Following the demerger the time has come for Talwalkars LifestylesLimited to focus exclusively on the gym business and grow it diligently acrossdifferent formats geographies and countries
I am pleased to share the annual report of Talwalkars LifestylesLimited following its demerger from Talwalkars Better Value Fitness Limited.
For long Talwalkars Better Value Fitness comprised two businesses as asingular entity - one that focused on the traditional gyms business and the other focusedon wellness.
Even as the intrinsic strength of the core business made it possible toincubate a new business (wellness) from within the extended gestation made it imperativeto nurse this business until such time that it was ready to spin o3 into an independentidentity. The core gym business was spun o3 to Talwalkars Lifestyles Limited while thewellness business was nested Talwalkars Better Value Fitness Limited. One share held inthe erstwhile Talwalkars Better Value Fitness Limited generated one share in the gymCompany and one share in the wellness Company. The creation of two robust and relevantbusinesses validates our commitment to grow with enhanced focus.
We believe that following the demerger the enhanced transparencyarising out of business segregation will attract focused investors; the growth of each ofthe business will unlock and enhance value for the respective shareholders across theforeseeable future.
The demerger rationale
The demerger was the result of a conscious focus to unlock the latentpotential of the gym business on the one hand and empowering the wellness business togenerate sustainable resources leading to sustainable growth on the other. The gymbusiness of the Company was always high-margin while the wellness business wascash-intensive in its nascent business-building years. The cash flows generated by the gymbusiness were utilised to incubate and grow the wellness business. The result was that arapid surplus of one business complemented by forward-looking growth of the other.
Even as the merged business enjoys a higher EBITDA margin it su3ered aconsiderably low RoCE.
The conclusion was that the Company's operating platform needed tobe restructured with the objective to unleash value.
We believe that the core gym business is attractively poised for asustained growth across relevant indices. The business provides a unique convergence: avirtually unlimited market brand positioning the only listed proxy and an attractiveasset-light model.
A singular focus on one line of business is expected to translate intoeconomies of scale quicker growth and higher profitability.
In turn we believe that the ability to generate more cash than theCompany can consume will make it possible to draw down debt strengthen the Balance Sheetcombine topline growth with cash-richness strengthen RoCE and enhance shareholder value.There are other facets of the standalone gym business that make it compelling. One theCompany evolved to become multi-brand and is now in a position to enhance revenues andsame store growth through online and o3ine initiatives following a superior and in-depthunderstanding of customer needs.
Two the business optimally utilised space within its gyms toprovide value added services as a component. Three the business already enjoys ahigh EBITDA margin of 58.38% (FY17-18) with the prospect of superior scale strengtheningmargins further.
Four the business calibrated operational e3ciencies by aligningemployee costs towards a higher variable component. Reduction in rental costs and thee3cient consumption of energy complemented our business model. Our strategy is topersistently increase operational e3ciencies and enhance return ratios.
Five the gym's dedicated marketing and sales teams continueto visualise and execute strategies to enhance revenues and target penetration.
Six the Company is the only pure-play gym fitness player in thesecond most populous market of the world.
Seven the di3erence between our Company and the nearest competitoris significantly vast.
Eight by the virtue of being the only listed fitness Company inIndia we possess a wide range of financial options to grow inorganically buyingprominent local fitness brands. By getting some of these acquired brands to retain theiridentities in the markets they serve we would be fast-tracking our presence in variousmarkets while gradually evolving into the most sustainable model. Nine we arewidening our footprint from the sub-continent to pan-Asia transforming the scale of ourgame.
My enthusiasm with regard to the macro fundamentals of the gym businessis drawn from a number of realities. There is a growing incidence of lifestyle disease inIndia; the country's fitness sector continues to be largely unorganised; most gymscomprise trainers with little or no training; there is a virtual absence of fitness chainsacross the country; there is a growth in discretionary incomes in India; there is agravitation towards branded fitness more than ever before. In view of these realities Iam convinced that our Company stands at the cusp of attractive sustainable growth. TheCompany is focused on forging ahead with its three-fold objective in enhancing shareholdervalue revenue growth controlling costs and being free cash-flow positive.
I would like to thank our partners and stakeholders for the confidencethey have reposed in our Company. I must also appreciate our employees for theirdedication and commitment.
The future is exciting! Warm regards
Chairman Talwalkars Lifestyles Limited