Talwalkars IPO

Talwalkars runs several gyms and a lot of you might know them as the premium gym people. They are coming out with an IPO that opens tomorrow and closes on April 23rd. The price band has been set between Rs. 123 and Rs. 128, and the issue has been graded 3 out of 5 by CARE.

What is interesting about the issue price is that Talwalkars has issued shares in the last 12 months, which is lower than this price.

In October 2009 – they issued 291,339 shares at Rs. 635 each. Before you get too excited about getting something worth 635 in 128, know that they issued bonus shares – 7:1 in Nov 2009, and that means that the effective price is just Rs. 79.375, not Rs.635.

I am curious to know why they issued shares at a higher price and then gave out a bonus in about a month, and also if the people who were subscribing to these shares at Rs.625 knew that a bonus was coming in a month. If anyone knows the answer please leave a comment.

On to the business itself – Talwalkars own and operate gyms in India – in a market that is largely dominated by unorganized sector – Talkwalkars has established a brand name for themselves, and people associate them with a premium gym. They have been in the gym business for a long time now, and the first gym was set up by the late Mr. Vishnu Talwalkar in 1932 in Mumbai. Currently, Talwalkars operate 58 health clubs in 28 cities with 55,000 members.  The chain has been growing of late with revenues of Rs. 594.22 million in 2009, Rs. 384.98 million in 2008, Rs.222.88 million in 2007,  and Rs. 102.54 million in 2006. The company has turned in a profit for all those years too, with Rs. 56.87 million last year, Rs. 45.17 million in 2008, Rs.10.94 million in 2007 and Rs.4.20 million in 2006.

The diluted EPS for the year ended March 31, 2009 was Rs. 3.61, and based on that the P/E multiple comes out between 34.07 and 35.46.  That’s a bit on the higher side, and these numbers are pulled from the prospectus and don’t take into account the new shares that will be issued, and how they will lower the EPS going forward.

Object of the Talwalkar IPO

Talwalkars is coming out with this IPO to raise money to repay their existing debts, and fund future expansion. They have earmarked Rs.502.20 million to fund expansion, and Rs. 205.92 million to repay existing debt. They want to add 27 health clubs by the end of 2011, and these IPO proceeds will help in that.

What caught my eye was that they were raising these funds to pay off unsecured debts, even when the balance sheet shows that they have secured loans of Rs.509.28 million as on March 31 2009, as against unsecured loans of Rs.303.34 million on the same date.

The fact that most of these unsecured loans are granted to the company by promoter groups goes a long way in explaining this action.

These were some interesting things that caught my eye while looking at the Talwalkar IPO, and will hopefully help you make a final decision when you consider this IPO.

25 thoughts on “Talwalkars IPO”

  1. Very exhaustive and informative . i wonder why the script is jumped almost 20% today , anybody has any clues ?

  2. Dear Manshu,

    Sorry for being the late latif.. I have applied for this stock and I mostly buy more from masrket when listed.. I did not care t study their ___..
    Can you just tell me have they manupulated the balance sheet.. by revaluing their assets.. by adding their brand value cost.. if they have done that then I skip the market purchase..


    1. Kamal – I don’t think I read anything about manipulation in the rating agency report, and this is not something that I can find out on my own, so that is all I can contribute to this particular topic.

    2. hi Kamal,

      I would definitely suggest you not to buy this stock on opening, at-least not for 3-6 months. Let the valuation settle in. Don’t get carried away by the opening price and then the rise.

  3. my take on this

    – this is from a sector where there are few listed companies
    – growth sector.. all the young crowd wants to keep fit and business is bound to go
    – issue priced too high.. but since there are no benchmarks, cant compare it with others.. if it lists at a discount, a compelling buy
    – issues w.r.t promoters issuing shares at a lesser price.. frankly dont care.. 99 out of 100 companies which come out with an IPO does that..

  4. Hey prashant can u mail me the that bilgraphy? Hi manshu.. Although it costly bt its the leader in this sector, can this factor wil help this ipo, turnover of the company is also good.

    1. That might help it Saurabh…Do you know when the issue is coming out? I noticed today that the issue is over-subscribed by quite a lot. Will be interesting to see how it pans out.

  5. @Prashant – You present an interesting angle, and I really have nothing to add on to what you said.

    I myself stay away from making such bets because speculation and trading is not something that I have much taste for. If I can’t buy something for the long run – I stay away from it altogether.

    I wish you good luck though!

    1. hi Manshu,

      Can I have your email to share some reviews and comments. Drop a mail at pednekarpm@gmail.com.

      Wherever you have free time read about ‘Reminiscences of a stock trader’. Its the biography of the world best speculator that ever lived; Jesse Livermore. He has shared some views on speculation which to date are used by many people around the world including me.

      1. Hi Prashant,
        I think you wanted to mention about “Reminiscences of a stock OPERATOR” instead of Trade, by Edwin Lefevre. I hope I am right. I tried to google out the book for a read and found the error. BTW thanks for sharing such a wonderful book on the forum.

        1. Thanks Chakrapani. I have a soft-copy of the book but no one wants to pass on their email address 🙁 The hard-copy would be very hard to find.

  6. Thanks Manshu. I want to ask that 123-128 is fair price or its costly. Because i have applied for that.

    1. I think that is expensive based on the P/E multiple and also because they have issued stock at a much cheaper price just a few months ago.

  7. Well the analysis was great.but what about the future prospects? Should the retailer invest in this ipo? What is expected from listing? Will this stock also open on higher side like the other stocks promoted by Indiainfoline i.e. Cox & kings and dq entertainment?

    1. Quite frankly – I have no idea whether this will open on the higher side or not. I think sites like Moneycontrol will have plenty on opinion on how this will behave on listing, so you can check out some of those. All the best!

  8. It would have been good, with more detailed analysis considering projections of next years earnings.


          1. Back to the subject, taking the fundamentals into view 123-128 is quite a high price but if you see there has to be a higher opening. First thing is the promoters are into the business since 1932 so they won’t screw up the name, rapport; they might try to milk the cow all the more but they won’t try to kill it.
            Secondly its a very small issue; 60 lakhs shares which converts to 75 cr which is easy for the promoters or anyone else to arrange and manipulate the price. If the share price settles at 79 which is the price of the previous shares then why would they waste time to to go for a IPO when they can arrange it from a stable market of HNIs and Institutional investors.
            So personally I feel that either the script will open higher or will stay at a price above 128 for the promoters and the initial investors to exit.

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