EkCrore.net :: Talwalkars IPO

April 20, 2010
Recommendation: Avoid
Price Band: Rs. 123 - 128
PE Ratio: 37 times estimated FY 11


Personally I feel at 37 times PE, I'm avoiding this IPO. There are many other IPO's coming up and I dont have risk appetite for this.

Talwalkars Better Value Fitness, owns and operates a nationwide chain of fitness centres. At the upper end of its price band of Rs 123-128, the offer is priced at about 37 times estimated FY11 per share earnings on an expanded equity basis. Talwalkars owns and operates 44 fitness centres (up from 12 in 2007), in 28 cities across the country. Over the years, it has built up a reputation of standardised, high-quality service and holds sizeable brand recall. Services combine cardio and weight training with aerobics, yoga, spinning and spa services, drawing in a wider customer base, further boosted by its mid-range price offering. Number of members currently stands at 55,000, up from the approximately 35,000 in March 09 (according to the company).

Revenues grew at a three-year compounded rate of 80 per cent, while net profits have clocked a growth of 138 per cent. Operating margins stand at a 29 per cent for FY09, improving to 36.6 per cent in the nine months ended December 09, with overheads dropping. Operating margins fluctuated over the past five years, though they held above 28 per cent.

High interest outgo on account of high-cost debt and high depreciation costs on equipment and fixtures together pulled operating margins down. For FY09, net margins stood at 9.6 per cent, worsening to 8.8 per cent for the nine months ending December 09.