Talwalkars posted a steady Q1 with profit growth of 17 per cent and same-store sales growth of 7.5 per cent. Speaking to BTVI , CFO and Whole-Time Director Anant Gawande says Q1 is a subdued quarter as it contributes just 10 per cent to the profit for the whole year. In the current month, the company is averaging same-store sales growth of 11.5-12.5 per cent, he says. Excerpts:
Q1 is a subdued quarter in terms of how much it contributes to the annual earnings — just 10 per cent of the profit for the whole year. April, May and June are hot months. Pulling in people into the gym was very difficult. So we came up with a scheme — Beat the Heat.
We said that we will come to your house. We will bring in the uniform in a luggage bag and bring our personal trainers. People appreciated the fact that we were reaching out — something we learnt over the last 4-5 years.
The other thing that has helped us is a diet plan ‘Reduce’ which can be discussed online. We also started a lot of marketing of our machine-based product. The yoga concept ‘Zorba’ has been doing really well. It is now in four cities — Mumbai, Bengaluru, Hyderabad and Chennai. It should be in 10 cities at the end of this year or by early next year.
I think, value addition and Power World Gyms — our joint venture in Sri Lanka, which has probably contributed 200-250 percentage points to our PAT (profit after tax) — have been the main contributors to Q1 profits.
We understand that Q1 and Q3 are always seasonally weak quarters for you. However, you have been constantly innovating to improve your margins. How have you reduced your costs in Q1 on the back of rising debt?
If I divide my costs into two parts, 70 per cent of my costs are at the branch level — there is a branch manager, personal trainer and dietician. The rest 30 per cent of costs are related to central costs — there could be a manager and an accounts team looking into eight gyms. As the number of gyms increase, the same team may look into the operations of more gyms. Hence, the central costs or non-variable costs gets spread over to more number of gyms, but ad spends don’t increase.
In the second quarter, we do a bit of ad spend for our monsoon scheme. In travelling, we use guest houses and not hotels. So, each of these small segments contribute to the margin. In case of 42 gyms, we have been able to reduce rent by 20-35 per cent in the last year. We believe we can do that in more gyms over the next 6-9 months. So, all these may be a sweet spot on costs, which may not continue forever but give us some margin expansion.
Your margins have been 50 per cent. Will you be able to continue with this trend in margins?
If you take the core margin, it is 38-43 per cent. Add to it the franchise revenue — we have a little more than 40 franchisee gyms — and the other income — we have been holding significant treasury of ₹70-100 crore. If you negate these, you have the core margin. The core margin has been relative stable over the years. Will we continue with such strong margins? I believe so.
Your same-store sales growth has averaged at about 7.5 per cent in Q1. What’s your outlook for FY17?
I will be happy to post a same-store sales growth of 8.5-11 per cent. The 7.5 per cent in Q1 was slightly on the lower side of the spectrum. In the current month, we are averaging same-store sales growth of 11.5-12.5 per cent, which is the upper end of the spectrum. If we can maintain that, we will have a surprise on the same-store sales growth in Q2.