BUY :Talwalkars Better-Value Fitness: AnandRathi Institutional Research

Talwalkars Better-Value Fitness - Fit for growth; initiating, with a Buy Rs 340

Its dominance in the growing Indian fitness-and-wellness arena (a 20% share in the organised gym market) leads us to initiate coverage on Talwalkars Better Value Fitness, with a Buy and a target of Rs. 340 (60% upside). A widening footprint and rising share of value-added services have driven a 31% CAGR in its revenue in the last five years, profit at a 44% CAGR, helped by operating leverage and better realisations. Introducing newer products and services and making a foray into the club business would not just aid its growth momentum but also transform it into a complete-lifestyle operator.

A large underpenetrated fitness market waiting to be harnessed. Less than 1% of India's population hops into gyms (16% in the US, 13% in Hong Kong). Thus, rising per-capita income and a growing fitness culture make for fast-paced growth in India's fitness sector.

Not just Gym, Reduce, Nuform, and David Llyod JV to transform Talwalkars into a lifestyle player. TBVF is metamorphosing into a lifestyle player with greater focus on new formats and value-added services. In fact, its new Reduce nutrition programme and its tie-up with David Llyod, a club-chain operator, for plans to roll out a club chain in India (starting with Pune) will transform it into a lifestyle player.

Steady expansion and value-added services to drive a better mix. TBVF is expected to add 15-20 fitness centres (p.a., over the next two years) assisted by tie-ups and franchisees. This, along with introducing new formats (Zumba, Yoga) could lead to additional revenue streams and a better mix.

Valuation. One of the best operating margins (>50%) in the consumer sector with strong growth assurance and growing free cashflows and return ratios make Talwalkars an attractive portfolio stock. At the CMP of Rs. 212, the stock trades at 9.2x FY17e EPS of Rs. 23.1 and 7.3x FY18e EPS of Rs. 29.2 Risks: Competition from new gyms, rising debt and cut in promoter stake.

Shares of Talwalkars Better Value Fitness Ltd was last trading in BSE at Rs.232 as compared to the previous close of Rs. 224.05. The total number of shares traded during the day was 61168 in over 1160 trades.

The stock hit an intraday high of Rs. 234 and intraday low of 225.5. The net turnover during the day was Rs. 14146152.

Source : Equity Bulls

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