Stock Review: Talwalkars Better Value Fitness

 

With a share of 8-10%, Talwalkars Better Value Fitness is the market leader in the fragmented health and fitness sector. Its initiative for an affordable format of fitness centre targeting satellite townships bodes well

 

TALWALKARS Better Value Fitness (TBVF), the health and fitness company, which has 100 health clubs across the country, has worked out an aggressive growth plan to be achieved over the next three years.

   Named after the founding family, the company's health clubs offer services such as gym, spas, aerobics and health counselling by trained staff. Owning a market share of 8-10%, TBVF commands a leadership in the country's fragmented health and fitness industry. At the end of FY11, the company has expanded its footprint to 100 clubs across more than 50 metros and tier I and II towns in India.

   The company operates clubs primarily through the sole ownership and sometimes, through the franchisee arrangement or a joint ownership with the franchisee. It now plans to start 40 more clubs in FY12 and cumulatively have 225 clubs operating by FY14. To reach the masses in the small tier III and IV towns, the company has unveiled a more affordable format of fitness centre termed as the Talwalkars HiFi (Healthy India Fit India) model. At 75-95 lakh, the cost of each such gym is much lower than the cost of an existing Talwalkar health club at 1.75-2 crore. The company has proposed to start 25 such HiFi gyms in the current fiscal and intends to have 250 such gyms in the small towns over the next three fiscals.

   To fulfil its growth plans, TBVF has planned a capex of 90 crore for FY12 with a 20-25% increase every year. It has 20 crore in cash on its books and a comfortable debt equity ratio of 0.7. The company has been reducing its debt for the past three years and hence, has scope of leveraging itself to fund its capex plans.

   Given the low penetration of health and fitness clubs, the company's business has good growth prospects. Its net sales have grown at a compounded annual growth rate (CAGR) of 60% since FY06 to reach 66 crore in FY10. Its profits have grown at a CAGR of 108% since FY06 to hit 8 crore at the end of FY10. The company has maintained an operating profit margin at an average of 37% for the past seven quarters.

VALUATIONS:

The company, the only one representing the health and fitness industry on the Indian bourses, is valued at 45 times its trailing 12-month earnings. At a market cap of 550 crore, it is valued at more than seven times its net sales of 78 crore (total of the past four quarters).

   These are premium valuations commanded by the stock because of strong fundamentals and a lucrative and promising business model. Besides, given the company's past track record of growth, as its earnings grow in coming fiscals, its valuations are also likely to become more attractive.

   The company's stock has gained nearly 80% since its listing in May 2010. Investors interested in cashing in on the growth in health and fitness industry can look at adding the stock to their portfolio.