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

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Led by improved growth in SSS & steady gym additions, we expect TBVFL to report a healthy growth of 20.9% & 26.6% on
CAGR basis in Sales & PAT over FY14-16. While in FY15, the growth would be largely driven by improved realizations (fee hike
& improved product mix), we expect volume growth to improve in FY16 due to gym additions, while realization growth would
remain healthy due to higher share of high margin value added services (VAS) like Reduce, Transform, Nuform & Zumba.
Aggressive marketing initiatives could boost revenues & widen TBVFL’s brand reach. Experienced promoters, strong
positioning in fitness industry (India’s largest fitness chain with 150 gyms and presence across 78 cities & towns & 20 Indian
states) with favourable industry dynamics provides good growth opportunity. Alliances with prominent overseas brands like
Zumba Fitness, Premier Training Institute, David Lloyd Leisure Ltd could further strengthen quality of its value-added offerings.
Optimal utilization of existing assets would result in OPM expansion. Enhancing productivity due to increasing member base,
comprehensive utilization of time slots & widened bouquet of VAS would be key focus over the next 2 years. Higher OPM
along with control on rise in depreciation & interest cost in FY16 would result in higher PAT margins. Healthy cash flow
generation, well measured & steady gym additions would ensure stable debt-equity going forward.
Despite intensifying competition from organised and unorganized players, TBVF has an edge over its peers (like Gold gyms,
Fitness one, snap fitness etc) due to its long presence in the industry driven by qualified and experienced professionals, strong
brand recall, market leadership, diverse service offerings with Pan-India presence and competitive pricing.
We feel TBVFL is capable of trading at 15xFY16E EPS, which gives a price target of Rs. 336. TBVFL is a branded retailer of
services and hence can be compared with other multi-brand retailers like Shoppers Shop, Pantaloon, Trent, Marico Kaya etc
for valuation purpose, through its business model is different. TBVFL trades at a significant discount to Shoppers Stop, Trent &
Marico Kaya on EV / EBITDA basis (TTM), which further provides comfort to valuations. We recommend investors to but this
stock at current levels & average it on dips to Rs. 235-247 (10.5-11xFY16E EPS) for our price target over the next 1-2 quarters

LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3010441