GILLETTE INDIA LTD : READY TO FLY HIGH !!!

Scrip Code: 507815/ GILLETTE

CMP:  Rs. 2116.55; Buy at current levels and Accumulate at every dips. 
Medium to Long term Target – Rs. 2500; STOP LOSS – Rs. 1947.22; Market Cap: Rs. 6,896.82 Cr; 52 Week High/Low: Rs. 2600.00 / Rs. 1849.95.

Total Shares: 3,25,85,217 shares; Promoters : 2,89,21,489 shares – 88.76 %; Total Public holding : 36,63,728 shares – 11.24 %; Book Value: Rs. 216.79; Face Value: Rs. 10.00; EPS: Rs. 26.75; Dividend: 150.00% ; P/E: 79.12 times; Ind P/E: 39.77; EV/EBITDA: 40.01.

Total Debt: ZERO Cr; Enterprise Value: Rs. 6,784.89 Cr.

GILLETTE INDIA LTD: GILLETTE was incorporated in 1984 was originally incorporated on 9 February at Rajasthan, and in 2006 it shifted its base to Mumbai, India. The company was jointly promoted by House of Poddar Enterprise (HOPE) and Gillette Company, U.S.A (Gillette). The company was formerly known as Indian Shaving Products Limited, and is now a subsidiary of Procter & Gamble India Holdings B.V. Gillette India Ltd is a Fast Moving Consumer Goods company. The Company manufactures stainless steel razor blades. The company offered 19,49,600 shares at par to the general public on Oct of 1985. In 1991, the company issued 19,31,800 equity shares of Rs. 10 each at a premium of Rs. 110 per share to Gillette USA and the company was granted the permission to use the brand name GILLETTE this enabled company to achieve higher sales and brought company to the path of profit growth. Gillette India Limited offers personal grooming, oral care, and portable power products in India and internationally. It provides personal grooming products, such as blades, razors, and toiletries under the Gillette brand; oral care products, including tooth brushes and other oral care products under the Oral-B brand; and portable power products comprising batteries under the Duracell brand. Its products include razors and cartridges, twin type shaving system and cartridges, blades, single edge blade sets, safety razor blades, tooth brushes and batteries. The Company operates in three segments: Grooming - which include blades, razors and toiletries; Portable Power -which include batteries and Oral Care - which include tooth brushes and oral care products. Mach3 is its blades and razors brand. The personal care category of the male grooming business includes pre-shave/post-shave products (shaving cream and gel) and deodorants. As of March 31, 2013, it had two manufacturing plants in Rajasthan and Himachal Pradesh, India. Gillette India’s subsidiaries include Sabre Pens Ltd, Sheen Dental Products ltd, Klosershav products Ltd and Vanity Cosmetic ltd and Wella India Haircosmetics Private Ltd formerly known as Gillette Group India Private Ltd and is also an investing company. GILLETTE INDIA LTD is locally compared with Emami Ltd. JHS Svendgarrd Laboratories Ltd, Marico Ltd, Farmax India Ltd, Goderaj Consumer Products Ltd, Dabur India Ltd, Bajaj Corp Ltd, Amar Remedies, Colgate Palmolive, P&G, and Globally with Avon Products of USA, Revlon Inc of USA, Prestige Brands Holdings Korea Kolmr Co Ltd of south korea and Kenkou Corporation Incorporated of japan.

Investment Rationale:

The Indian FMCG sector is ranked fourth largest in the Indian economy and has a market size of $1,310 Cr. The FMCG sector has attracted a large number of consumers in both the urban and rural sectors of India in the past few decades through better penetration and low-priced products. Various manufacturers of FMCG products are concentrating on increasing their sales volume due to the rising demand of the consumers. To be successful in this sector, the company must have major attributes like Innovative product, affordability and distribution. Large scale FMCG companies like Gillette have won the hearts of consumers by delivering high-end and innovative products at an affordable price. A large number of FMCG companies derive a significant proportion of their overall sales from outside the top few 100 towns/cities, which reflects the growing economic importance of India’s rural consumer base. Rural India accounts for close to one-third of the total consumption pie. Robust consumption in the rural economy is one of the key drivers of India’s sustained growth. FMCG companies are devising exclusive rural marketing strategies to tap the rural consumer base. The Blades & Razors sector is a huge category and represents a sizable growth opportunity for this company. According to market research data, the Blades and Razors market alone is estimated to be over Rs. 1400 Cr, and about 550 Cr units in size. The Oral Care category gives an unique opportunities and challenges in India. Manual toothbrushes are a key part of Oral Hygiene with opportunity for better penetration and trade-up and this continue to dominate the Oral Care market in India. According to market research data, the toothbrush market is estimated to be over Rs. 1200 Crs and growing at a rate of 10 % per year. The growing usage in the high and mid-range devices like toys and digital cameras and increase in purchasing power in India indicates a robust potential in the coming years for alkaline batteries and thus for Duracell one of the products offered by Gillette, would be benefited by this. The company’s net sales registered a 16.78 % increase and stood at a record Rs. 392.96 Cr from Rs. 336.49 Cr over the corresponding quarter last year. The company’s net profit registered a 20.04 % increase and stood at a record Rs. 16.47 Cr from Rs. 13.72 Cr over the corresponding quarter last year. Gillette India Ltd has recommended a dividend of Rs. 15 per Equity Share (Nominal Value of Rs. 10/- each), for the Financial Year ended June 30, 2013. The growth in the Company’s business was driven by the early pipeline sales from the launch of Oral-B Toothpaste, marketing. The launch expenses will begin in the quarter ending Sept. 2013. Net Sales and PAT of the company are expected to grow at a CAGR of 13 % & 10 % over 2012 to 2015E respectively.

Outlook and Valuation:

Gillette India – The Company was formerly known as Indian Shaving Products Limited promoted by Mr. Saroj K Poddar, in 1991 Gillette Company USA became Co-promoter in the company, later on in October 2005, Gillette Company USA was acquired worldwide through a merger by Procter & Gamble Company USA. Currently, in order to comply with SEBI’s minimum 25 % public shareholding, from 26 September 2013 onwards - the shareholding of Poddar Heritage Group agreed to be part of public shareholding subject to certain fulfillment of conditions as – 1) Poddar group shall have no special rights in Gillette India through any formal or informal arrangements other than that of a normal public shareholder. 2) Entities belonging to Poddar group shall not hold any key management personnel position in Gillette India and other group companies, of Procter & Gamble through any formal or informal arrangements. 3) If any entities belonging to Poddar group prompters want to be classified as promoters of Gillette India again in future they shall be required to make an open offer and no exemption shall be given in this regard. 4) There shall no acquisition of shares of Gillette India by Poddar group for the period of one year from the date of reclassification of Poddar group as public shareholder. Currently, Poddar Heritage group holds 12.86 % of issued and paid up capital of Gillette India and is co-promoter with P&G which holds 75.90 %. The said arrangement will mean that there will be complete termination of prior agreements between P&G and Poddar Heritage Group in relation to Gillette India. In order to pare down the stake of the Poddar Heritage group to less than 5 % in the company, they would have to undertake an OFS of 8.77 % i.e. 7.87 % by Poddar and 0.90 % by P&G instead of 6.90 %, this means that there will be an OFS of around 25,36,415 shares. Poddars have agreed to the said proposal, post agreement Poddar's will held 4.99 % and P&G will hold 75 % in Gillette India. For the termination of the shareholder agreement with P&G, P&G will directly pay the Poddars the severance package as compensation (amount not known) and this payment will not be from Gillette India - this should be seen as positive. The OFS will increase the free float factor of the stock by 0.10 to 0.25 post OFS, the OFS could be for around Rs. 600-700 Cr, and the public holding could be of 62,20,143 shares or 19.02 plus the 4.99 % of Poddar now as public share holder. At the current market price of Rs. 2116.55, the stock P/E ratio is at 75.18 x FY14E and 68.58 x FY15E respectively. Company’s Earnings per share (EPS) of the company for FY14E and FY15E is seen at Rs. 28.15 and Rs. 30.86 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 13 % and 10 % over 2012 to 2015E respectively. 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. Gillette India could be good buy for the target price of Rs. 2500 for Medium to Long term investment.

KEY FINANCIALS	FY12	FY13E	FY14E	FY15E
SALES (₹ Crs)	1,232.90	1,437.72	1,639.00	1,791.42
NET PROFIT (₹ Cr)	75.73	87.16	91.73	100.58
EPS (₹)	23.24	26.74	28.15	30.86
PE (x)	89.90	78.11	74.21	67.68
P/BV (x)	10.99	10.49	10.01	9.60
EV/EBITDA (x)	48.31	40.14	37.54	34.13
ROE (%)	9.10	6.90	11.80	12.90
ROCE (%)	26.62	30.95	31.91	33.92

I would buy GILLETTE INDIA LTD for Medium to Long term for target of Rs. 2500. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 1947.22 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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EROS INTERNATIONAL MEDIA LTD : POWERING INDIAN CINEMA !!!

Scrip Code: 533261 / EROSMEDIA

CMP:  Rs. 134.25; Buy at Rs. 130 - Rs. 135 levels. Short term Target - Rs. 150.00. 
Medium to Long term Target – Rs. 175.00; STOP LOSS – Rs. 123.51; Market Cap: Rs. 1,233.76 Cr; 52 Week High/Low: Rs. 230.05 / Rs. 106.75

Total Shares: 9,19,21,340 shares; Promoters : 7,14,07,000 shares –77.80 %; Total Public holding : 2,03,70,720 shares – 22.20 %; Book Value: Rs. 84.43; Face Value: Rs. 10.00; EPS: Rs. 10.93; Dividend: NIL % ; P/E: 12.33 times; Ind P/E: 30.64; EV/EBITDA: 6.92.

Total Debt: 384.08 Cr; Enterprise Value: Rs. 1,564.81 Cr.

EROS INTERNATIONAL MEDIA LTD: EROS INTERNATIONAL MEDIA LTD was incorporated as in 1977 and is based in Mumbai, India. It was started by Mr. Arjan Lulla. It was earlier known as Rishima International Private Ltd and changed its name to Eros Multimedia Private Limited on July 25, 2000. Company again changed its name to Eros International Media Private Ltd on Nov 20, 2008, On Nov 18, 2009 company again changed its name to the present Eros International Media Ltd. It is subsidiary of EROS WORLDWIDE FZ LLC. Eros International Media Limited operates in the media and entertainment sector in India and internationally. It engages in sourcing content through acquisition, co-production, or production; the theatrical distribution network operation; licensing films for cable, satellite, and terrestrial television; and the distribution of Tamil film content in Western Europe through its own television station. The company came out with an IPO of about 2 Cr shares in September 2010 at Rs. 175 totaling to Rs. 350 Crs at the price of Rs. 175 and got listed at Rs. 213.35 on 6 Oct 2010. The purpose of the issue was to acquire and co-produce Indian films. The company also distributes content through physical formats, such as DVD, VCD, and Blu-rays, as well as the digital mediums comprising VOD, DTH, Internet, mobile, and in-flight entertainment; and involved in music publishing and distribution activities. In addition, it provides production planning and visual effects services for films; engages in the acquisition, production, and distribution of Tamil films worldwide; and involved in cable or DTH licensing, as well as trading and exporting international film rights. The company owns approximately 1,100 films comprising Hindi, Tamil, and other regional languages & has aggregated rights to over 1,900 films plus additional 700 films for which the company holds digital rights only. In the year 2006, Eros International Plc, the holding company of the Eros Group, became the first Indian company to list on the Alternative Investment Market (AIM) of the London Stock Exchange. It distributes content through retail outlets and it’s Website under the Eros and Ayngaran labels. EROSMEDIA can be locally compared with PVR Ltd, Prime Focus ltd, Reliance Broadcast Network Ltd, Balaji Telefilms ltd, Media Matrix Worldwide Ltd, Shree Ashtavinayak Cine Vision Ltd, Tips Industries Ltd and globally compared with Walt Disney Co of US California, Time Warner Inc of USA, IG Port Incorporated of Japan, Twenty First Century Fox, Inc of New York, Lions Gate Entertainment Corp of California,  UTV Media PLC of UK, Dreamworks Animation Skg Inc of California.

Investment Rationale:

EIML is a leading global company in the Indian filmed entertainment industry that acquires co-produces and distributes Indian language films in multiple formats. Eros continues its emphasis on non-theatrical revenue streams. Eros launched two advertising free TV channels HBO DEFINED and HBO HITS along with HBO during the quarter. These channels are currently available on DISH and AIRTEL digital platforms and will available with other operators soon. Online entertainment portal, EROS NOW, is expected to pick up going ahead as broadband connectivity improves in India and 3G, 4G networks become more entrenched. In August, 2013 Eros announced that it is partnering with A.R. Rahman to produce a movie with the music legend. This movie can create quite a buzz and garner decent pre-release revenues due to the “Rahman” tag attached to it. The Company has strong distribution capabilities which enable them to target a majority of the 1.2 billion people in India, primary market for Hindi language films. The company has distribution offices in Mumbai, Delhi, Punjab, Mysore and Chennai. The group has a distribution network that spans over 50 countries, with offices in India, UK, USA, Dubai, Australia, Fiji, Isle of Man and Singapore. The company also holds license of airborne rights to certain airlines for in-flight viewing. EIML announced the launch of its online music channel Eros Now Music on YouTube. HBO Defined and HBO Hits have a subscriber base of nearly 1,50,000 currently. These channels have monthly subscription price of Rs. 140 for HD and Rs. 100 for SD. Currently they are being offered at 50% discount. Management expects revenues of Rs. 150 Cr from the channels by FY16E. Eros International reported better-than-expected Q1FY14 numbers. The topline stood at Rs. 186.3 cr while the EBTIDA was at Rs. 39.5 cr. However, the company reported a 27.5% and 23.6% YoY decline in its operating income and EBITDA, respectively, since Q1FY13 was marked by higher number of hit movies. The company released movies like Raanjhanaa, Yeh Jawaani Hai Deewani (only overseas), which had a decent run at the box office. Higher other income of Rs. 7.9 crore aided PAT, which stood at Rs. 29.3 cr. The stock has plummeted in the past few months due to a relatively weaker movie slate in Q1FY14. Nonetheless, the company has several big banner movies like Ram Leela, Kochadaiyaan and Krrish 3 (overseas) scheduled for release in the next six months.

Outlook and Valuation:

The recent KPMG report anticipates the market size of Indian Music & Entertainment sector to touch Rs 1,45,700 Cr (US$ 25.51 billion) by 2016. There is increased penetration in Indian markets, which is expected to even intensify further, owing to a revolution brought in by digital technology. Wireless broadband, growing internet usage, cable digitisation and higher DTH adoption would further drive Indian M&E industry. The report also noted that smart phones, tablets, gaming devices have laid the foundation of a new wave in the industry. Eros co-produces 60% of the movies while the rest are either acquired or produced. The company has had long industry associations, a consistent track record of releasing three to four movies of the top 10 movies in the box office and a wide distribution network. Eros has been able to develop strong relationships with key figures in the Indian film industry, which help it secure key films and build a strong portfolio of movies. The results were slightly better than the market expectations even though the number of movies released was much lower. The cost of acquiring movies has been rising sharply and the management indicated that the company would refrain from bidding aggressively in line with its strategy of focusing on profitability. This strategy would help margins, revenue growth of the company, until the content price corrects, would be under pressure. The company has a good movie pipeline for the next two years. Multiplexes like PVR have plans of aggressive expansion, which would further benefit producers/distributors. Also, with investment in newer streams of revenue monetisation like the online portal Eros Now and launching of two channels with HBO would further help drive the company’s revenue. The Q2FY14 is expected to be weak due to lack of any major releases. Revenues could get biased more towards Q3FY14 as this is seasonally strong quarter. Also, major releases such as “Kochadiayan”, “Krrissh3”, “Ram Leela” and others are expected to get released in Q3FY14. At the current market price of Rs. 134.25, the stock P/E ratio is at 8.03 x FY13E and 6.10 x FY14E respectively. Earning per share (EPS) of the company for the FY14E is seen at Rs. 19.40 and for FY15E could be Rs. 22.69 respectively. The content pipeline of the company is exciting but timely release of content remains a doubt. 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. Eros is trading at a significant discount to other media businesses. Factoring in revenue and PAT CAGR of 17.4% and 14.3%, respectively, in FY13-15, Eros could be a good ‘BUY’ with a target price of Rs. 175.00 for Medium to Long term investment and for the Shorter term it would be Rs. 150.

KEY FINANCIALS	FY12	FY13E	FY14E	FY15E
SALES (₹ Crs)	944.00	1,068.00	1,167.80	1,473.10
NET PROFIT (₹ Cr)	147.80	154.50	153.40	201.80
EPS (₹)	16.10	16.80	16.70	22.00
PE (x)	7.60	7.30	7.40	5.60
P/BV (x)	1.40	1.10	1.00	0.90
EV/EBITDA (x)	6.00	5.90	6.50	5.30
ROE (%)	17.70	15.70	13.70	15.40
ROCE (%)	16.20	15.90	13.40	15.30

I would buy EROS INTERNATIONAL MEDIA LTD for Medium to Long term for target of Rs. 175 and for the Shorter term it could be Rs. 150. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 123.51 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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GRASIM IND : LEADER IN VSF & CEMENT SECTOR !!!

Scrip Code: 500300 / GRASIM

CMP:  Rs. 2504.85; Accumulate at Rs. 2480 - Rs. 2505 current levels.
Short Term Target : Rs. 2800; Medium to Long term Target: Rs. 3060; STOP LOSS – Rs. 2281.00; Market Cap: Rs. 22,992.79 Cr; 52 Week High/Low: Rs. 3510.00 / Rs. 2105.65.

Total Shares: 9,17,93,094 shares; Promoters : 2,34,28,918 shares –25.52 %; Total Public holding : 6,83,64,176 shares – 74.48 %; Book Value: Rs. 1102.68; Face Value: Rs. 10.00; EPS: Rs. 128.46; Dividend: 225.00 % ; P/E: 19.49 times; Ind. P/E: 13.86; EV/EBITDA: 4.93.

Total Debt: 8,427.34 Cr; Enterprise Value: Rs. 31,192.68 Cr.

GRASIM INDUSTRIES: GRASIM IND was incorporated in 1947 and is based in Gwalior, Madhya Pradesh, India. The company was earlier known as Gwalior Rayond Silk Mfg (Wvg). Co. Ltd and changed its name to Grasim Industries on 22 July 1986. Grasim Industries is a flagship company of Aditya Birla Group. Grasim Industries Limited engages in the manufacturing and sale of Viscose Staple Fibre (VSF), cement, chemicals, and textiles worldwide. The company’s products include grey cement, white cement, chemicals, sponge iron, and textiles. The company’s VSF is a biodegradable fibre used in apparels, home textiles, dress material, knitted wear, and non-woven applications; and cement products comprise grey and white cement, and ready mix concrete. The company’s chemical products consist of rayon grade caustic soda; stable bleaching powder used in water purification, sanitation, and as a bleaching agent; poly aluminum chloride used in water treatment, paper sizing, and effluent treatment; and chloro sulphonic acid used in vinyl sulphate, the raw material for dyes and intermediates, saccharin, drugs, and pharmaceuticals. The company’s textile products include fabrics, synthetic yarns, worsted dyed yarn spun, and branded suiting under the brand names Grasim and Graviera. Through its subsidiary, Grasim Industries Limited sells its products through a network of 50 showrooms, as well as through 200 wholesalers and 25,000 multi-brand outlets. In August 2011 Grasim Industries acquired Aditya Birla Power Ventures Ltd and on March 2012 it acquired 33.33 % interest in Aditya Group AB, Sweden. Grasim industries is locally compared with ACC, Jaiprakash Associates ltd, Ultratech Cement ltd, Century Textiles and Industries ltd and globally compared with Lafarge Cement Zambia PLC, Oman Cement Company, Bamburi Cement, Holcim Liban, Kuwait Cement Company

Investment Rationale:

Grasim Industries is India’s one the best and biggest VSF & Cement Company. Phase I of the Harihar captive Power Plant of 20 MW, Karnataka, and expansion of 18,250 tons per annum was commissioned in Sep’12; phase II of similar capacity in May’13. The Greenfield project at Vilayat, Gujarat, (120,000 tons) will be commissioned in 3QFY14 in a phased manner. A major revamp of the Nagda plant has begun, to be completed in phases over the next two years. The fresh capacities and upcoming projects would support strong volume growth, starting 2HFY14. Company has commissioned 3.3MT clinkerisation plant in Karnataka. It had already commissioned clinker unit of 3.3MT at Chattisgarh and a grinding unit of 1.55MT at Hothi, Maharashtra during Q4FY13. Cement grinding capacity will be operational in phases in line with clinker production. Company has further sanctioned a capex of Rs 21 bn towards setting up of grinding units, modernization and RMC plants across the country. Company expects volume increase to reflect from H2FY14 from the recently commissioned capacities. Looking at the capacity expansion underway in both cement as well as the VSF segment, a boost in revenue may be seen from volumes. The cement segment of Grasim is through Ultratech where Grasim hold 60.3 % stake. The capacity in Ultratech is seen to grow from 52.5 Million Tonnes Per Annum to 54.5 MTPA during June 2013 quarter while 10 MTPA capacity expansions are underway. The muted demand and realisation in Cement is likely to get a boost once the monsoon season gets over. The global industry scenario seems to be improving. The demand supply imbalance in China and high cotton inventory continued to impact VSF realisation with sharp decline in May 2013 but stabilisation was seen in July onwards. With the commissioning of Harihar Expansion the production was up by 5 % on year on year basis. The Kharach Unit operated at low capacity for 45 days due to repairs of water canal supplying canal by state government but with the new reservoir at Nagda ensured no loss of production. Due to depreciation of Rupee the realisation remained under pressure in line with the global trend.

Outlook and Valuation:

Grasim Industries is well placed to take advantage of capacity expansion in both its segments. It is expected that government may increase spending before election which will in tuen boost the demand from rural India. The water scarcity problems that had hit the demands in Karnataka and Maharashtra are expected to get resolved. The subdued stock prices here offers a good opportunity for the investors to enter the stock and given the likely recovery in the cement business and with improving balance sheet the stock somewhat provides a defensive opportunity in this volatile markets. The 1QFY14 VSF volumes went up 0.7 % YoY, the realisations was at Rs. 126/kg which saw a dip of 8.3 % YoY. Realisations were hit by a demand-supply imbalance in China and depressed cotton prices due to huge cotton inventories. Despite the Kharach unit operating at low capacity for 45 days due to water supply issues, production rose 5 % YoY. PAT slid 17 % YoY but was higher than expected due to a lower tax charge of 6.6 % of PBT. Grasim expects prices in the near term to be influenced by the trend in cotton prices and recovery in the global economy mainly from China and US. The long-term outlook is bright on a rising population, developing-markets consumption and a preference for comfort fabric leading to a rise in demand for quality cellulosic fibre. Management expects range-bound VSF prices and margins in the near term. Expect profitability in the rest of FY14 to be better, led by expansion at Harihar, Vilayat, and a marginal recovery in VSF prices. At current price of Rs. 2504.85, the stock is trading at 21.97 x P/E for FY14E and company could report an  EPS of Rs. 114 for FY14E and Rs. 135 for FY15 estimates. One can buy GRASIM IND Limited with a target price of Rs. 3060.00 for Medium to Long term investment. And for the shorter term the target could be Rs. 2800

SOTP Valuation :-

Business Division	Value Per Share (in. ₹ )
VSF Division	374.15
Value of Chemical Division	108.04
Less :NET DEBT (standalone)	(173.76)
TOTAL	308.43
60.3 % in Ultratech @20% holding disc.	2534.34
Investments @20% holding disc.	216.56
TOTAL VALUE PER SHARE	3059.33

KEY FINANCIALS	FY12	FY13	FY14E	FY15E
SALES (₹ Crs)	4,876.30	5,181.40	5,546.00	6,635.80
NET PROFIT (₹ Cr)	1,177.60	1,021.60	1050.60	1,234.80
EPS (₹)	128.00	111.00	114.00	135.00
PE (x)	19.90	22.90	22.30	19.00
P/BV (x)	2.60	2.30	2.10	2.00
EV/EBITDA (x)	18.70	22.70	22.20	15.90
ROE (%)	13.70	12.80	10.00	10.80
ROCE (%)	10.60	7.80	6.50	8.10

I would buy GRASIM INDUSTRIES with a price target of ₹ 3060 for Medium to Long term target, for Short term target could be Rs. 2800. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 2281.00 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

*As the author of this blog I disclose that I do hold GRASIM INDUSTRIES LTD in my investment portfolio. 

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TALWALKARS BETTER VALUE FITNESS LTD : FITS THE BEST AS VALUE PLAY !!!

Scrip Code: 533200 / TALWALKARS

CMP:  Rs. 118.95; Buy at Rs. 113 - 119 levels.

Short Term Target : Rs. 150.00; Medium to Long term Target: Rs. 190; STOP LOSS – Rs. 110.40; Market Cap: Rs. 314.17 Cr; 52 Week High/Low: Rs. 223.70 / Rs. 109.05;

Total Shares: 2,61,80,888 shares; Promoters : 1,43,40,923 shares –54.78 %; Total Public holding : 1,18,39,965 shares – 45.22 %; Book Value: Rs. 77.25; Face Value: Rs. 10.00; EPS: Rs. 10.69; Dividend: 15.00 % ; P/E: 11.19 times; Ind. P/E: 13.09; EV/EBITDA: 5.58

Total Debt: Rs. 139.97 Cr; Enterprise Value: Rs. 430.34 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 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. As of June 2013, it operated 144 gyms in 75 cities in India. The company is globally compared with Misonoza Theatrical Corporation of Japan, 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:

The management stated that as of August 2013 it had 102 owned Talwalkar centers, 15 through subsidiaries, 7 through franchise and 6 through trade marks , it also had 15 Hifi centers. Talwalkars has alliance with Zumba fitness - a latin dance inspired fitness plan has 1.4 Cr people taking weekly Zumba classes in more than 1,40,000 location across more than 151 countries. Talwalkar in the current quarter has expanded its presence in different segments like weight loss brand name “Reduce”, alternate form of fitness Zumba and NuForm. The company has extensively increased the number of “Reduce” centres to 44 from 17 in the last quarter, increasing administrative expenses this quarter. Zumba centres have increased to 31 from 29 on a QoQ basis with over 300 certified Zumba trainers. The new initiatives with premium pricing have helped the company to leverage on its current asset and enhance its member base without incurring any major capex. Some of these activities can also be developed as standalone services outside the fitness centre. Currently, large corporates, including MNCs, are availing the Zumba programme and NuForm. The company is actively looking at other avenues like schools, colleges, home based services, etc. TBVF has also extensively increased the number of “Reduce” centres to 44 from 17 in the last quarter. “Reduce” is also offered as “Home based Reduce”, primarily catering to HNI and corporates at their door step. This is an minimal capex required model. Hence, it has an incremental positive impact on the profitability of the fitness centre. These new initiatives have helped the company to leverage on its current asset and enhance the member base without incurring any major capex. Pricing for new initiatives is at a significant premium. This would help the company to improve its margins, going forward. Talwalkars has also tied up with David Lloyd Leisure: which has over 30 years of unmatched experience in the development and operation of leisure and sports clubs. The very same insights and know-how will now be available to Talwalkars for starting and consulting for sports and leisure clubs in India. TBVF’s HiFi gyms capex requirement is about half of a full service gym and their membership rates are 60 % of those for regular gyms. The company is rolling out HiFi gyms through the franchisee route thereby eliminating funding needs for roll out. In return for gym management, TBVF will earn royalty income at the rate of 6 % of revenues for first three years and 8 % thereafter. Talwalkars would also receive a one-time royalty income and equipment supply charge to the tune of Rs.10,00,000 each. HiFi gyms offer faster roll out since each roll out usually takes 8-10 weeks compared to 14-16 weeks for typical Talwalkars gym.

Outlook and Valuation:

Talwalkars Better Fitness Value ltd is a play on the growing healthcare market in India. It has a strong brand name and is now capitalizing, with 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). Talwalkars has managed to break away from its peers and now leads the scale pack with 145 gyms on consolidated basis. 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. It is also targeting different price segments with roll out of both regular as well as ‘low cost’ HiFi gyms especially in those tier II/III cities which may not support a full service Talwalkars’ gym. Talwalkars Better Value Fitness (TBVF) performed better than the market expectations on the topline front in Q1FY14. The Operating revenues grew by 31 % YoY to Rs. 37.4 crore mainly attributable to new initiatives such as NuForm, Zumba® and Reduce, accounting for around 18-22 % of the turnover. The Operating margins were in line with the markets estimates while the employee costs moderated to 2 % during the quarter. However, one-time administration expenses incurred on the launch of Reduce kept the EBITDA flat YoY. Though finance costs increased 18 % YoY, PAT has increased 22.6 % YoY to Rs. 3.2 crore due to various cost efficiencies. Despite the bad monsoons taking a hit on member additions the company was able to meet expectations and it is expected that there will be a renewed stimulus in demand from the next quarter for both its value-added and flagships products. There are not any listed comparable players and thus its closest comparable peers are the consumption companies like Jubilant Food works, Page Industries, Titan Industries etc which trades at an average PE of 28x to 36x, internationally the firms owning sports and fitness centers have been valued at an Ev/EBITDA of 6 to 9 times, while Talwalkars enterprise value stands at 5.39 times its EBITDA. At the current market price of Rs. 118.95, the stock is trading at 7.43 x FY14E and 5.53 x FY15E respectively. Earnings per share (EPS) of the company for FY14E and FY15E are seen at Rs. 16.00 and Rs. 21.50 respectively. It is expected that the company will keep its growth story intact in the coming quarters also. One could BUY TALWALKARS BETTER VALUE FITNESS LTD with a target price of Rs. 190.00 for Medium to Long term investment and for the SHORT TERM PLAYERS it should be Rs. 150.00 

KEY FINANCIALS	FY12	FY13	FY14E	FY15E
SALES (₹ Crs)	130.50	168.80	212.30	267.80
NET PROFIT (₹ Cr)	22.00	30.10	42.00	56.40
EPS (₹)	9.10	11.50	16.00	21.50
PE (x)	14.20	11.30	8.10	6.00
P/BV (x)	2.20	1.60	1.40	1.10
EV/EBITDA (x)	8.50	6.50	5.10	4.00
ROE (%)	15.30	14.40	16.80	18.40
ROCE (%)	14.60	15.50	17.70	20.20

I would buy TALWALKARS BETTER VALUE FITNESS with a price target of ₹ 150 for Short term and for the Medium to Long term the target would be ₹ 190. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 110.40 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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