Talwalkars IPO (Fit or Flab)

DSIJ Intelligence / 23 Apr 2010

Talwalkars Better Value Fitness (Avoid)
Talwalkars Better Value Fitness (TBVF) is a Mumbai-based company tapping the equity market with the initial public offering (IPO) to garner around 74.41-77.44 crore on the lower and upper price bands of Rs 123-128. TBVF has its presence in the healthcare industry as it operates gyms in different parts of India. The company currently operates 58 health clubs in 28 cities serving over 55,000 members. A health club typically occupies an average area of over 5,000 sq ft. The footfall of members is significantly higher during 6-8 a.m. and 7-9 p.m. which is usually the peak period for the club.

Strengths

Offering Best Quality: It maintains high quality standards by procuring equipment from reputed international manufacturers like Precor, Rebar, etc. Several key issues such as flooring, air conditioners, generator backup, wet area designs are benchmarked to a model health club. The company also owns a residential training academy at Thane where it offers a 4 to 6-week induction training period for trainers so as to offer the same kind of services across all locations.
Pan India Presence: In a fragmented industry with largely unorganized supply (primarily from single city operators), TBVF benefits from its pan India presence. The company operates 58 health clubs spread across 28 cities.

Objects of the Issue

Objects	Amount (Rs Cr)
Setting Up additional health clubs	50.22
Repay certain unsecured loans	20.59
Issue Expenses	[.]

Risks

There exists a group (relatives of promoters) which owns and operates gyms under the same or similar name and which can claim the history of company’s brand. They are operating their 13 gymnasiums at locations, namely Mumbai, Baroda, Ahmedabad, Raigad, Thane and Nasik. Although the operations of TBVF and this Group are independent to each other; there has not been any separation agreement/understanding between them.
TBVF has aggregate outstanding loans (secured by way of mortgage) of Rs 625.82 million as on March 15, 2010 as secured loans from Union Bank of India (UBI). In case the company is not able to pay its dues in time or refinance its debt, the same may adversely impact company’s operations and profitability.
TBVF operates its entire chain of health clubs from leased premises except for health clubs in Bandra and Mulund in Mumbai. The lease/leave and licence agreements for some of its premises are not registered. If any of the premises occupied by TBVF are not renewed, the company may suffer operational disruptions and have an adverse effect on its business and financial conditions.

On the financial front, there has been a healthy growth in both the topline and the bottomline of the company. The lack of peers in the listed place acts as a hitch while doing the valuation for the company. The Market Cap/Sales of the company for 9MFY10 stand at 6.11x and 6.36x on the price bands of Rs 123-128. For 9MFY10, the company trades at an EV/EBITDA multiple of 22.87x. On an annualised EPS for FY10 the P/E comes in the range of 24.6x and 25.6x on lower and upper price bands respectively. The issue seems a bit overvalued, hence, we advise our readers to refrain from the issue as of now.

Issue Information	Rating: 32
Issue Opens on	21-Apr-10
Issue Closes on	23-Apr-10
Issue Size (No. of Shares)	60.50 lakh equity shares
Price Band (Rs)	Rs 123-128
Issue Route	Book Building
Promoters	Mr Madhukar Vishnu Talwalkar
Post Issue Equity	24.12 lakh equity shares
Minimum Bid	50 equity shares
Lead Managers	India Infoline
Listing	BSE, NSE
Retail Portion	21.18 lakh equity shares
QIB Portion	30.25 lakh equity shares
Non-Institutional Portion	9.07 lakh equity shares

Financial Performance (Rs/Cr)
	9M FY10	FY09
Total Income	48.53	59.2
Operating Expenses	31.04	42.1
Operating Profit	17.49	17.1
Interest	6.73	8.00
Depreciation	4.49	4.57
Tax	2.27	1.83
Net Profit	4.29	5.69