Talwalkars’ profits are too meagre; its IPO too expensive

The fitness chain makes 10% net margin—but the business is too small, suffers from poor cash flows and the stock is priced exorbitantly

The Mumbai-based fitness chain Talwalkars Better Value Fitness Ltd (TBVF), which operates ‘Talwalkars’ gyms and health clubs, hits the market on 21 April 2010 with its initial public offering (IPO). TBVF operates 58 health clubs in 28 cities having a membership of 55,000. The company owns 44 clubs and six others are operated under a joint venture with Pantaloon and other franchises.

“We will double our headcount by 3,000 employees to manage the 38 new clubs. This will take our employee strength to 6,000,” Prashant Talwalkar, CEO, TBVF, told PTI.

The company’s operating revenue has grown from Rs10.20 crore in FY06 to Rs59.20 crore in FY09. Correspondingly, it recorded a net profit of Rs5.69 crore, Rs4.52 crore and Rs1.09 crore against a total income of Rs59.42 crore, Rs38.50 crore and Rs22.29 crore in FY09, FY08 and FY07 respectively.

TBVF’s cash and cash equivalents have been meagre for fiscal 2009 despite positive cash flows from both operating and financing activities. This was due to significant investments in fixed assets. Its earnings per share (EPS) were Rs3.61, Rs2.88 and Rs0.72 in the financial years 2009, 2008 and 2007 respectively. There is no comparable stock in the market. At a floor price of Rs123, the company’s diluted PE is an exorbitant 42.71.

TBVF operates in a highly competitive market and faces stiff competition from other players operating both in the organised and un-organised sectors. Some foreign players have also entered the Indian physical fitness market.

TBVF is marred by conflict of interests. According to the RHP, there are 11 gyms which operate under the trademark name ‘Talwalkars’ which are owned and operated by TBVF’s group companies. Of these, seven gyms are held by three of TBVF’s promoter-directors Madhukar Vishnu Talwalkar, Girish Madhukar Talwalkar and Prashant Sudhakar Talwalkar through their proprietary undertakings and partnership firms while the other four gyms are held by Life Fitness India Private Limited, in which Madhukar Vishnu Talwalkar jointly with his wife holds 50% of its outstanding equity share capital. TBVF has entered into trademark license agreements with these 11 gyms.

Talwalkars Fitness Solutions Private Limited (TFSPL), another company controlled by Rahul Talwalkar, Rohit Talwalkar and Amber Talwalkar, operates 13 gyms in Mumbai, Baroda, Ahmedabad, Raigad, Thane and Nasik. There is no separation or non-competing agreement between these two independent companies (The Talwalkars Group and TFSPL). This Group owns and operates gyms under the same name and can claim the history of the brand Talwalkars and can be a potential conflict of interest.

Moreover, TBVF’s business is not scalable as it cannot bring in economies of scale by adding more gyms. The company owns 58 health clubs across India and has generated a mere Rs5.69 crore net profit in FY09.

India Infoline Ltd is the lead running manager to the issue. The issue opens on 21 April 2010 and closes on 23 April 2010. The company plans to raise Rs74 crore to Rs77 crore at a price band of Rs123-Rs128 by issuing fresh equity of 60.50 lakh shares of Rs10 each.

Ratings agency CARE has assigned ‘IPO Grade 3’ to the issue. According to the red herring prospectus, the proceeds (Rs70.81 crore) will be utilised for setting up of additional health clubs and repayment of unsecured loans to the tune of Rs20 crore. It plans to add 27 health clubs by the end of fiscal 2011 with an estimated cost of Rs50.22 crore. 




7 years ago


Rg 1203/09
Talwalkars fit and active
Pantaloon fitness pvt ltd,
6th floor, big bazaar, old madras road Bangalore

The manager
Talwalkars fit and active head office
Pantaloon fitness pvt ltd,

Respected management
The purpose of writing this letter is to send my sincere appreciation for Mr. manoj (floor manager) I had an unfortunate experience that kidding manners from him which was a headache of the day but however without hesitation Mr. manoj took direct owner ship of the issue and assisted me to ensure the problem was resolved ,it has been my experience that whenever employees provide quality customer service of the highest caliber, they tend to be employees that are quickly promoted to leadership positions and or competing organizations seek to hire ,so do take care of this employees as Mr. manoj is a true asset to your organizations .and At all times I have found Mr. manoj floor manager to be dependable, reliable, hard-working, conscientious, honest, peace-loving, courteous, love and business have opposite arithmetic they are opposite in nature. So they cannot meet. Business is giving less and taking more, but manoj deals different way which both business and love need an exchange, a communication, a happening. When the sense of belongingness grows in us. Love finds its true expression. Not just as a formality. But he deals both are same way! Manoj takes good care of those whom is client.
From The clients respect that you gain through virtue is very different from the respect you gain through the position. The respect you get through a position is short-lived and temporary. But the respect that you gain just because of your smile, your attitude, your virtues are there with you all the time. As far as my feel Mr. Manoj goes this way
I commend both Mr. manoj and your organization for the value of service provided and I feel grateful to be one of your customer based on the service I have received from manoj .am an professional software in engineer in working multinational company so I will not have hesitated to recommend your organization to all of my business associates and friends

Yours sincerely

iam living in the present moment because the present moment is inevitable


7 years ago

Really bad analysis. Moneylife should reconsider this report. Talwalkars went from Rs.128 to Rs.170 on the first day. Today it went to Rs.192. Gaining almost Rs.64 in 2 days is amazing. I wonder why I trusted Moneylife and did not buy Talwalkar shares.


7 years ago


k a prasanna

7 years ago

Analysis is correct. Pl. also log on to for analysis on all ipos

vijay kumar gupta

7 years ago

brief but to the point analysis. that is what moneylife is all about.

RBI outlines a calibrated exit strategy

With just a 25 bps increase in policy rates and CRR, the central bank has moved in line with expectations; a gradual withdrawal from the easy monetary stance emerges from the annual policy review

Anchoring inflation expectations without straddling the recovery process seems to be the prime focus of the Reserve Bank of India (RBI). In a move that was largely in line with market expectations, the central bank hiked policy rates and cash reserve ratio (CRR) by 25 basis points (bps), while leaving the bank rate unchanged, in its annual policy for FY11.

With this move, short-term lending and borrowing rates (repo and reverse-repo) between RBI and banks stand at 5.25% and 3.75% respectively, while the CRR would be at 6%. The hike in CRR is expected to absorb about Rs12,500 crore of excess liquidity from the system.

Chanda Kochhar, managing director and chief executive officer, ICICI Bank, said, "The 25 bps increases in the repo and reverse repo rates and the CRR are broadly in line with market expectations given the strong economic growth and elevated level of inflation. At the same time, the RBI has also articulated as a priority the availability of credit to meet the growth needs of the Indian economy. Thus, the annual policy statement has balanced the twin objectives of growth and price stability.”

"The RBI appears comfortable on sustained growth given the uptrend in exports, broad-based industrial recovery, uptick in services and improved corporate profitability. This, coupled with the increase in flow of funds to the commercial sector, is key to its view that the domestic balance of risks shifts from growth slowdown to inflation,” said Rohini Malkani, economist, Citi India.

Echoing the same, Yashika Singh, head for economic analysis, Dun & Bradstreet India, said, “An increase of 25 bps across key policy rates indicates a complete shift in the focus of the monetary policy towards the containment of inflationary expectations. At a time when economic growth is showing signs of consolidation, and demand-side pressures are expected to start building up slowly, this rate hike will put the monetary policy ahead of the curve. Even though we had initially believed that the rate hike might not occur at this juncture, the central bank has accorded a high priority towards rising inflation when it comes to downside risks to growth.”

However, with this moderate stance, there is a concern that the RBI may be behind the curve in curbing inflation. The wholesale price index-based inflation is hovering around the 10% mark, while food inflation is again inching upwards, nearing 18%.

Wholesale price-based inflation remained below the psychological two-digit score, inching up marginally to 9.9% in March from 9.89% in the previous month. The hike was because of rising prices of sugar and pulses. There are many who believe that the RBI is going soft on taming inflation.

Aneesh Srivastava, chief investment officer, IDBI Fortis Life Insurance Co Ltd said, “RBI’s monetary policy has to be read in conjunction with the 10% inflation (WPI), a 16.5% growth in M3, a 15%-17% growth in IIP, high capacity utilisation, a 7% plus current and 8.5% expected growth in GDP and rising asset prices. Hence, it had become necessary for the RBI to exit from emergency monetary measures adopted to support growth and lean towards controlling inflation and inflationary expectations, thus moving towards a more neutral interest rate environment. This current move is one step closer towards tightening the monetary policy in the months to come.” {break}

He added, “Inflation may take longer to start coming down due to poor monetary policy transmission to credit markets. We expect inflationary pressures to subside during the second half of this fiscal year due to policy action and base effect but the future course of inflation would also depend upon (the) quality of (the) monsoon.”

Navneet Munot, chief investment officer, SBI Mutual Fund, believes that the rate hike is a kind of middle-path chosen by the RBI. “RBI has done a terrific job in managing the crisis; but managing the recovery in the backdrop of these conflicting objectives could be more challenging. A 25-bps hike in policy rates and CRR is a middle-path chosen by the RBI and we believe another 25-bps hike in policy rates before the July policy is highly likely,” Mr Munot added.

Economists too believe that another rate hike is on the cards, as inflationary pressures will need to be eased further.

Indranil Sen Gupta, chief economist-India, Bank of America Merrill Lynch observed, “We expect an additional 100-bps rate and 50-bps CRR hike through FY11 to combat inflation. In our view, recovery is strong enough for the RBI to move against inflation as it expectedly has. The move is also towards normalisation of monetary policy to promote healthy growth.”

"With the RBI stating that ‘despite the 25 bps hike, our real rates are still negative, and with the recovery now firmly in place, we need to move in a calibrated manner in the direction of normalising our policy instruments’, we maintain our view of a minimum additional 75-bps hike in 2010, with a possibility of an inter-policy hike before its 27th July meeting,” said Ms Malkani.

Although the central bank has deployed tools for inflation control assuming a normal monsoon, any change in the pattern of rainfall may create further dilemmas for policymakers.

“There will be an upward pressure on interest rates, but it is unlikely to impact credit growth immediately. Going forward, we expect a further increase in CRR during May-June, given that the upward pressures on liquidity are likely to persist on account of expected sustained foreign fund inflows. Moreover, the tools deployed towards inflation control and the maintenance of current growth momentum are underscored by an assumption of a normal monsoon—any deviation in the monsoon is likely to create further dilemma on the policy front,” added Ms Singh.

With the expected pickup in demand from the private sector, the RBI has said that managing government borrowings will be a bigger challenge than last year and would warrant a fine balancing act. While the overall gross borrowing requirement for FY11 is lower than last year, given the absence of Market Stabilisation Scheme (MSS) and Open Market Operations (OMO), the fresh issuance of securities in FY11 is expected to be 36.3% higher than FY10.

“The large government borrowing in H1 FY11 would put pressure on long-term interest rates and may be challenging due to high inflation, strong recovery in growth, lower liquidity and private credit demand,” said Alok Sahoo, head of fixed income, Baroda Pioneer AMC.




7 years ago

RBI should receive complaints from Aam admi directly and get int ground realities rather than "Solution provider at arms length distance" as of now!
This is clearly evident from the fact that Investors are involved in the money laundering activities as we have noticed in the case of IPL,since RBI has no clue!

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