The monsoons have covered India a month ahead of the normal schedule and after the two days of torrential downpour n people are practically hiding away from gym. However, Anant Gawande, CFO & Whole Time Director, Talwalkars expects a turnaround in the number of gym-goers as summer vacation ends and people start to feel a little unfit.
"Our whole team of 2,800 team members is gearing all over India to launch our August scheme,” he told CNBC-TV18.
This year the company’s target is to start around 25-30 gyms. These gyms will be a combination of franchise or subsidiary model, where Talwalkars will own 51 percent in the company, Gawande says.
Below is the verbatim transcript of his interview to CNBC-TV18
Q: Give us an idea of how business has panned out? Monsoon is normally the time when people give up outdoors and move in for membership in places like yours. How are revenues looking in the current quarter itself?
A: You are absolutely right. After two days of torrential rain people are practically hiding away from gym, but that is expected in June and July. People are just back from their summer holidays. Children start back their school and they slowly start consolidating their life on a day to day basis.
Our whole team of 2,800 team members is gearing all over India to launch our August scheme. We will take some initiatives within the June-July month when people generally feel that they have not done any exercise and put on weight in the summer vacation. So simultaneously we have reviewed our diet plant today morning across 20 locations in Mumbai. This is a diet plan along with the food supplements given by us.
Q: If you could tell us about these Hi-Fi gyms, the new ones at 30 locations. First of all will these be on lease agreement? What kind revenues and profitability will come to you because of these 30 new gyms in these tier-2 and tier-3 cities?
A: This is an agreement which we are signing with a person who stays in Latur. Latur is a midtown in Maharashtra and this is a family of four people who want to get involved in the business of Hi Fi gymming.
Hi Fi is a gym for the middle market towns or a tier-3 and tier-4 towns. They want to do about three gyms every quarter. Already the first three gyms are on their ways to starting in July or August which will be in Latur, Parbhani area. They will be covering Andhra Pradesh which is upper part of Andhra Pradesh, Karnataka and Maharashtra in their franchise agreement. They have put in place lot of systems for it.
From our angle we will not be taking any capex onboard. This is a pure franchise agreement. We are expecting to earn an upfront royalty of between Rs 18-21 million, which is Rs 1.8-2.1 crore over the next 12 months, a part of this has been already paid to us.
Besides this as gyms open they will be paying depending on the town 6-8 percent of the top-line to us as royalty. This will be a continuing royalty for as long as we continue the franchise agreement which is generally 3-5 years.
Q: If you can tell us how many gyms you are planning to open? How many of them will be in this franchisee model where capex will not be involved and where some upfront money might come?
A: We have been consistently guiding that this year, we will start between 25-30 gyms. This will be a combination of franchise or subsidiary model where we own 51 percent in the company.
Q: What will your capex costs be this year?
A: We are expecting to have a capex of between Rs 60-65 crore in the current year. This includes any expansion which we may do in the gym for Reduce or Zumba and also new gyms. So, both together we are expecting that kind of capex.
Q: What will all this do to your margins? You could manage to improve them in the fourth quarter when you last reported numbers. For Q1 and for the quarters of FY14 will we see the margin improvement continuing?
A: Our August scheme is a significant scheme. That quarter and the last quarter is the one you are referring to has highest margins. We have introduced new value added products to keep the margins stable.
That and royalty income should keep it going on an ongoing basis. We have not seen any demand suppression on value added products at all.
Q: What would be total revenue growth for the current year?
A: We have been growing at between 25-30 percent at PAT level over the last three-four years. We do not see that we should not be growing at similar levels. I think August scheme will give a good guidance for it.