Latin Manharlal Securities Pvt Ltd. 124 Viraj, S,V.Road, Khar (W), Mumbai S t o c k I d e a

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1 S t o c k I d e a Date: 28-May -12 CMP: ` TARGET: `220.0 Upside: 38% B U Y SENSEX NIFTY 4920 Eq. Cap. (` Crs) Face Value (`) 10.0 M. Cap (` Crs) `385 BSE Code Latin Manharlal Securities Pvt Ltd. 124 Viraj, S,V.Road, Khar (W), Mumbai TALWALKARS BETTER VALUE FITNESS LTD. (TBVFL) Incorporated in 2003, Talwalkars Better Value Fitness Ltd (TBVFL) is the largest fitness chains in India offering a diverse suite of services including gyms, spas, aerobics and health counseling under the brand Talwalkars. It has pioneered the concept of gyms in India and today is a recognized name in the health and fitness industry. The company has grown rapidly since its inception and as on date operates 128 health clubs in 68 cities belonging to 18 states of the country serving over 1,25,000 members. Pan India presence: Holds highest market share in the Organised health club market TBVFL has pan India presence and holds highest market share in the organised health club market in India (~ 10%). In a fragmented health and fitness industry, where the demand for quality services is high while the supply is largely unorganized (primarily from singly city operators) and nonstandardized, TBVFL has an edge over its peers. NSE Code TALWALKARS Zero Capex model of HI FI gyms: results in accelerated expansion Financial Year Apr-Mar 52-w H/L 267/108 Avg. Daily Vol. 14,359 TTM EPS (`) 9.15 TTM P/E (x) 17.4x BVPS (`) 58.9 P/BVPS (x) 2.7x Stock vs. Sensex The newly launched HIFI format has accelerated TBVFL penetration into the smaller markets. With a small sized format, HI FI health club can be rolled out in 8-10 weeks against weeks for a typical Talwalkars health club. For FY13E, management has guided for ~25-30 additional gym roll out (including owned gyms/subsidiaries, franchises and JVs) taking the total number of gyms to ~160. Focus on Franchisee/subsidiary model to improve return ratios TBFVL is now focusing on adding more franchisees and also adopting a JVs/subsidiary model which we believe will result in lower capex (due to 51% holdings in subsidiary health club) and improve return ratios (as TBVFL receives a royalty of 6% of revenues for 1st 3 yrs which is 8% thereafter). Broaden its scope from being a gym player to a fitness player: Nu Form Gym Studios TBVFL has broadened its scope from being a gym player to a fitness player by introducing Nu Form Gym studios (high product EBITDA) with a focus on weight loss using the EMS (Electric Muscle Stimulation) method. Nu Form is priced at a significantly higher premium for people who are more conscious of weight loss than only of health and fitness in gyming. Currently 6 Nu Form Studios are operational in Mumbai. Nu Form studios opened in April 2012 received a great response with ~140 members in less than one month of its inauguration. Consistent financial performance Number of Health Clubs has increased at a CAGR of 28% over FY07-FY13E. Number of Members has increased at a CAGR of 29% over FY07-FY13E. Achieved 4 year CAGR (FY 08-12) of 30% in Revenues, 35% in EBITDA & 44% in PAT. The company continues to maintain debt equity of ~ 1:1. The company has properties which has current market values considerably higher than the book value. At the CMP of `159.50, the stock is trading at 10.9x its FY14E EPS of ` We recommend BUY on the stock with a months target price of `220, providing an upside of 38% from the current levels. Please Refer DISCLAIMER on the Last Page

2 Company Profile Promoters have over 5 decades of experience in managing Gym Talwalkars Better Value Fitness Ltd (TBVFL) is the largest fitness chains in India offering a diverse suite of services including gyms, spas, aerobics and health counseling under the brand Talwalkars. It has pioneered the concept of gyms in India and today is a recognized name in the health and fitness industry. TBVFL is 2 nd largest health club chain in Asia and is present in top 20 chains in world in the owned health clubs category. TBVFL was formed in 2003 but its co-promoters i.e. the Talwalkars has been in the fitness business for over five decades (opened its first gym in 1962 in Mumbai). Business Model The company has grown rapidly since its inception and as on date operates 128 health clubs in 68 cities belonging to 18 states of the country serving over 1,25,000 members. Out of the total number of health clubs, 90 are owned by TBVFL, 10 are legacy gyms, 13 are operated through 51:49 JVs (6 are with Pantaloons Retails), 7 are purely franchisee of Talwalkars outlets and 8 are operating under the HI FI brand targeting the Tier II and III cities. Source: Company, LMSPL Research Considering the strong business model and expansion plans coupled with increasing awareness of health and fitness, TBVFL is well poised to deliver high growth rate in the coming years. INVESTMENT POSITIVES Betting on Health Conscious Young Indian Population Indian fitness industry is a hugely underpenetrated market compared to several developed and developing countries in the world. For instance, 16.0% of the U.S population have fitness club membership compared to a mere 0.4% for Indian markets (taken for Top 7 cities). This is despite the fact that India has the highest incidence of diabetes people in the world pegged at 50.8 million people. Talwalkars Better Value Fitness Ltd May-2012

3 According to industry body FICCI, the penetration level of fitness club membership is <5% of the urban population in India. Although the industry is highly fragmented and dominated by mom and pop gyms, the large players have an edge in terms of product differentiation and service offerings. We believe a significant rise in lifestyle related diseases on account of eating habits of junk foods (Pizza, Burgers, Pasta) and growing awareness of being fit and attractive will be the main growth driver for this industry and TBVFL is better placed to capture this demand. Company has its own 25,000 sq ft residential training academy in Thane. Strength = Consistency + Quality + Trained Manpower Across all locations the health club experience of TBVFL remains uniform with similar equipments and Infrastructure. Thus brand identity ensures quality in both health club experience and member numbers. The TBVFL health clubs are well equipped with world class equipments from reputed international manufacturer, viz., Precor, Matrix, Hoist etc. Moreover its in-house training ensures quality of the Trainers and improves the resource pool for rapid expansion. The company has its own 25,000 sq ft residential training academy in Thane, Mumbai which gives training (~30 days) to existing and newly recruited trainers. Pan India presence: Holds highest market share in the Organised health club market TBVFL has pan India presence and holds highest market share in the organised health club market in India (~ 10%). In a fragmented health and fitness industry, where the demand for quality services is high while the supply is largely unorganized (primarily from singly city operators) and non-standardized, TBVFL has an edge over its peers. The reason could be the followings: TBVFL holds highest market share in the organised health club market in India (~ 10%). Most of the Organized Health club chains have presence limited to only Metros and Tier I cities unlike TBVFL which has customers spread over Tier I,II,III Cities through different formats and price points. Zonal Distribution Tier City distribution 26% 6% East West 25% 32% Tier I 41% North South Tier II Tier III 27% 43% TBVFL has demonstrated the scalability of its health clubs by establishing presence in smaller towns of India like Anand, Gandhinagar, Ichalkaranji, Ranchi, Jamshedpur, etc and the response has been good so far. The company continues to bring quality fitness at affordable prices across the country. Talwalkars Better Value Fitness Ltd May-2012

4 Zero Capex model of HI FI gyms: results in accelerated expansion Business Strategy: HI FI model The newly launched HIFI format has accelerated TBVFL penetration into the smaller markets. HIFI format mainly targeted towards the middle income population in the smaller towns and cities (tier III and IV cities where population is about 5 lakh) across India to avail of high quality gyms at reasonable prices. HIFI is different from Talwalkars format on 3 grounds: (i) set up cost (between Rs. 75 lakh - Rs. 95 lakh as against the existing model of Rs Crs - Rs. 2 Crs), (ii) floor area size (range of sq. ft. compared to regular one of sq.ft) and (iii) membership fees structure (range of Rs Rs compared to regular one of Rs Rs ). Rent for Hi Fi will be considerably low, which will be around 3% to 4% of revenue compared to regular one which is around 10% to 12% of revenue. Source: Company, LMSPL Research No of Health Clubs - TBVFL No of Members (In '000) For FY13E, management has guided for ~25-30 additional gym roll out FY07 FY08 FY09 FY10 FY11 FY12 FY13(YTD) At the Beginning Additions Source: Company, LMSPL Research 20 0 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12# With a small sized format, HI FI health club can be rolled out in 8-10 weeks against weeks for a typical Talwalkars health club. For FY13E, management has guided for ~25-30 additional gym roll out (including owned gyms/subsidiaries, franchises and JVs) taking the total number of gyms to ~160. Focus on Franchisee/subsidiary model to improve return ratios TBFVL is now focusing on adding more franchisees and also adopting a JVs/subsidiary model which we believe will result in lower capex (due to 51% holdings in subsidiary health club) and improve return ratios (as TBVFL receives a royalty of 6% of revenues for 1 st 3 yrs which is 8% thereafter). Source: Company Talwalkars Better Value Fitness Ltd May-2012

5 Franchise model get full support from TBVFL with regards to the set-up of gym, equipment, trainers etc. The company offers a turnkey solution to its franchise partners for setting up the health club. The franchise agreement entered ensures quality supervision of gym equipment, trainers, ambience etc. by TBVFL. Nu Form studio facilities would include: Weight Loss Muscular Strength and Endurance Enhanced Flexibility Back Pain Relief Nu Form studios opened in April 2012 received a great response with ~140 members in less than one month of its inauguration. Broaden its scope from being a gym player to a fitness player: Nu Form Gym Studios TBVFL being the market leader in the Indian Fitness Industry has broadened its scope from being a gym player to a fitness player by introducing Nu Form Gym studios with a focus on weight loss using the EMS (Electric Muscle Stimulation) method. Nu Form is priced at a significantly higher premium for people who are more conscious of weight loss than only of health and fitness in gyming. Currently 6 Nu Form Studios are operational in Mumbai (Andheri, Bandra, Chembur and Vile Parle) and Thane (Panch Pakhdi and Pokhran road Vasantvihar). Nu Form offered at a price point which is about 2.5 times a normal gym Talwalkars where TBVFL gets about Rs 15,000-18,000 p.a, in Nu Form it is charging between Rs ,000 p.a. So far Nu Form has got very good response and the company has also done some soft advertisements (on Bus stops) across Mumbai. The management has guided that though it will take some time to grow the membership in this format (the revenues may not grow significantly) but the margin improvement (higher product EBITDA) will be significant (expects the FY13E margins to be in-line with 4QFY12 margin). TBVFL has taken price increase in significant number of gyms in April 2012 which is post March results, so the management is expecting the resultant benefits to come in going forward. Consistent financial performance Number of Health Clubs has increased at a CAGR of 28% over FY07- FY13E. Number of Members has increased at a CAGR of 29% over FY07-FY13E. Achieved 4 year CAGR (FY 08-12) of 30% in Revenues, 35% in EBITDA & 44% in PAT. The company continues to maintain debt equity of ~ 1:1. The company has properties which has current market values considerably higher than the book value. MANAGEMENT GUIDANCE Confident of maintaining the revenue growth rate at 30-35% y-o-y. Margins will expand significantly in FY13E in line with 4QFY12 on account of high product EBIDTA Nu Form Studios. Talwalkars Better Value Fitness Ltd May-2012

6 CONCERNS Rising competition from local/global players basically on price front could be concern. VALUATIONS At the CMP of `159.50, the stock is trading at 10.9x its FY14E EPS of ` We recommend BUY on the stock with a months target price of `220, providing an upside of 38% from the current levels. Source: Company, Capitaline Registered Office: 124 Viraj, S,V.Road, Khar (W), Mumbai Tel. (022) , Fax (022) research@lmspl.com LMSPL Network: Fort, Mahalaxmi, Parel, Bandra, Santacruz, Vile Parle, Andheri, Malad, Kandivili, Borivali, Bhayender, Ghatkopar, Mulund, Chunabhatti, Jacob Circle, Masjid Bunder, Cotton Green, Thane, Bhiwandi, Panvel, Pune, Sholapur, Nasik, Malegoan, Ahmednagar, Aurangabad, Akola, Mahekar, Nagpur, Surat, Karjan(Baroda), Khambat, Ahmedabad, Rajkot, Surendranagar, Porbandar, Amreli, Bharuch, Anand, Chennai, Vishakhapatnam, Vizianagaram, Palasa, Kakinada, Karnal, Kolkatta, Bhubhaneshwar, Hyderabad, Bangalore, Jafrabad, Chital, Kodinar, Keshod, Gondal, Haryana, Srikakulam, Mehkar (Buldhana, Jamnagar, Bangalore, Jodhpur, Jalgaon, Malkangiri (Orissa), Karimnagar Dist. (Andhra Pradesh) This document is for information only and is meant for the use of the recipient & not for circulation. The information contained in this document has been taken from publicly available information, trade and statistical services & other sources. While the information contained herein is from sources believed to be reliable, we do not hold ourselves responsible for its completeness and accuracy. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice. Investors are expected to use the information contained in this report at their own risk. This report is not and should not be construed as an offer or the solicitation of an offer to buy or sell any securities. M/s Latin Manharlal Securities Pvt. Ltd. and its affiliates may act as market maker or have assumed an underwriting position in the secure-ties of companies discussed herein and may sell them to or buy them from customers on a principal basis. Talwalkars Better Value Fitness Ltd May-2012