Talwalkars expects operating margins near 40% in FY12

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Talwalkars expects operating margins near 40% in FY12

Anant Gawande, CFO of Talwalkars Better Value Fitness says that his third quarter performance was impacted by the festive season.

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Anant Gawande, CFO of Talwalkars Better Value Fitness says that his third quarter performance was impacted by the festive season. Speaking to CNBC-TV18, he says that the company is in-line to achieve full year guidance. "Operating margins is likely to be around 40% in FY12," he says.

Gawande says that client additions have picked up in January post after new schemes were launched. Talwalkars is not looking to raise equity at this point, he says.

Below is the edited transcript of the interview. Also watch the accompanying video.

Q: Let me start by asking you whether you are on target for the kind of numbers you spoke about for the full year with what you have achieved in the first nine months?

A: Absolutely, this quarter which is supposed to be a subdued quarter the standalone profit has been up about 100%, on a consolidated basis up about 68%. This is on the back of a good turnover growth of about 48%. This quarter is usually a quarter where people do not take too much decision making on gyming because it's a festival season. Moreover, January has been also a very good month for us because that starts our New Year Resolution Scheme. Recently opened gyms like Ambala and Gandhinagar where the number of members has been exceedingly good, about 350 and 150 in the first one month itself, give us reason to be there that we are absolutely inline for what projections we have made across the board in the last nine months.

Q: For the nine months though your operating profit margins have come at about 38% much lower than what you did in the previous year. What do you think you will end the year with in terms of a margin performance?

A: Just to explain to you, if you look at my six month margin it was about 40%. Because this is a low turnover quarter the margins usually dip because the expenditure gets spread over for a lower turnover. I believe we will back to about a 40% margin on a consolidated basis for the purpose of the full year which is 12 months. The fourth quarter is a very good quarter. It is a quarter in which we open new gyms as well as all the New Year resolution schemes etc which kick in they give very high revenue. Usually second and fourth quarter called for about 65-70% of our revenue. So we believe the margin will consolidate back to 40% when the year ends in March.

Q: You took an enabling resolution for a QIP middle of last year. Of course market conditions were not supportive to raise capital but now that things have improved in the market are you looking to execute that Rs 100 crore option?

A: As I stated probably earlier on this channel it was an enabling resolution for a gymnasium business which is a core business of gyming. We do not require any funds because our debt equity is well poised at 0.7:1. We think gyming business can grow on its own through its internal accrual and some amount of debt into the company. This enabling resolution was passed in case there was any opportunity in the similar business of gyming or gymnasium, etc. We are not found such opportunities. As you rightly said the market condition too has not been conducive. So it continues to remain enabling resolution and we have made no effort to try and raise money in QIP through it.

Q: Can you just breakup the growth you expect to see in the last quarter between how much will come through from volume and how much through pricing?

A: We had taken an uncertain amount of gym; I would say about 50% of the gyms we had taken approximately 8-10% rise in prices from 1st January and on 1st February. The balance price hike depending on when those gyms open during the year will be on 1st April. Essentially it will be driven by value. I would guess the volume growth should not be more than 5-7%. But in the overall basis January indicates to us that lot of new customers have come in. I cant share the figures with you because its premature but what looks like is happening is lot of new customers are coming in who are trying to take shorter term membership at least to know how to go about the gyming part of it.