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Sunday, April 3, 2016



Scrip Code: 533200 TALWALKARS
CMP:  Rs. 190.90; Market Cap: Rs. 567.07 Cr; 52 Week High/Low: Rs. 390.50 / Rs. 181.00;
Total Shares: 2,97,04,856 shares; Promoters : 1,12,74,143 shares –37.95 %; Total Public holding : 1,84,30,713 shares – 62.05 %; Book Value: Rs. 90.17; Face Value: Rs. 10.00; EPS: Rs. 16.75; Dividend: 15.00 %; P/E: 11.39 times; Ind. P/E: 26.42; EV/EBITDA: 5.94
Total Debt: Rs. 254.90 Cr; Enterprise Value: Rs. 777.65 Cr.

TALWALKARS BETTER VALUE FITNESS LTD: The Company was founded in 1932 and is based in Mumbai, India.  Talwalkars Better Value Fitness Limited (TBVF) was formerly known as Talwalkars Better Value Fitness Private Limited. The company operates a fitness chain in India. The company offers a suite of services, including gyms, spas, aerobics, nutrition counseling, physiotherapy guidance, yoga classes and health counseling under the ‘Talwalkars’ brand. The company came with an IPO on 23rd April 2010, offering 6,050,000 equity shares of Rs. 10 issued at Rs. 128 per share raising Rs. 77.44 Cr. The main object of the issue was to set up additional health clubs, repayment of certain unsecured loans availed by company and to meet issue related expenses. The Company has an 8,000 square feet residential training academy at Thane. The training academy offers about 4 to 6 weeks of training program for its staff joining at the new centers.  It has 128 health clubs comprising 15 franchised gyms under HiFi brand and in 68 cities and had more than 75,000 members. Its health clubs-training centers are located in Andhra Pradesh, Gujarat, Karnataka, Kerala, Maharashtra, Madhya Pradesh, Punjab, Rajasthan, Tamil Nadu, Uttar Pradesh and West Bengal. In April 2012, Talwalkars through its subsidiary opened a health club in Gandhinagar. In April 2013, it opened its six new health club one each in Ahmedabad, Hyderabad, Kolhapur, Kalwa, Mira Road and Surat. The company is locally compared with Powerhouse Fitness and Realty, T. Spiritual World Ltd, Gold's Gym, Mickey Mehta 360 Gym, VLCC, Transform Gym - gym for all LLP, globally compared with Misonoza Theatrical Corporation of Japan, David Barton Gym of USA, Life Time Fitness Inc of USA, Anytime Fitness of USA, Central Sports Ltd of JAPAN, Planet Fitness of France, Clubcorp Holdings, Steiner Leisure of USA, LA Fitness LLC of USA, Health & Fitness Nordic, Town Sports International Holdings, Inc, McFit Gmbh, Renaissance Inc, BIO RITMO/SMARTFIT, Russian Fitness Group, Bodytech of Brazil, The Bay Club Company, World Gym Taiwan, Kieser Training AG, Leisure Sports Inc, Clever Fit, Mrs. Sporty, Alex Fitness, Snap Fitness, David Lloyd Leisure of UK, Virgin Active of UK,   Media Create Company Ltd of Japan, Social Ecology project Company Ltd of Japan and with Kaquetsuenkanko Co.,Ltd which is also based in Japan.

Investment Rationale: 
Talwalkars Better Value Fitness Limited, Company is one of the largest fitness chains in India offering a diverse suite of services in fitness including Gym, spas, aerobics and health counselling under the brand ‘Talwalkars’. The company has 150 fitness centres spread across 83 cities covering 21 states of India. Through Power World Gym of srilanka acquisition, the Company gained access to 10 gyms in Colombo. Post Zorba acquisition, the total fitness centers stands at 163. Talwalkars is the dominant player with a market share of 12 % + in the Indian organized health club market which is about Rs. 70,000 Cr & is a play on growing awareness about fitness and a healthy lifestyle. Talwalkars is now leveraging this reach to launch several initiatives that offer other fitness alternatives to enthusiasts. It has launched NuForm studios which are designed to provide twenty minutes a week fitness solution using Electro Muscular Stimulus technology imported from Germany. The launch of Zumba Fitness is another move towards widening its consumer base while using the team and infrastructure it already has in place, thereby seeking to consolidate its position as the leader in the fitness industry in India. With the launch of Reduce, Talwalkars aims to help consumers achieve their fitness goals. Reduce is a complete diet based weight loss solution that’s easy, healthy and is designed keeping in mind the busy schedule of the consumers. Transform is a unique combination of weight loss and fitness model, uniting the benefits of weight training and calorie burning. The Indian fitness industry is in its early stages of growth with a gym penetration rate of just 0.13 % and significant untapped potential that could result in unabated growth in the coming years. With constant rising surge in the number of gym-goers, the fitness industry in India is all set to witness significant growth. The relatively underpenetrated Indian market has experienced healthy growth rates over the last few years. The combination of a billion-plus population and a demographic profile that is significantly skewed to the younger age brackets of 10-24 years will provide a rich target market for fitness clubs. Moreover, changing social trends are also facilitating the incremental inflow of female customers in the Indian fitness industry who today make up almost half the Indian market. The industry primarily caters to Indians with high disposable incomes and conscious about health and fitness. Indians are highly suspectible to lifestyle diseases such as diabetes, cardiac problems, osteoporosis and arthritis, among others, that typically affect a significant number of people as they cross the age of 40 years. The Indian fitness industry is also witnessing significant growth in the desire of people to look good, eat right and feel good. Higher rates of heart disease, increase in the incidence of cancer, record numbers of clinically obese people, and various other health scares have all drawn attention to the need for healthy lifestyle choices. A survey revealed that a majority of the current generation of Indians are unfit. This is due to the rise of sedentary lifestyles, unhealthy diets and low importance given to physical fitness. According to IHRSA Global Report 2015, the global fitness industry is worth USD 84 billion in revenues, comprising 180,000 health clubs worldwide. Talwalkars continues its dominant presence in the Indian health and fitness industry. The company expects to continue establishing new fitness centres in areas where it is not present and expand the bouquet of services being offered in existing and new locations. Talwalkars’ asset-light strategy is focused on the generation of superior business returns that can lead to sustainable growth. The Company implemented the rollout of franchisee owned centres (HiFi), making it possible to widen the Talwalkars footprint with significantly lower investments, and generate franchise licensing fees. Talwalkars follows a balanced business model that combines volume and margin growth across its various service offerings that range from basic gym membership, personal training, weight loss programmes, spa facilities, aerobics and health counselling among others. Talwalkars is increasingly focusing on the pre Reduce and Transform are helping create a strong differentiator between Talwalkars and other competing he centres. These offerings are reporting traction, accounting for a larger share of revenues. Recently, the Company opened its top of-the-line fitness centre at Hyderabad spread across 10,000 sq. against a standard size of 5,000 sq. ft. earlier. The annual membership fees at these fitness centers are 30-40 % higher than the fees charged at regular fitness centres. Talwalkars operates Gyms under brand name - Talwalkars Gym-  It consists of gyms and premium gyms where the normal gyms are operated across metro, Tier-1 and Tier-2 cities and premium gyms are operated in metros and Tier 1 cities. The company has recently opened a premium gym at Banjara hills, Hyderabad and the other in south Mumbai. The typical layout area for a normal gym of Talwalkars ranges from 4000-5000 Sq.ft. whereas for a premium gym it ranges from 8000-12000 Sq. ft with the capacity of around 1100-1350 members for a normal gym & 1800-2200 members for a premium gym. The services offered by the gym include gym services and other value added services whereas for a premium gym it offers a wide range of services such as gym, value added services, WiFi, juice bars, merchandising and valet parking. Huge capex is required to set up a gym which is around Rs. 2 Cr to Rs. 2.5 Cr and the average time required to roll-out a gym is around 18-20 weeks. The HiFi Model- The HiFi model (Healthy-India-Fit-India) by the company is basically operated pan India. The layout required for HiFi model is around 2000-2500 Sq.ft with the capacity of around 550-650 members. The HiFi is a franchisee model offering gym facility across India. The company is able to improve its presence across India through this model. The company is consistently improving its HiFi centers and expanding its base of operations. The typical roll-out period for a HiFi gym is 8-10 weeks and capex involved for the franchiser is around Rs.1.1 Cr which is almost less than half of the Talwalkar’s normal gym. The Alternate therapies - Talwalkars offers a wide range of alternate therapies which include- Nu form exercise studios, Dance fitness program, TranZform, Spa facility, Free floor exercise. The company has entered into a joint venture with David LIoyd Leisure Limited, a UK based leisure club for establishing and managing leisure clubs in India. It is 50:50 joint ventures. The company is planning to set up 7-10 clubs in India over next 5 years. The company had recently done a Qualified Institutional Placement (QIP) and issued 3,523,968 equity shares in the month of June 2015 raising Rs. 107.48 mn at Rs 305 per share after giving a discount of 4.47 % to the then market price. The amount raised through QIP will be used for joint venture with David LIoyd and further expansion plans. The joint venture aims to provide consulting for leisure and sports clubs in high-end residential areas, gated community townships etc. The JV will develop seven to ten clubs across India over next five to seven years with the total investment of Rs.500 CR. The first club under this joint venture will be commissioned in Pune. Also recently Talwalkars have acquired 50 % stake in Chennai based yoga studios chain named ZORBA’ A Renaissance Studio which has three operational outlets sututated in prime location in Chennai also they have acquired a strategic stake in Inshape Health and Fitnez Pvt Ltd (IHPL) having major operation in Chennai. Going forward, the company will continue its new health club expansion by carefully choosing locations, which will yield incremental RoCE of 25 % on an ongoing basis. The company will also focus on driving profitability across the system through active marketing of value-added services and improving same-store sales from current 4-5 % to 8-10 %. With favourable demographics and volume expansion, it is expected that the FY15-17E gym count to increase at CAGR of 8.0 % to 175 gyms by 2017E. There is a vast opportunity exists for further scale building considering the fragmented nature of industry. For instance, market share of the top 5 players by no. of clubs is just 16 % compared to global top 5 average of about 40 %. Talwalkars has a decent spread-out across the North, West and South regions which together accounts for 94 % of the total gyms. The company would expand the gyms in a well measured and steady manner through ownership as well as profitable franchise route after carefully assessing the market situation, demand & the extent of profits generated from existing assets (Same Store Sales growth). The company would ensure that the fitness centres would be opened in locations which can yield a higher ROCE of 25 % on an ongoing basis. Along with new gym additions, Talwalkars is expected to continue to focus on improving its SSS growth through higher share of Value added services (VAS) and increase in membership base.
Outlook and Valuation:

Talwalkars Better Value Fitness Limited (TBVFL) is one of the largest fitness chains in India offering a diverse suite of services in fitness arena including gyms, spas, aerobics and health counseling with pan India presence. Started in the year 1932 with the first gym in Mumbai, currently Talwalkars has 152 fitness centers operating in 80 cities across 21 states serving over 1,55,000 members in India with 6,70,000 sq.ft. layout area providing a wide range of health and fitness services and fitness programes such as Gym, HiFi, Nuform, Zumba and Reduce. It also provides personalised fitness training programs and personal sessions with dieticians with regard to weight management. With 1,700 fitness trainers, Talwalkars is expanding its presence across India with its market share of 12.3 % across the organized market. The company is poised for a healthy organic & inorganic growth in the coming years. It has a strong brand name and is now capitalizing it, with a rapid expansion. Gym is a highly localized business in the sense it needs to be easily accessible to local population at an affordable price (at least from a mass market perspective). Talwalkar Better Value Fitness as a company is focused on addressing the fitness deficit in India. Over the years, Talwalkars has enriched its brand through a conscious positioning around fitness, training knowledge, diverse offerings and uplifting health club environment. Company has been prudently positioned as an affordable brand addressing a growing customer base with increasingly diverse requirements. The company is consistently focusing on Healthy India Fit India (HiFi) franchisee model across pan India thereby zero investment in this concept resulting in higher RoE. The value added services constitute 23 % to 24 % of the turnover. The company is aiming to generate 40 % of the revenues from value added services which can boost margins going forward. The company has maintained its member’s retention rate at 70 %-76 %. The retention rate is likely to improve further with a wide range of diversified products and services. Indian Fitness & Slimming industry is likely to gain prominence in the years to come with upward trajectory of the GDP. The industry constitutes about 8 % of the wellness market. The Indian fitness & slimming industry is poised to grow at a CAGR of 25 % to reach $2.4 billion by 2015. The fitness industry in India especially, gyms are experiencing healthy growth rates and has an estimated market size of $11.3 Cr. The age group of 20-44 can be mainly identified as prime market for the fitness Industry. The proportion of people in the age group of 20-44 years is projected to go up from 37 % in 2006 to 39 % in 2011 and 40 % in 2016. In India, the fitness clubs have a mere 0.4 % of members in India in top seven cities, when compared to US which has almost 16% of members indicating that huge potential for growth in the coming years. Currently, exercise is perceived as a blend of both mental as well as physical well-being. Hectic work schedules, early lifestyle diseases and sedentary lifestyles are driving the realization to be fit and healthy. Fitness clubs are offering a wide range of products and services for the customers for wellbeing. The fitness industry is basically in the nascent stage and growing awareness among people with regard to fitness and health is likely to benefit the industry going ahead. The organized market constitutes 28 % of the total market where Talwalkars has 12.3 % of market share. The share of the organized market is likely to pick up going ahead which can improve the market of the organized players which can benefit Talwalkars. A wide range of value added services across various gyms of the Talwalkars is likely to be an advantage for the company. The company has more than 155,000 members with 152 fitness centers in 80 towns and cities in 21 states. It has more than 1,700 fitness trainers who train the customers across various gyms of Talwalkars. Of the total 152 fitness centers, 104 are owned by the company, 14 owned by subsidiary, 15 franchisee and licensed gyms; and 19 HiFi gyms. Talwalkars has forayed into the Sri Lankan market through acquisition of Power World Gyms (PWG). This acquisition offers an opportunity for the company for growth as per capita income of Sri Lanka is US$9,738 significantly more than India’s US$5,418 per capita income. Further, market penetration in Sri Lanka is as low as 0.5 % vis-à-vis 16.6 % in the US, opening up huge scope for rapid growth. In addition, 30 % of the total population is aged between 18 and 39 years, which is the company’s target market. PWG is managed by Talavou Alailima, a South Asian Games Medallist and Sri Lankan record holder for short put and discus. Mr Alailima has an extensive experience (over 20 years) in health, fitness, nutrition and operating gyms. PWG has a network of 10 gyms in Colombo, serving 8,100 members. It has a distinctive operating model targeting the medium income group and all services are built around this target set. Going forward, PWG aims to expand its footprint and plans to open another 35 gyms in Sri Lanka in the next 18-24 months. This will drive revenue growth in coming years. Further, PWG has an impressive financial performance of 56 % EBITDA margin and 35 % RoE in FY15. Although the acquisition cost of 49.5 % stake in PWG is undisclosed. During the quarter, the company integrated eight standalone transform studios with the nearest fitness centres. This will result in a reduction of the operating cost by Rs. 2 crore per annum on account of discontinuing rent, power cost, part salaries, and separate marketing expenses. Further, the company has now a dedicated team to provide periodic training to each gym across its centres in South Asia via online and onsite training. This coupled with restructuring and reduction in rentals in 38 gyms by 20- 25 %, utilising time slots more efficiently and widening bouquet of value added services will boost margins in coming years. The cost rationalisation will not only help in improving cash flow but also improve return ratios. The company is also aiming to improve RoCE, RoE and D/E ratio by demerging/spin off of immovable property worth Rs. 120 crore. TBVFL's business has element of seasonality. Q2 & Q4 are the best quarters, wherein the company derives 65 % of its total revenues from these quarters, while Q1 & Q3 are weak quarters. The seasonality impacts the business in following way as April-June where these months are governed by School vacation & monsoons; July–September: Monsoon, Annual discount scheme, a big attraction; October– December: Festive season like Diwali, Navratri, Christmas and January–March: New Year - New Resolution sees uptick in membership. TBVFL has penetrated to untapped locations with organised and branded offerings and having the first mover advantage. The company averaged around two health clubs per city, making it possible to leverage the economies-of-brand without cannibalising respective revenues. Nearly 64 % of its national presence is in non-metro locations, making possible for it to grow its offerings from the grass-root levels to upwards. Western India accounted for 44 % of its presence; South and North India cumulatively accounted for 51 % of its presence. The rise in the number of employed individuals coupled with rapid urbanisation and rising disposable income, has driven awareness and spends on a perceived ‘otherwise-not-so important’ service have increased. This has created a new market segment to cater through innovative services like Reduce, Zumba® program, spa & massage, among other services. India is a relative unfit country where obesity is a raising problem. India has 4.1 Cr obese and ranks third after the US and China in the highest number of overweight people in the world (Source: Global Burden of Disease Study 2013). India and China cumulatively accounts for a seventh of the world’s obese. Rising cardiovascular disease burden, increasing number of deaths in India from coronary heart diseases, rising hypertension prevalence, increasing number of cases of diabetes provides urgent need for health awareness in the country, which can mitigate the prevalence of certain diseases and ailments to a large extent. Also India is largely unexplored market with recorded industry penetration levels of less than 1 % of the Indian population, there exists massive headcount to be approached by the health industry over the coming years towards raising fitness awareness and driving enrolments. At the current market price of Rs. 190.90, the stock is trading at a PE of 11.16 x FY16E and 9.84 x FY17E respectively. The company can post Earnings per share (EPS) of Rs. 17.10 in FY16E and Rs. 19.40 in FY17E. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also.  

SALES ( Crs)209.50252.50290.40  354.30
NET PROFIT (₹ Cr)36.6046.1050.7057.50
EPS ()14.0017.6017.1019.40
PE (x)15.2012.1012.5011.00
P/BV (x)
EV/EBITDA (x)8.507.005.804.80
ROE (%)14.0016.7011.9012.00
ROCE (%)15.1014.9011.7012.90

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  1. I was a member of Talwalkars when in India and loved their trainers (pun unintended) :) good review as always :)

    1. Thanks Shweta for ur time. Yeah they have now introduced new fitness training programs too..
      Thanks and do visit again
      Have a wonderful day ahead :)

  2. Thanks for sharing such authentic stats. A great in-depth review as always! Have a great week ahead. :)

    1. Hiii thanks maitreni, I am glad that u liked the post though it was lengthy :) and thanks for your visit :)
      Do visit again and have a wonderful day ahead :)

  3. Great efforts Bhavikk..I am a first time visitor but if i do not drop a comment it would be injustice to your efforts..

  4. Bhavikk sir, i just unexpected come across your blog. this is my first visit and i admit that i really liked your post. Just one question-Talwalker has funded all her expansion either by increasing share capital or by debt. Over all free cash flow was much lesser than the Capital expansion done in last 10 yrs. Isn't that bad for the company?

  5. your blog is helping me in numerous ways bhavik for my summer internship project. my subject is "comparative financial analysis between fitness industry players in india". i need financials and ratios of other fitness centres also, but fitness industry is way too unorganized in india and only talwalkars is listed in its field.


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