerings such as Zumba and Reduce coupled with steady fitness centre expansion which would continue to help the company grow by 30%+ in the coming years.