TBVF: Listed player in the space - Sanjay Chhabria : ValueNotes.com
Talwalkars Better Value Fitness(TBVF) was formed in 2003 but its co-promoters i.e. the Talwalkars has been in the fitness business for over five decades. The co-promoters had opened its first gym in 1962 in Mumbai. 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. With 144 clubs (fitness centers) across 75 cities spread over 19 states and serving over 1.5 lakh members, Talwalkars is among the largest health club chains in Asia. TBVF has 101 clubs under its ownership model. TBVF says it holds approximately 10% market share in the organised health club market in the country. TBVF has 25,000 square feet of residential training academy for its trainers. TBVF had come came with an IPO in April 2010 at Rs128 per share. The money was raised to repay debt and to finance its expansions.
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. In its annual report for FY 2012, Talwalkars has noted that India’s population is six times that of Brazil. However, Brazil has 16 times more health clubs than India. Further, 4,000 gyms would be required to increase the penetration to mere 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.
Talwalkars has enhanced its business scope from being a gym player to a fitness player. NuForm Gym Studios is one such initiative. The focus is on weight loss and slimming. Apart from standard facilities in its health club, the firm has introduced many value-added offerings such as spa at 13 locations, aerobics and personal training. It has launched Zumba fitness program 11 gyms and plans to introduce it across all gyms in a phased manner. This increases the variety of products for the customers and increases their engagement with TBVF. Besides, Talwarkars would be tapping growth opportunities in tier 2, 3 and 4 cities with its affordable format hi-fi gym membership.
Besides the flagship Talwalkars chain, TBVF also has a chain called HiFi. Smaller in size and priced about 40% 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 March 2013, almost 65% of its health centres were in Tier-II and III cities.
TBVF’s standalone revenues have increased from Rs71 cr. in FY10 to Rs119.3 cr. in FY12. Its net profit has tripled during this period from Rs7.8 cr. to Rs22 cr.. TBVF's EBITDA margin has increased from 37.8% to 43% now. On a equity of 26.18 cr.(Promoters’ stake–54.78%,DII/FII stake-25.12%), the EPS for FY12 stood at Rs9.15 and the dividend declared was 12.5%. For the year ended March 2013, TBVF has posted 29% rise in consolidated net sales to Rs168 cr. whereas net profit grew 36% to Rs30 cr.. The EPS for FY13 stands at Rs11.45 and a dividend of 15% has been declared. The book value per share stands at Rs79.6. In FY13, especially in Q4, TBVF has widened its presence in different segments of fitness like weight loss (Reduce), alternate form of fitness (massage & Zumba®). These initiatives are significantly higher ROCE business due to its low dependence on capex. Addition of members and renewal of membership have been steady.
TBFV is a play on the growing healthcare market in India. It has a strong brand name and is now capitalizing, with rapid expansion. TBVF has a robust business model which can generate high returns and is scalable. It will be a significant beneficiary of the growing health awareness in the country. Also, the first mover advantage it has will enable it to capitalize on the growing healthcare market. 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 P/E of 25x FY13. As TBFV will have lower return ratios in the near term and also its execution capabilities will be under scanner, it will trade at a discount to the comparable peer set. At Rs128, the TBVF stock is trading at 11x its FY13 earnings (Rs11.45) and 9x its expected FY14 earnings (Rs13.5 – Rs14.5).
TBVF has transformed from a gym player to a holistic fitness player with a pan – India presence, catering to each segment of the fitness industry like weight loss, personal training, Zumba® program, sports. This has not only helped TBVF to leverage on the current asset and member base but has also widened the member profile and profitability. The new initiatives launched by the company are high EBITDA and ROCE accretive. The impact of these initiatives will be more visible in the coming quarters. Investors can start accumulating the TBFV stock at current levels and add more on declines for decent returns of 50%-60% over the next 9-12 months.
