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Talwalkars Healthclubs (Buy)
CMP: ₹115.55
Target: ₹150
The stock currently trades at 4.9x FY19e EPS of ₹23.8 and 3.9x FY20e EPS of ₹30.06. Talwalkars is in a sweet spot, marked by strong brand visibility in a growing market. Being the market leader in Indian fitness industry enables it to acquire competing local fitness brands, while retaining their identities and making it possible to sustain their growth, thereby allowing Talwalkars to fast-track its presence in various markets. Its focus on expanding its footprint through alliances and low-cost PWG would help it enjoy improved margins — NPM of 27.1 per cent and 29.5 per cent in FY19 and FY20 respectively.
Favourable long-term prospects of the industry aided by low levels of gym penetration, rising disposable income levels and growing awareness about lifestyle diseases among the adult age group bodes well for Talwalkars, which would drive earnings growth at a CAGR of 16 per cent over the next two fiscals. Yet, increase in competition and rise in debt due to aggressive expansion strategy — plans are afoot to add 25-30 centres per year and enhance presence in top 10-12 cities — cannot be overlooked.In view of its recent performance, we have marginally changed our EPS estimates (₹23.8 versus earlier estimate of ₹25.18 for FY19 and EPS of ₹30.06 versus earlier estimate of ₹32.94 for FY20).
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