VALUE PICK – TALWALKARS BETTER VALUE FITNESS LTD - GTS 4 ANSWER

The Ace Investor - Value Pick

Talwalkars Better Value Fitness Ltd

  Listed on both BSE:533200 and NSE:Talwalkars
Talwalkars is currently trading around 310 with a market cap of under 900 crores.

Promoters hold 43.32% stake, 29.99% stake is with investors/institutions holding more than 1% stake. Individual shareholders hold only 17.63% stake out of which 6.01% is with noted investor Prof. Mankekar's family. Only 11.62% of total equity is with small retail investors.

Total Debt is around 150 crores, 52 week high is near 410 and 52 week low is near 170.

Established back in 1932 with its maiden gym in Mumbai. Talwalkars with its superb brand value has become the sector leader today with its wide branch network spread all over India.

Talwalkars as of 31st March 2015 is having a total of 150 fitness centers (Gyms) across 79 Indian cities and towns. Highest for any company in India.

 Talwalkars and UK based sports and leisure club company The David Lloyd are in a JV to develop sports and leisure clubs across India in the future.

Talwalkars has been a trend-setter in the Indian fitness industry and it has also recently launched NuForm which is a unique training program based on EMS (Electrical muscle simulation) a training technique which is gaining momentum in the USA right now with sports scientists backing it and sportsperson and atheletes prefering it more over the normal strength training. Talwalkars plans to make NuForm available in majority of its fitness centres soon.

Talwalkars has recently launched the REDUCE plan which is a total diet plan where the food packets will be given to you at the Talwalkars outlet with time written on it, You must have it as per the diet plan. In this package you don't have to workout and they say it is a sureshot way to lose weight. This is quite similar to US based Nutrisystem's weight loss program. Nutrisystem is listed on NASDAQ and trades at a P/E of 33 with poor margins.

Talwalkars the brand is doing well but do they have a good marketing strategy? As a strong brand business let us take a look at Talwalkars branding against another brand-business company Page Industries.

The success of Page Industries's Jockey brand has been great mainly because they spent on targeted local advertising instead of spending money like water on celebrities which their peers were busy with. A good marketing lesson for a non FMCG but consumer oriented business such as that of Talwalkars.

Now here is the comparison with other GYM brands. 
Almost all the companies are promoting their brand with the help of local marketing. John Abraham was maybe Gold's Gym India's face earlier but off late it has only been sponsoring bollywood events instead of entering contracts with celebs.

  With its amazing network reach Talwalkars is right now in a position where massive growth is very much possible.

Coming to the Financials, Talwalkars has been growing steadily over the years. Take a look at its annual performance.

Above chart shows Talwalkars having great margins and steady growth. Now lets compare financials of Talwalkars with lone listed company in wellness sector which is Marico Kaya the company which runs the chain of Kaya Skin Clinic across the country.

Talwalkars OPM is around 53% against Marico Kaya's OPM of 9.88%. Talwalkars gross margin is at more than 80% and Marico Kaya's gross margins is around 50 or so. Gross margins and Operating Profit Margins indicate operational efficiency of a company and how successfully they are running the business. And of course coming to the Net Profit Margin it actually is the sum up of business performance and there too Marico Kaya is lagging well behind Talwalkars.

Now lets take a look at membership fees comparison: Talwalkars v/s Golds.

Talwalkars membership is cheaper compared to Gold's Gym as its business strategy is to attract all from middle-class to the rich class while Gold's Gym is more of a luxury gymming experience. Zumba is another service offered by both Gold's and Talwalkars which was missed in the above chart and is usually not available in small standalone gyms. SnapFitness as reviewed by customers don't have an upto the mark service record to be compared with Talwalkars and Gold's.

The membership fees and facilities info was acquired by calling up the fitness centers in Mumbai,Delhi and Kolkata and might not be totally accurate for other cities. But is clear that Talwalkars and Gold's are the two giants operating in this field in terms of network spread, customer base, services and clients satisfaction and Talwalkars is the sector leader and actually the only listed player in its field. 

The fitness industry in India is currently around Rs 6,000 crores and expected to grow at a CAGR of 20-25%>. Almost 95% of The Indian Fitness sector is unorganized while brand entities such as Talwalkars, Golds etc. form the remaining 5% of the total Rs 6,000 crores market.

Only 0.05% of urban indians have a gym membership as against 3.11% in rest of Asia pacific and 17.5% in USA. This data shows us the untapped opportunity in the fitness industry which Talwalkars should be able to exploit.

The Demographics of India almost forces growth in the Fitness Sector.

India has world's largest youth population according to a U.N. report with about 356 million 10-24 year olds despite having a smaller population compared to China.

By 2020 India is set to become the world's youngest country: In 2020 the median individual in India will be 29 years.

Warren Buffett had coined a new term "Economic Moat" which is what he looks for in the stocks he picks. 

What are the common Economic Moats?

Patents, Brand identity, Technological advantage, Buying power, Higher switching costs and Operational efficiency.

If we try to find Economic Moat in Talwalkars we find it matching some or all principles:

+ Strong brand identity

+ Technological Advantage: EMS is not available in other GYMs however not sure about it

+ Buying Power: The massive expansion over the year hints at strong backing and buying power

+ Higher switching costs to other brands

+ Financials indicating strong operational efficiency.

A brand-business sector leader, only listed player in a hugely untapped sector with wonderful growth opportunities operating in a wide network and matching the Economic Moat criteria of the Great Warren Buffett is available at a P/E of around 17 and they think we will miss this opportunity? Talwalkars should hopefully be able to do well in the sector which will shape up The Young India.

Even with present financials: The current P/E of around 17 is dirt cheap for a lone listed player. Just take look at the astronomic valuations a lone listed company in a sector commands. Wellness chain Marico Kaya which traded at a peak p/e of 90 as the stock rallied from Rs 200 to Rs 2000 in just 9 months, Jubilant Foods the only listed Pizza chain (Dominos) trading at a p/e of almost 100 and MCX the only listed financial exchange is trading at a p/e of around 45 despite all the negative news flow related to group company Financial Technologies.

Note: The above is not a research report but information as available on public domain and it should not be treated as a research report.

Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”

Disclosure: It is safe to assume that i might have Talwalkars Better Value Fitness Ltd in my portfolio and hence my point of view can be biased. Readers should consult their financial advisory before any investments.

:Links:

Talwalkars Website

Talwalkars Screener

Talwalkars Results this FY
Talwalkars Latest Quarterly Presentation

Forbes article about Talwalkars
UN Report: Youth Population in India
Youngest Country INDIA by 2020.
Talwalkars latest BSE announcement regarding David Lloyd JV 

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