Talwalkars Better Value Fitness Ltd. share price target

Talwalkars reported a mixed set of numbers. Revenues increased 14.9% YoY to | 60.2 crore (below I-direct estimate of | 63.9 crore) mainly led by an improvement in same store sales growth (SSS) and addition of 20 new gyms at Bengaluru EBITDA margin increased 209 bps YoY to 43.3% (above I-direct estimate of 38.5%) due to operating leverage benefit TBVF has proposed to re-organise its business into Gym Co (asset light business) and Lifestyle Co (asset heavy business). This reorganisation is expected to be completed by Q4FY17E. The...

Added 20 Gyms in one day: On 8th November, the Company opened 20 owned Gyms in Bengaluru under its Power World Gym (PWG) brand. These Gyms have been set up with an average capex of `2-2.5mn per Gym. Management anticipates these new Gyms to earn ~`20-25mn sales per Gym and accrue ~25% ROCE within a year. With this move Talwalkars has become second largest player in Bengaluru with 25 Gyms. As on 9th November 2016 Talwalkar has 198 fitness centers across India. The Company intends to open 6 Hi- Fi centers by March17. By2019 Talwalkars plans to increase its fitness club network to 250 with the combination of own and franchisee...

Background: TBVF is one of the India's largest fitness chain and holds ~10% market share. TBVF has over 198 health clubs and gyms across 85 cities and towns of India and Sri Lanka with member base of over 166,000. They have 103 owned gyms, 9 gyms subsidiary, 20 gyms Associates, 18 Franchisee gyms, 20 Power World Gyms, Zorba (3) and 25 HI-FI format gyms. Geographic distribution of gyms: West (42%), North (24%), South (28%) and East (6%). Urban, semi-urban mix's of gym: Tier...

Talwalkars reported a mixed set of numbers. Revenues increased 12.3% YoY to | 104.9 crore (vs. I-direct estimate: | 109.3 crore) mainly led by an improvement in same store sales growth (SSS) and consolidation of Power World Gyms The EBITDA margin increased 197 bps YoY to 52.6% (vs. I-direct estimate: 51.5%) due to a rise in share of value added services TBVF added 20 new gyms in Bengaluru on November 8, 2016 under power world brand (which has lower capex and opex requirement)....

Talwalkars Better Value Fitness (TBVF) is one of the largest gymnasium chains in Asia (largest in India), with 177 centres across 86 cities. The company has 103 company operated Talwalkar branded gyms, along with 24 franchised Hi-Fi' branded formats (economy segment). The remaining centres are accounted for by franchisees (18), subsidiaries and associates (32). TBVL recently acquired a 49.5% stake in a Sri Lankan gym chain called Power World Gym. The company also has value added services (VAS) that integrate with its core gym concepts Personal training, Reduce (food supplements along with dietician services), Nuform (electrical muscle stimulation machines), Spa, Zorba, group activities (Zumba,Yoga) etc. VAS account for ~25% of sales currently. TBVL is also...

Q1FY17 saw a muted addition of 3000-4000 members and 1 new gym only. The heat wave in India during the month of April the growth of the business- revenues grew by a mere 11.9%. • Over the last four-six quarters, franchisee has become an integral part of the company’s operations. Out of the 177 gyms owned/ operated by it, almost 50-55 gyms are in the franchisee model. Going ahead, the company plans to add another 12-15 gyms under the same model which will be operational within the next three quarters.

Valuation:. The intention to forg venture with David Lloyd Leisure (Europe’s leading premium sports, health and leisure group) for the development of 7-10 clubs in India along with demerger - one focusing on gyms and the other focusing on properties and value added services- is symptomatic of renewed business focus. Transformation into a wellness company (better services and infrastructure) will further make its offerings more eclectic. Growing disposable income and awareness regarding fitness augurs well for the business expansion. Average earnings growth of 21.5% over the next two years is doubtless worthy of notice. We retain ‘buy’ rating on the stock with a revised target of Rs. 338 (previous target Rs 319) implying a 12x FY18e EPS over a period of 9-12 months. (PEG ratio: 0.6)

Talwalkars Better Value Fitness Ltd is the largest fitness chain in India and Sri Lanka, providing diverse service offerings right from standard gyming and fitness to value added services like Zumba, Reduce, NuForm, Transform, spa, massage, TRX and yoga. With over 1.55 lac membership base, TBVFL has 177 fitness centres with presence across 85 cities.

During the quarter value added services (VAS) provided growth impetus while operating costs are reduced by 270 bps due to higher productivity and spreading of central costs. The Company entered into a MoU for operating...

Going forward company plans to open 20-25 Talwalkars gyms and 30-40 Zorba centers in FY17 and Valuation: We continue to remain positive on the fundamentals of the business, the company's ability to constantly innovate to improve the same store sales by offering newer services, prowess in implementing & running gyms and a strong business model. At CMP of INR 254, the stock is trading at 15.4XFY17E and...

Revenues increased 13.2% YoY to | 57.4 crore (vs. I-direct estimate: | 60.3 crore) mainly led by improvement in same store sales growth (SSS) of 7.5% YoY and consolidation of Power World Gyms EBITDA margin increased 159 bps YoY to 43.8% (vs. I-direct estimate: 43.0%) due to a rise in share of value added services. As a result, PAT broadly remained in line with our estimates Organic, inorganic expansions driving growth In FY16, the company acquired power world gyms (10 gyms) in Sri Lanka,...