Expect margins to rise 180-200 bps over FY12: Talwalkars

In an interview to CNBC-TV18, Anant Gawande, the CFO of Talwalkars Better Value Fitness, talks about how they made a good set of profit numbers this quarter.

Below is the edited transcript of Anant Gawande's interview. Q: Market seems to have liked those numbers, what works for you in the current quarter? A: Two things happened. Essentially we concentrate on the August monsoon scheme which contributes 35-40 percent of our annual revenue. It was a high level of robustness across all Indian cities. We took price hikes in all those gyms where it was not done in the first half of the current calendar year. The price hike was absorbed by us through a better renewal rate. Our renewal rate has been about 73-74 percent lately, but this time it is about 76-76.5 percent, slightly better than normal. We also sold value added activities, wherever possible in the gyms. So the sales have gone up by 33 percent and profit after tax by 47 percent, which was a great performance in terms of a difficult market. Q: Your margins also crossed 50 percent than the EBITDA margins. Do you think it is sustainable or it was just a one quarter phenomenon? A:  September and March are the two biggest quarters of our company. So if one takes the first and the third quarter, the margins are lower. On a blended basis, the margins maybe couple of percentage higher than last year. It is a combination of value added products. Not to forget the fact that more and more franchise fees have also started contributing to our gyming business. My own expectation and feeling is that operating business margin should be up about 180-200 bps over last year. Q: What will drive the growth forward? What sense are you getting from the new gyms you have opened, aside of the same gym growth that you have witnessed? A: It is a big renewal quarter. The same store growth has been 9.5-10 percent. It is being driven more by value than by volume. We have taken about 6-7 percent fee increase in most of the gyms, where it was not done in the first half. Going forward we have signed 18 gyms which will start in next 4-6 months. Surprisingly these gyms are opening in cities like Ahmedabad, Surat, Mumbai, Kolkata, Delhi, Hyderabad etc. So it will be all across India and Tier-1. We are starting a series of gym. There have been vacant pockets of population which have come up and we would like to look at them. Tier-II and Tier-III will continue to grow through our JVs and high franchise. So, that will contribute to our second big quarter of the year which is March.  We can see robustness in the sense that people are coming back. I think energy is back in the gym market.