Shares of Talwalkars Better Value Fitness hit a new 52-week high today at ₹331.45; it has now gained 54 per cent from its 52-week low of ₹210.25 hit on February 23, 2017.
The stock has gained 40 per cent in the last one year outperforming gains of 19.5 per cent and 25.5 per cent of NSE 500 and Nifty Small Cap indices, respectively. The stock has doubled investors’ money since its initial public offer in 2010 with the issue price of ₹128.
Analysts see further rise in the stock price as the company trades at just 12 times FY18 estimated earnings but provides high growth potential amid an underpenetrated and fragmented but growing fitness industry (due to increasing focus on health amid changing lifestyles). CD Equisearch has retained its ‘buy’ rating on the stock with a target price of ₹373.
The company’s sales, operating profit and adjusted net profit have grown at a compounded annual growth rate of 17 per cent, 24 per cent and 22 per cent, respectively, in FY13-17.
Debt-reduction plans Given superior and improving margin profile, its interest and depreciation as percentage to operating profit have also declined in the given period. The company has plans to reduce its debt further from the current one time (FY17 net debt to equity ratio of 0.7).
The company expects 13-15 per cent growth in the topline in FY18 and improvement in margins due to measures such as consolidation of gyms, reduction in rentals (due to expansion of low capex-led Power World Gyms) and foray into lucrative international markets.
After acquiring 49.5 per cent stake in Sri Lanka-based Power World Gyms in FY16, the company has signed an exclusive master franchise agreement with Snap Fitness Inc to open gyms in six Asian countries, namely, Singapore, Malaysia, Vietnam, Thailand and Bangladesh.
Snap Fitness is one of the largest gym chains in the world with over 2,500 locations (open and under construction) in 24 countries. “We have strong foothold in India. Now it’s time we look beyond India. In India we have both — expertise and goodwill. Outside India our strategy is to go with goodwill of others as goodwill takes time while we already have the expertise,” said Prashant Talwalkar, MD & CEO of the company
.In India, it plans to spend ₹72-75 crore in FY18 for opening about 20-25 gyms.
Though the tax rate under GST has gone up to 18 per cent from 15 per cent earlier, GST will help organised players such as Talwalkars. Demerger into two companies — gym co and lifestyle co — approved by shareholders is another positive trigger for the stock.