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Looking for a bet on the consumption theme in the country? Talwalkars Better Value Fitness, a leading player in the country’s fitness sector, has a lot going for it. An under-penetrated market, a formidable young population that can afford to to invest in fitness packages, growing preference for organised sector players, and the company’s expansion plans should keep it on the growth path. From 90 fitness centres in 2011, the company now has about 200 centres across formats in India and Sri Lanka (owned and through subsidiaries and franchises). There are plans to add another 100 centres in the next three years.
With member additions and price realisations rising at a healthy pace, the company’s revenue grew at an annual average of about 20 per cent over the past four years to ₹260 crore in 2015-16. And with operating margin steadily improving to almost 60 per cent, profit grew more strongly (above 25 per cent on average over the past four years) to about ₹55 crore in 2015-16.
In the nine months ended December 2016 too, profit growth has been robust at about 18 per cent y-o-y. Opening 20 new gyms in Bengaluru helped the company shrug off demonetisation blues in the December quarter and grow profit 14 per cent y-o-y. Efforts at cost control through reduced rentals for premises should aid margins.
Growth potentialThe company has a pan-India presence in 86 cities with nearly 60 per cent of its centres in Tier II and Tier III cities. Besides expansion plans, the impending de-merger of the lifestyle business into a separate company, which will also be listed, can unlock value for shareholders. Both businesses hold significant growth potential.
Despite taking on debt to fund acquisitions, the company’s financial position is healthy with debt-to-equity under one time, leaving room for expansion plans. The stock is also priced attractively. It currently trades at about 11 times trailing twelve month consolidated earnings. This is cheaper than the 14 times the stock traded at in the past three years.
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