Talwalkars - Results on expected line
In 1QFY16, Revenues up 13.4% YoY (-34% QoQ) at INR 507mn. Increase in revenue on account of higher share of value added services per gym. Revenue per gym increased by 11.9% YoY to INR 3.34mn. The same store sales (SSS) growth stood at 9.5-10% YoY. Revenue from value added services (VAS) such as personal training, massage, Nuform and Reduce has gone up from 16% in FY14 to 23-24% in FY15.
Company plans integrate ‘NuForm’ as a part of fitness center and install NuForm equipments in 40-42 gyms in the 1QFY16. Nuform and Reduce contributes 5-6% of revenue and intend to increase it to high double digit in FY16.
In 1QFY16, EBITDA stood at INR 224mn, up 19.7% YoY (-51.7% QoQ). EBITDA margin was up 235bps YoY to 44.1%.
Valuation: We continue to remain positive on the fundamentals of the business, the company’s ability to constantly innovate to improve the same store sales by offering newer services, prowess in implementing & running gyms and a strong business model. At CMP of INR 275, the stock is trading at 21.9XFY16E and 17.8XFY17E adj.earnings. We assign a target price of INR 309 based on target P/E of 20XFY17 Adj.EPS and assign an OUTPERFORMER rating.
Risks: Escalation in rentals, availability of property in a good location and increasing competition from both domestic and foreign players.