>Talwalkars Better Value Fitness Limited (TBVFL)

Company Overview
Talwalkars Better Value Fitness Limited (TBVFL), is the largest chain of health centers in India having 115 health clubs spread across 56 cities and patronized by 113,000 members. Currently, it is promoted by the Talwalkar and Gawande groups together. Out of the total number of health clubs, 79 are owned by TBVFL, 10 are legacy gyms, 10 are part of subsidiary companies wherein TBVFL has a 51% holding, 6 are part of the JV with Pantaloon Retail and the remaining 10 are purely franchisee outlets operating under the HI FI brand targeting the Tier II and III cities.


Investment Rationale
■ Introduction of HI FI Gyms results in accelerated expansion at zero capex cost
TBVFL is well positioned to increase its penetration into various parts of the country with launch of the HI FI concept which is mainly targeting the middle income population in the Tier II and III cities. This has helped the company to promote its brand and create an awareness in the smaller cities and also increase the total number of health clubs at a faster rate. In case of the HI FI format, TBVFL does not require capex though the royalty component is similar to the subsidiary model and additional upfront income of Rs. 1mn resulting in higher revenue at zero capex and a faster roll out of health clubs.


■ Healthy sales growth supported by fast paced expansion and demographic mix
TBVFL is focused on increasing its total number of gyms particularly in HI-FI segment which is leading to faster expansion on account of its attractive business model. TBVFL being benefitted from a surge in the number of people aged 35-50 years who form a major portion of the population. We expect rising awareness of the need to be healthy and maintain one’s physical appearance will be the major reason for increase in membership. As per our projections, the sales are expected to grow at a CAGR of 19% from
FY11 to FY14.


■ Focus on franchisee Model to support RoCE going forward
TBVFL has a large gym base, in which the amount of capex varies depending on the level of ownership. This optimal mix of owned, subsidiaries and franchisees on a pan Indian basis would support RoCE going forward. As Franchisee model does not require capex, we believe the company’s focus is on expanding its franchisee network to support RoCE.


Valuation and Outlook
The stock is currently trading at a P/E of 11.9x, P/BV of 2.1x and an EV/EBIDTA of 7.2x its FY13 estimates. We have taken a discount of 30% to the average EV/EBITDA (8.9x) of its international peers as TBVFL is in a growth phase and operates in an emerging market. Thus we have arrived at an EV/EBIDTA multiple of 6.2x for valuing the company. Considering the strong business model and expansion plans coupled with increasing awareness of health and fitness, TBVFL is well poised to deliver high growth rate in the coming years and we expect it to grow by 30% and 29.7% for FY12E and FY13E respectively. We initiate the company with a ‘BUY’ rating arriving at a target price of Rs. 205 (an upside of 37%.).


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