Veteran value investor and academician Shivanand Mankekar and his son Kedar Mankekar are sitting on 5.5x returns on their little less than four-year-old investment in fitness services firm Talwalkars. The father son duo had invested Rs 3.5 crore in January 2006 which is valued at around Rs 20 crore at the estimated initial public offer (IPO) price of Talwalkars Better Value Fitness Ltd.

They hold 8.4% stake in their individual names currently which would come down to 6.4% post issue. The average cost of purchase of shares for the father-son duo is estimated at Rs 22.8/share.

Broking outfits belonging to RS Damani group are also well-placed to make smart gains out of the proposed IPO. Talwalkars, that is aiming to raise funds through its public float, had around two months back issued fresh shares to a host of investors including few broking units of the Damanis. These new investors would be sitting on unrealised gains of 50% given the estimated IPO price.

Damani group brokerages Avenue Stock Broker and Maheshwari Equity Brokers figure among the new shareholders of Talwalkars who were allotted shares at a price of Rs 635/share in October’09. Post this issue, the company came out with a bonus issue where shareholders got seven fresh shares for every one that they held. This brings down the cost of ownership for the new investors to around Rs 80/share.

Now, given that Talwalkars is looking to raise around Rs 70-75 crore through issue of around 6 million shares it could be eyeing IPO price of around Rs 120-125/share giving immediate unrealised gain of 50% to the new minority investors.

Other investors who appear to have picked shares in the allotment in October include IL&FS Trust Company on behalf of Azavedo Family Trust.

Another investor entity who has picked shares in the latest allotment is Pivotal Securities rumoured to be an investment arm belonging to Prof Mankekar. If that is indeed true then it could push up the average cost of purchase for Mankekars to around Rs 27 that would still translate into 4.6x returns for them for a total of Rs 4.5 crore investment.

Talwalkars is looking to raise the funds to set up 27 new health centres by 2011 that will absorb Rs 50 crore and around Rs 20 crore to payoff some existing loans. Given that the firm is diluting 25% through the public issue, it is eyeing a market cap of around Rs 280-300 crore. For the six month ended September’09, it had revenues of Rs 35.8 crore with net profit of Rs 3.19 crore.

Extrapolating this to an annualised profit of around Rs 6.4 crore, on the expanded equity base of 2.4 crore shares(post IPO), the company is claiming for a PE valuation(on a 12 month trailing basis) of around 47 which is not cheap by any standards. The company may be banking on the growth of the fitness chain to make it a profitable investment for the investors.

The company has around 51 health clubs currently in 24 cities having 55,000 members. Assuming the it would be able to replicate the revenue and profit generation proportionately in its proposed 27 new health clubs by 2011, it could be projecting net profit of around Rs 10 crore translating into one year forward earnings multiple of around 30 at the issue price. But with multi-bagger investment history of Prof Mankekar including Pantaloon Retail, this could turn out yet another gem of a stock.

Leave Your Comment(s)