TALWALKARS BETTER VALUE FITNESS

Talwalkars Better Value Fitness is entering the capital market on 21^st April 2010, with a public issue of  Rs.60.50 lakh equity shares of Rs.10 each, in the band of Rs.123 to Rs.128 per share. Thank god, atleast band is quite narrow with range of just Rs.5.

Talwalkar is a known name in Mumbai city for operating gymnasium, but is it worth Rs.300 crores of market capitalization or Rs.360 crores, of enterprise value? This is in the backdrop of the promoters of the company, operating about 11 gyms under the similar brand in their closely held companies and 13 gyms operated by the rival factions of the Talwalkar family. This is also, asking for an average valuation of Rs.4.25 crores per gym, against estimated cost of Rs.1.86 crores, for setting up a new gym.

The company is presently having 58 health clubs, in 28 cities of 12 states and is now planning to set up 27 new owned health clubs, with each, costing Rs.1.86 crores. The company also intends to mobilize Rs.20.60 crores, for repayment of part of its unsecured loans, which were at Rs.31.33 crores, as at 31-12-09. So exit is given to JV and Associates by repaying their loans from IPO proceeds.

The present equity base of the company is quite high at Rs.18.07 crores, which will rise to Rs.24.12 crores, post IPO. Infact, company issued shares at Rs.158.19 and Rs.222 per share (adjusted for FV of Rs.10) on 12-01-06 and 07-12-07. Even on 05-10-09, Shares were issued at Rs.635 per share, to the promoters of the company. So to compensate them, the company has issued bonus shares in the ratio of 7 shares for every 1 share held. Now that is what one can 'better value'!

Coming on its financials, for FY09, it had a topline of Rs.59.42 crores, with PAT at Rs.5.69 crores, which has been its best ever performance, resulting in an EPS of Rs.3.15, on its present equity base. For 9 months ending Dec.09, total income was at Rs.48.82 crores, with PAT at Rs.4.29 crores, giving an annualized EPS of Rs.3.15 only. This indicates a fall in its margin in the current year with not much increase in its topline.

If we take an average issue price at Rs.125 per share, share is being issued at a PE multiple of about 40 times and at a PBV of 5.50 times. Even topline is being multiplied by over 5.50 times, on its EV basis. Asking for a valuation of Rs.4.25 crores per health club is exorbitant. This kind of valuations would not have been justified, even for a company having over 250 gyms or expected to have a market cap of over Rs.1,500 crores. So how this can be valid and justified for a mid size company like this?

Advise to look for value elsewhere and not to spoil your health by joining this IPO.