Shedding Weight

The directors at Talwalkars are not only stretching their body muscles but are also building financial muscle. Promoter Girish Talwalkar recently sold 600,000 shares worth Rs.17 crore. Not to be left behind, director Vinayak Gawande has also sold 300,000 shares worth Rs.8.7 crore. Talwalkars is India’s leading fitness and wellness group and enjoys high brand recall among fitness enthusiasts. At its current market price of Rs.286, the stock is up 16% in CY17 but it has been in better shape having hit an all-time high of Rs.410 in March 2015. After the latest shedding, Talwalkar’s stake in the eponymous fitness company is now 7.67%, while that of Gawande is now 5.49% and overall promoter holding is at 35.9%.

The management’s decision to re-structure the business has been received favourably by the market, pushing the stock to a 52-week high of Rs.333. Investors expect that the proposed demerger of the gym business and creation of a separate wellness segment will enable greater focus and create shareholder value. The firm also signed an exclusive master franchise agreement with SNAP which will give a further boost to its pan India presence and also consolidate its position in Asian market.

SNAP is a US-based fitness chain that boasts of a formidable presence across the globe, with a franchise of 2,500 clubs across 1,450 locations. As per the agreement Talwalkars will open gyms across Singapore, Malaysia, Vietnam, Thailand and Bangladesh. Its acquisition of a 50% stake in Force Fitness India, the master franchisee of SNAP will help the firm reach its target of 300 fitness centers across India over the next three years, from the current 211 (June 2017).

Over the past five years net sales has grown at a CAGR of 19%, while PAT has compounded at 21.8%. The demerger will further improve the financial health of the core gym business as the debt taken for property, club and other non-gym business will be transferred to the wellness segment. The firm’s Q1FY18 performance has been encouraging, with revenue growing at 11.5% and PAT at 29.1%, against Q1FY17.

Driven by the demerger, domestic mutual funds have increased their stake from 3.19% for the quarter ended June 2016 to 4.76% in June 2017. While Birla Sun Life MF has reduced its stake in the firm from 3.14% to 3.03% during the same period, Tata MF has acquired 1.62%. FIIs though haven’t been flexing around having reduced their stake from 14.42% to 13.67% during the same period. Long Term India Fund has exited its 1.43% holding but the biggest FII, Small Cap World Fund continues to hold 8.04%.