Talwalkars Better Value Fitness Ltd. Q2 FY 2018 Earnings Conference Call

Transcription

1 Talwalkars Better Value Fitness Ltd. Q2 FY 2018 Earnings Conference Call MANAGEMENT: MODERATOR: MR. PRASHANT TALWALKAR MANAGING DIRECTOR AND CEO, TALWALKARS BETTER VALUE FITNESS LTD. MR. ANANT GAWANDE EXECUTIVE DIRECTOR, TALWALKARS BETTER VALUE FITNESS LTD. MR. GIRISH NAYAK CFO, TALWALKARS BETTER VALUE FITNESS LTD. MR. ANKIT KEDIA RESEARCH ANALYST, CENTRUM BROKING LTD. Page 1 of 18

2 Good Day Ladies and Gentlemen and a very warm Welcome to the Talwalkars Q2 FY 2018 Earnings Conference Call hosted by Centrum Broking Limited. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing * and then 0 on your touchtone phone. Please note, that this is conference is being recorded. I now hand the conference over to Mr. Ankit Kedia from Centrum Broking Limited. Thank you and over to you, Sir. Ankit Kedia: Thank you, Ali. Good afternoon everyone. We at Centrum Broking are very pleased to host the Q2 FY 18 results conference call for Talwalkars. Today, from the management, we have Mr. Prashant Talwalkar, Managing Director and CEO; Mr. Anant Gawande, Executive Director; and Mr. Girish Nayak, CFO. I would now like to invite the management for their opening remarks followed by which we can have an interactive Q&A. Over to you, Sir. Good Afternoon everyone. This is Prashant Talwalkar and as usual I am very glad to speak to all of you and I am sure I have lots good to say today more than the last time and the previous time. One of my, I call it as my baby, call Club was begun very smoothly and very big way, so company called L&W which is a construction management company as well JLL the project management company both are on a full speed working on the plot. I am so glad that the time which is lost probably trying to catch up and hopefully by the end of 2018, we should be ready to operate the club. Of course, excitement is not only with us, but there are few well-wishers of ours who are waiting for us to begin the admission for the Club, which I hopefully wish to begin somewhere in March or April and this is one of the news that I wanted to share with you with excitement I probably said it right at the beginning, because you all supported us waiting for so long and I hope you will continue your cooperation. I will pass it onto Anant now. Good Morning everybody and a Happy Healthy Day. We had a decent quarter, it was in the back of the GST introduction, but we were lucky that it did not happen in August, the GST had happened in July. We will also like to discuss today at some amount of leisure about each of the activity which is a value-added activity. I think me and Prashant would like to take you through all of that either through questions asked by you or otherwise. Mr. Girish Nayak who is the CFO is also present today and we will request all of you to ask any questions which are in your mind. This half year has been excellent and reasonably good in spite of the headwinds from the demonetization and GST, but as we mentioned in the our earlier con call, the GST will be positive to neutral and we have been right on that and the increase from 15% to 18% has been smoothly absorbed and there has not been any reduction in the membership base and we have been able to pass on the price hike very conveniently and we have the same growth about of 6% and value-added services on which we concentrate has been on the balance. Also the thing is that, we are on an expansion and everything is on track. From the last year, we have done a good Page 2 of 18

3 decent amount of growth, both in adding the number of gyms and also in the other value-added services which Prashant Sir will talk. Thank you. Ladies and Gentlemen, we will now begin the question and answer session. We will take the first question from the line of Jinesh Sheth from Arete Capital Partners. Please go ahead. Sir, if we look at the increment in margins this quarter than it has been solely because of decline in staff cost, so if you can just throw some light on why this decline is there in the quarter? Secondly, just wanted to know that what would be the effective tax rate because our effective tax rate for the quarter has declined to 25% versus 31% last year sales whatever, so I have couple of other questions which have come across. The thing is that as you rightly mentioned the staff cost, you know last year we did a decent performance and good expansion of 20 gyms on a single day, so we really put the pressure on our team and they delivered. Nowhere in the world we had opened 20 gyms on a single day, so we awarded them with a bonus last year and when our gyms were more or less ready, but we only opened it post-diwali last time, so that one-time cost has got reflected in this time, but that is non-recurring cost, and the thing is that what is currently is the current indicative rate of the future. The entire, because I am referring in terms of the absolute cost not just as percentage of sales, so that entire amount of difference was because of bonus that you had given? Good amount of it is from bonus, but It was like around 2.78 crores, right? Let me, even the value-added services, we have been increasing rapidly so that the thing is that what amount we pay to the personal trainers and all other things, these are not in the same proportion on that and the thing is that we can if you see, the personal cost does not go up that much and it actually decreases because of the value-added services. Fair enough, so can we say that this run rate or probably in terms of percentage of sales that we did for this quarter, should be something to look out for the next couple of quarters? The whole intention of putting up the value-added services is EBID accretion. Sir, coming to our August scheme, I was just wondering that what benefits we would have derived from this promotion of selling 1,25,000 worth of assets for just 20,000? What we did Jinesh is that we were having a facility called Complete Health Club facility, that is called CHCF in short form, we wanted to see that all the facilities which are under one roof is Page 3 of 18

4 available for people to use. Now, rather than spending onto the marketing or any other cost, we give this option of reducing for a short time for people who are within our premises as well as a new marketing, the reason is that it is like a buffet, so when you go for a buffet you realize that there is so much to consume, but not necessarily you have to pay for each dish separately. On that basis, what we are trying do is to package this as a more of having a more footfall within the premises by giving this offer, which has responded us very well. This also helped us hold onto the retention and overall income did not drop, in fact it reached more because the facility which are available are getting utilized in a much more proportion. Was this offer meant for select few facilities or? No, to everybody with all the facilities. At the same time, we will not necessarily continue only this facility. We will keep changing them because there are, for example, a place like Varanasi unexpectedly gave a very high response to this, so immediately what I did is that changing to a different format on a different package, so we will keep bringing this changes and Jinesh what happens is these changes makes a lot of difference to us in the form of retention, so this is not meant for any one particular category or invitational membership, it was open for all. Sir, how many members we would have enrolled since this has been running from August and it has been continuing? It is a good number, very good number but I can tell you some 200 to 300 members were added in each of the gym. 200 to 300 per gym? Yeah. Sir, so how much is the membership base right now? Are you talking about the same? The total membership base? I remember offhand we can say we have crossed two lakhs. Sir, two lakhs were also in FY 17, right? Two lakhs is there, but we have given the number of value-added services, the same member can utilize the other, so that increases the value-added services. Sir, how many of these two lakh members would have subscribed for the entire value-added package even before the scheme was operational? Page 4 of 18

5 I do not think we would have that data Jinesh, you are asking microdata, I am unfortunately not keeping it right now with me. You have to first start a good idea, so for example, when we started Zorba Jinesh which was last year, we had only three centers, today we have 78. I believe we are now the biggest yoga chain in the organized sector in India, so sometimes what happens the momentum comes as you start growing in the area. We thought that we should try the idea, I think the key story here for our investors and people like you is that, yes, we can quote a rate of one lakh and get members Jinesh, even if it means one member, I think that itself is a victory for us because we were already taking ourselves only at about 15,000, 18,000, 20,000, 12,000, are you with me Jinesh? Yeah. The story here is not how many members we added, obviously we have added a fair amount of members, otherwise, we would not do the performance we did. It is more important for us to establish that even a dip in entry barrier we can hold our own. Sir, going back to the effective tax, if you can throw some light that what could be the effective tax for the full year? It will be the normal tax, we thought that there will be, but the thing is that things are moving as expected there is no bleaks due to the introduction of GST or anything, but the thing is that we are on track, the value-added services are on track, so we will migrate to the normal tax rate regime. Sir, depreciation also has fallen quarter on quarter, so anything you would like to? It has actually gone up if you see. It is like 10.7 crores versus 12.7 crores, if I am not mistaken quarter on quarter? It has gone up by 14%. For the quarter by 67%. No, that is year-on-year, Sir, I am just referring to the quarter on quarter? Jinesh, half year we are of 14%. You are talking about half year, I was talking about the quarter, so it is just normal. Thank you. We take the next question from the line of Kishan Gupta from CD Equisearch. Please go ahead. Page 5 of 18

6 Good afternoon, I wanted to know much is the CAPEX in H1? Talwalkars Better Value Fitness Ltd. Between 56 and 58 crores. Which areas you have deployed? It has been on Zorba, where we added I think 47 centers. Zorba we added 47 centers, the NuForm has also increased by about 28 to 30 centers, and Mickey Mehta roll out has started from August and also there are about 10 gyms have been added in the half-year. Basically, this Zorba centers are standalone Zorba centers or it is part of the Talwalkars gym? The thing is that wherever it is possible, we try to combine them also, about four or five standalones are there wherever we have got space and whenever we set up the new gym, we take additional space and set up the Zorba centers and all NuForm and Reduce also. What is the CAPEX target for FY 18? We have already given the target Kishan in the earlier con call, we have mentioned that we will be cash flow positive, so we are cash flow positive for the half-year. Basically, what about your borrowings, it has increased like around 80 crores compared to what was in March? 76 crores over the last year, but from here it is only about Debt equity, I am not talking, I am talking about the short-term borrowings for almost like 410 or 415 crores? We are going to be cash flow positive, our CAPEX we have been targeting at about I think between 90 and 105 crores or something like that, 90 to 110 crores so we are at the halfway mark and I think for the full year we should be around the same level. What about borrowings like as you said the borrowings have increased despite QIP and drawdown of cash as well as internal accrual? QIP happened four years, three-and-a-half years back now, we are keeping our bank balance is it not, you can see that to. That is fine, but I want to know like you said that most of the CAPEX would be funded by internal accruals, so how come debt has increased despite your QIP of 41 crores? Page 6 of 18

7 That increased last year, Kishan? What? The debt. Debt this time is 487 crores short-term borrowings, right, consolidated if I see your long-term borrowings, 487, right? Long-term borrowing, the thing has increased, just now operations have started that also and over last year we have added 30 gyms, we have number of Zorba studio, the NuForm has also increased as I mentioned with the earlier participant, so all of that has that and also to some extent investments have also gone up, you should see our inorganic expansion are also bearing good fruits now, so it is not that we are expanding only for the CAPEX purpose, we are also using the borrowings for the investment purpose and also the thing is that there is good amount of re-capital or positive added. What about this pledged shares like by when you expect it to be released? We have just bought the share, Kishan. It is already pledged is almost like 37 lakhs, if I am not wrong? Picking up of preferential allotment. That is for 13 lakh shares right, so how much was pledged for those 13 lakh shares? Whatever was needed to take the 42 crores? How much was that? I would not know it off-hand, I am sure this is available public information, Kishan. I am just asking what 37 lakh shares pledged for getting those 13 lakh shares? This is public information, we have said before and we are saying now the entire money was borrowed only and only for the purpose of putting into the preference shares. Thank you. We take the next question from the line of Aman Shah from Jeetay Investments. Please go ahead. The question is regarding the demerger, in our demerger presentation last year we have distributed around 500 crores of total assets between 300 crores in the gym business and 200 Page 7 of 18

8 crores in the lifestyle business, so my question is first is how is this split being done like it is because most of the gyms are on lease basis, so it is solely regarding the machine thing and everything else, and second is within these 200 crores to the lifestyle business, what is the breakup between the eight immovable properties and other properties? The thing is that as a standalone company currently, we only own eight properties and all the eight properties will be part of the lifestyle company, and all the gym company which were to be hived out of the existing companies, all the properties will be on lease. We have got only eight properties in the parent company and they are going to be remained in the current lifestyle company, so all the gym companies in future will come to that extent asset light and all the properties will be on lease. Thank you. We take the next question from the line of Shaily Jariwala from Crescita Investment Management. Please go ahead. Shaily Jariwala: Sir, I would like to know the EBITDA growth rate estimates because as was said in the presentation that after the development of Zorba, it will improve the EBITDA ratio, so now I want to know the future external? Shaily, as you can understand giving any future based projections or estimates on EPS or EBITDA will become a difficult proposition, but the company has grown in the last three years 20% or 22% on PAT, that have been our growth over the last three years generally. There is no headwind which we right now believe is going to take place, there were two disruptions. We were just discussing the estimate on EBITDA margin, as you can see each effort is being made to create new activity which are CAPEX light. As you can see Zorba and I am sure you have been following the company for long time, in that three Zorba we have gone to 78 and it was never guided by the management, it has been done at a furious pace. Similarly, on Mickey Mehta, we genuinely believe Prashant can add a couple of words on this, how we are planning extremely high-profile program to increase that within the gym. Shailey, Mickey Mehta has got many verticals although it is more than 20+, to bring in all those verticals within the premises is not an appropriate thing. We will pick up two or three verticals of this mainly, which he was known for also because this swimming if you remember swimming, learn swimming in 48 hours, he has got a height increasing course for the children in the age group of 12 onwards, so all of these things will get added in the space which we have already have, so increasing everything within the premises with the income and facility is obviously the aim, this is how we think of bringing in the changes all the time. Shaily Jariwala: My next question was that you were commencing the membership program in this club from 2018, so when will you start getting returns on your investment? Page 8 of 18

9 Actually, it is a bit different, the Club is essentially a very, very long-term membership idea, correct? Shaily Jariwala: Yes. What you call as tantamount to life membership or 25-year membership, essentially then what happens is, once you start those membership, what we have to just work out is that they are successful in getting a particular amount of families to become a member, 800, 1000, 1250 in a family, in the first one year to 15 months. If we successfully do that, Shaily, that we actually start having a very, very significant amount of cash and cash flow in the Club project which is selffunding and self-financing for new club projects, so I think probably over the next six to eight months as we start enrolling the membership and Prashant explained in his initial address, as early as March-April, we will know the response. This is going to be a truly world-class club, and it is about 1.2 lakhs square feet in a very, very good are of Pune, Hinjewadi so we knew that once we get that response the rest of it is very easy for us to do in terms of execution. Shaily Jariwala: I wanted to know the Royalty or the franchisee fees you receive like you have some gyms on franchisee basis, so what sort of fees or Royalty? Typically, the franchise contract is usually for 10 years, for the first three years we charge 6% and for the balance seven, we charge 8%. This excludes the upfront technical Royalties which is of 10 lakhs for the hi fi or about 25 lakhs for the Talwalkars gym. Shaily Jariwala: My last question is, I wanted to know the demerger status like you had some court hearing yesterday? Yes, we are awaiting it and we expect to convey the good news very shortly. Thank you. We take the next question from the line of Pravin Aggarwal from Lotus Global Equities. Please go ahead. Pravin Aggarwal: Actually my question was the same which was just got answered about the stage at which the demerger process is now? I really genuinely hope we can give you the good news before even this year ends and say Happy New Year on it. Pravin Aggarwal: I believe the date has been coming in the NCLT, but it is not showing in their cost list? I believe it is showing in the list on a particular other date, but luckily that date is still a date before 31 st, so we are waiting for that all us. Page 9 of 18

10 Thank you. We take the next question from the line of Abhishek Agarwal from Money Ore Capital Advisory. Please go ahead. Abhishek Agarwal: Sir, my first question is related to comment on the internal control of the company, what we have understood that internal control is not appropriate because of value-added services recently added in our portfolio, as we are in the region of taking the company into next level, are we working on the appropriate internal control now and how it will be for the two separate company post demerger, can you give comment on this? We have taken the cognizance of that, the thing is that we have grown at a furious pace but also across India and into Sri Lanka also, but the value-added services which are there all the control parameters are falling into the place and we have taken to the satisfaction of the auditors and we do not feel that in future it should be there, so just to enlighten, both the companies will be working at arm s length from the value-added services, so we will not face any problem, whatsoever. Abhishek Agarwal: Sir, how much time it will take to become appropriate? It is already been there, the thing is that it is getting the comfort of the auditors, all the things are in place. Abhishek Agarwal: Sir, one last question though we have noticed excellent performance at the bottom line but not at the top line front, what is the reason of okay-type revenue growth if we compare year-on-year growth in the revenue, what is the growth percentage excluding new addition from the last year same quarter and what is the percentage increase in realization and member growth? Our sales-to-sales growth was approximately 6%, you are absolutely right, Abhishek. The grow at top line has been lower than what we were doing about one year back, but last one year two disruptive elements took place, people took it on the chin, which is demonetization and GST. Even if GST is neutral to positive for us, the impact of that is not my P&L but in my balance sheet. As far as demonetization goes, we had to evolve so many new ideas like EMI scheme, where lot of financial institution and NBFCs, I believe Bajaj Finance has a scheme with us in which we give EMI, a lot of people have helped and we have worked with them to create new ideas. I think also being in value addition has helped us a lot through that impact phase. Going ahead my own feeling is we will have to go to a slightly higher curve of top line growth if we want our bottom line to grow at the same level which is the whole reason that value-added services are being introduced and introduced for quickly and rapidly by Prashant s team across the board. Actually, I am going to again request Prashant for one insight into another activity which we have now we have been doing much better and much, much more beneficially which is NuForm. I am just going to request Prashant what we are trying to do in today s con call if all participants will realize, we are also trying to take you through each of our activity and how those are growing. Page 10 of 18

11 If you see earlier growth of NuForm, we also added quite a lot compared to the last year and previous quarter, so as this growth will continue. In fact, I am just waiting for the consignment to get cleared so that it can reach to move further another 20 Clubs of ours to have this NuForm. NuForm response is also great and I look at this growth to reach to 70+ of ours in another 10 days maybe and what we are trying to do, if you look at it is very closely that the space which we have, the space which we utilize, we try to make the space to use to the maximum, so all of these facilities whenever they get added, it only adds to our revenues for sure and many other usage in the facility, so this growth will continue like this because particularly NuForm is giving us a very good response and add to that if you look at the product of ours called Reduce, we also brought a good change including added the food as well as even the packaging and marketing, everything is being changed and bought to the new, so all of these getting added to the space which we have. Abhishek Agarwal: Sir, one last thing, post GST is there any change in the cash collection or the membership ratio in the cash collection? I would say that post the demonetization, there was a salutatory impact, the cash collections have gone down. New gyms and everything we only accept cheques and credit cards, so from the control perspective, it is very, very good. As far as the GST is concerned, already we were paying service tax of 15%, now it is 18% so we have passed on that to the customer and it is probably due to that. Abhishek Agarwal: Sir, can you quantify what is the percentage of cash we are getting? I think it was earlier in the range of 35%, now it has come down to much more in the range of 20% to 25%. Thank you. We take the next question from the line of Pritesh Chheda from Lucky Investment Managers. Please go ahead. Pritesh Chheda: Sir, my question is little bit to do with strategy as I am new to your company as well, I have been seeing that your expansions have always been higher than the operating cash flows that you generate and this is the reason why balance sheet keeps on expanding, is there a change in that thought process in terms of cash flow generation or expansions only up to the cash flow generation of the company, if you could shed some more light because they are two distinctions, there is a retail model which utilizes debt for expansion and expansion is higher than operating cash flows and there are the other, so now incrementally where would you put your business model? Actually, Pritesh you are absolutely right, we expanded in a certain phase of our company through a combination of debt equity and our CAPEX used to be significantly higher than our Page 11 of 18

12 cash flow, but if you study the March 31, 2016, and March 31, 2017, result as well as the first half of the current year, at CAPEX level, Pritesh, we have been cash flow positive. Pritesh Chheda: What do you mean by that, cash flow positive? CAPEX means my cash flow which is my profit after tax plus depreciation is higher than my CAPEX, and this you can please check and verify because that has been the case. What does happen Pritesh, let me continue, is that when we invest in new ventures, new ideas, the investment of that has to be funded either by equity or debt and that may not necessarily get covered every time through the cash flow which is generated by the company, which means on the one hand the company has a steady state model of business called Gymming and on the other hand the company is also excited to be an incubator and implementer of some of the best ideas in Wellnes in India, which is Yoga, weight loss, Zumba, NuForm, Reduce, Mickey Mehta and others. Obviously, as you know the demerger exactly does that. It will give you one company which will have a significant cash flow and a much lower CAPEX and the other company in which there will be incubation as well as business along with the properties so I am hoping that as one of the speakers had answered that going ahead very quickly we should be able to get the demerger out of our way and then you will see two companies, one which will do what we desire us to do and the other which will still continue incubating great ideas in the business of Wellness. Pritesh Chheda: When I see the last two year s cash flow, I was little bit confused there as well that cash flow has lot of money been put up in working capital which is basically loans and advances, so what would those loans and advances correspond to? What I will do let me stick to the quarter right now, I am very, very happy to tell my team to meet you and go through the entire grid I will be more than happy. I would also actually make an earnest request to you and every other participant in this call today that it would be a nice thing and great thing and we would like to help all of you if you could go to the gym and actually utilize our gym and we are here to help you go to that gym, please go in your short trackpant, T- shirts and running shoes and please use all the activities within the gym so that you can put the activity against the CAPEX which we are incurring Pritesh, but we would be more than happy to take you through the whole grid. Pritesh Chheda: Just follow up there, you said that the CAPEX will be less than the operating cash flow that you generate from the gym, right? Right now, there is only one company, right? Pritesh Chheda: Yes, so at this juncture as the overall one company level will that CAPEX will be less than the operating cash flow, that is how you put it? That is right, Pritesh. Page 12 of 18

13 Pritesh Chheda: Can you just tell us what is the operating cash flow of your gym business, which is getting demerged or your base core business? We will be putting up the presentation on the demerger, the moment the permission comes in from NCLT. Essentially, the primary business was gymming, today 25% to 27% of it is value addition, I think 25% approximately and as is required by statutory compliances, we will be declaring results on both sides. Pritesh Chheda: Lastly, then why did the debt increase in this half versus what you had reported last year? As I explained to you, we have a combination of two things, Pritesh, I will try to elaborate to you in a more macro and micro way that the company actually does two activities. It has gym and it invests into ventures, so for example, when we are investing into Mickey Mehta venture, when we invest money into a Power World Gym venture in Sri Lanka or we starting Snap Fitness Gyms in Singapore, each of these ventures require money which may not necessarily be in the form of primary CAPEX. We will do a combination of this thing and because you have asked this question, I will just again as I said this time, our effort was going to be to explain to all the participants and non-participants, what do we do in value-added, I think we have covered Zorba till now, we have covered NuForm, I would like Prashant to quickly in a couple of minutes explain what is happening in Snap Fitness in Southeast Asian region. Snap, we are going across six countries, one of the first country we are tapping is Singapore and good news we have got the premises negotiations are on, but most of the things are completed. We are waiting for the approval for change of user which is unexpectedly taken little more time than expected. Once that comes through, you will have a good news before this year end, accounting year ending so we are doing pretty good on that part. We will of course venture out to some of the countries as you are aware that we have got Vietnam, Malaysia, Bangladesh, and Sri Lanka, so on the Snap, we are doing pretty good we should be on time. Other facilities are getting added on improvisation including the food and addition of food and the packaging to NuForm I explained earlier also, so this will continue happening, Pritesh. Pritesh Chheda: This investment is what refers to your diversification to these new areas, the investment in the balance sheet? I had given you enough example of how this is two companies in one, it is like buy one get one free right now, I am sure you can, we are here to help you analyze this but more importantly Pritesh I would be very happy if you and any and all participants do utilize our facility as I said for the first time if you go or for two days you want to go, we will guide you through the facility please utilize it to understand what we are doing. Pritesh Chheda: You have chalked out the capital allocation that you have towards this new business? Page 13 of 18

14 I would like to take some more speakers, as I said we can do all this off-line when you want to meet us. Thank you. We take the next question from the line of Sandip Sabharwal from Ask Sandip Sabharwal. Please go ahead. Sandip Sabharwal: I was saying that that you might find this question slightly irritating because too many people are asking the same thing, the valuation of your company used to trade at around 30PE, today you have come out to around may be 12, 13, 14PE and the main reason has seen this entire CAPEX cycle and the fact that the fee cash generation issue was there which you have tried to explain a bit, but then when I look at your balance sheet, I see a net block of 528 crores, so on top of that you are spending 90 to 110 crores this year, so when you are expanding your net block by around 20%, the top line growth needs to pick up, 10% top line growth then cannot take care of that CAPEX, so that is the only thing, do you expect that after all these investments into value-added services etc., your top line growth will pick up, do you see that visibility and long-term what is the kind of top line growth you see with these investments, that is my question? Actually what you are referring to is fixed asset turnover ratio. Sandip Sabharwal: That is right. As you can make out, we are the kind of promoters and company who tries to keep a track of most of our ratios, it is not the right place and right answer nor am I expert or even mature in what should be the price of a particular share and what should be our share price because our work is to, we had dreamt a dream. We had nine or 10 gyms about 15 years back, today we have 220 gyms probably will become 250 by the year-end, we are in 88 or 90 cities, we are number one in yoga, we are number one in weight loss, we are number one in Sri Lanka, so I have always believed that in finance wisdom, the market will give us what is just valuation, but coming to the specific point, we always keep a track of what are we spending on CAPEX vis-àvis what return we get both by way of incremental ROC as well as by way of fixed asset turnover ratio. As we have explained repeatedly over the last three years that there was a stage where we have to incubate new ideas and those new ideas had to be done if we had to stay relevant to what was happening, otherwise we would have become obsolete or gone into oblivion in terms of what we do as gymming or fitness because today gymming is not just about going into a gym, quickly doing some cardiovascular exercises and coming out. There is personal training, so number of personal trainers in our gyms in the last eight years have gone up by 22 times not 22%, so I am just giving you examples of things which are happening internally. As far as you put it at a block of asset goals that block consists also of about Rs. 135 or Rs. 140 crore or property market value, so if you remove that property which will what will happen in the demerger, Sundeep, they are suddenly down to Rs. 400 crore of asset and obviously you can make out from your own calculation that property does not add a big value on rate. If you take Page 14 of 18

15 that down by almost one-third, 33%, added 20, I am just subtracting 33, what happens is, I cannot over analyze my own company because I do this day in and day out and I always end up trying to figure out what I should do in business more than what I should do in the stocks because I cannot do that. My only answer here is there is an actual company, there is a real company with about 1.1 million square feet of space, the absolute market leader in several activities which is weight loss, which is yoga, free floor exercises, and of course gymming. We believe as we throw the demerger in the arena over the next 30 days or less, you will get clarity because one company will be a cookie cutter model, Sundeep, very clearly, it will do gym, gyms, and more gyms and there is nothing else to do, and other company will continue to feed our dream of being an incubator and innovator in the field of Wellness. Probably, we will get the answer fairly quickly. Thank you. We take the next question from the line of Kushal Sengupta, an Individual Investor. Please go ahead. Kushal Sengupta: Your long-term assets in the consolidated balance sheet as of 31/03/2017 was 792 crores That includes the debt Kaushal. Kushal Sengupta: No, I am talking of assets, non-current assets, total non-current assets March 31, 2017, was 7915 million, on 30/9 the figure has become 9936 million an increase of roughly 202 crores of which 66 crores is the fixed assets increase, so balance 136 crore essentially refer to the incubation of ideas concept that you refer to just now? There is also increase of Rs. 42 crores, in the bank balance because of the promoter equity coming in, Kaushal. Kushal Sengupta: I am talking of non-current assets that does not include bank balance in any form, your item number one is the consolidated balance sheet? What is your question is, please go ahead. Kushal Sengupta: My question is non-current assets increased by 202 crores March 17 and September 17 in the consolidated balance sheet, out of which 66 crores is the increase in fixed assets, so 136 crore of balance increase it does refer to the incubation of ideas that you just mentioned? May not be all of it Kaushal, what has happened as you know is because of the accounting on Ind-AS all the assets and liabilities have to be stated at market value as you are aware of it, so some of this may be only book or accounting entry. Actual investment or fresh investments will not be to that extent, they will be significantly lower than the increase in the balance sheet side, but as you know all of this has to be stated as per the Ind-AS accounting standard at market value both on the asset and liability side. Page 15 of 18

16 Thank you. We take the next question from the line of Aman Shah from Jeetay Investments. Please go ahead. My question was regarding the demerger presentation that we are giving wherein we have distributed 500 crore of fixed assets, 200 crores is lifestyle and 300 crores in gym business, now in this 200 crores, I just want to know the breakup of the eight properties and other residual fixed assets, what is it, and second is how this split has been done based on the area of square feet or exact machinery one-to-one mapping, how is it done? The thing is that what we have done, what pertains to gym activity will be gym activity. The thing is that and that has been, the gym company has been hived out. If you see what is the residual, what is going to remain in the current company is that eight properties which we have the book value is around 40 to 49 crores is going to remain here. There are in the standalone company, there are no other assets, because this company is going to get demerged and other things which are now after one-and-a-half years, we have done rapid expansion, the thing is that from the Zorba from 3 to 78 Studios, the NuForm we have expanded also has reduced, so the thing is that there will be slightly change in that but all those aspects will be appropriately captured once we get NCLT order, but whatever is going to remain in the gym company is going to be assigned to that, so the perfect appropriate accounting will take place. This 200 crores that are attributed to the lifestyle business, it is as on March 31, 2016, so the book value of eight properties is 48 to 49 crores, so around 150 crores relates to other residuary fixed assets in the lifestyle business, we have an idea that it is more like asset light business? That is what you are referring is including club. Okay, so club actually also included here which is would be around 50 crores? Yes. Only the gym and gym and nothing but gym will remain in the gym company. not even the properties of the gym will remain in the gym company, just wanted you to get that clarification, so two significant blocks of the lifestyle company are property and club project, rest of the assets are all going to be NuForm, Reduce, Zorba, Zumba, all of that. Basically, if I say as on March 31, 2016, out of the 200 crores in lifestyle, 50 crores is relating to the eight properties and 50 crore relating to the club business and 100 crores is the residual fixed assets that is there, which can be attributed to Zorba, Zumba, and all sort of that things, is my understanding correct? As I said, technically this is a situation because I do not have the detailed figure nor am I supposed to comment on it, I had just given you a contour that the two major assets which come there and which helps you to draw the balance sheet are property and the project. Page 16 of 18

17 Sir, as we say like our lifestyle business is on a high growth trajectory, so how much would be the incremental capital required if like? Aman, we have already discussed that, we will discuss this in great detail. As you can see we are very forthright in our con call, we have no problem discussing any issue, but just give us that one month right now, I am sure the orders should come far before that or at least definitely before that. After that point, you can be rest assured as management we will put up both the presentation. Sir, about these eight properties that we are looking to sell or lease that or any other type to monetize it, so what would be the timeline or what is the status of this? Unfortunately, we cannot do anything till the demerger happens, because till that point there is no legal entity by which we can go to somebody, approach them to do a sale. If you go to somebody, which is the company, so what do you answer. But consequent to the demerger even they should be on a fast track basis? We are very keen to get it done. On the Quarter-2 numbers, Sir, can you please provide the split of revenue between lifestyle and gym and within lifestyle also subsegments through reduced informed Zorba and Zumba? Unfortunately, I cannot give you the detailed breakup. As I mentioned to earlier caller before, I think we are about 76% on gymming and 24% on lifestyle. What would be the year-on-year growth in lifestyle revenue, Sir? You are coming back to the same question, I am so sorry I will have to skip this, Aman. No, has it grown at 25 percentage lifestyle business. I cannot comment on this, you will get the detailing on this as soon as the companies are demerged. Can you please just provide comparable proportion of lifestyle and gym business corresponding to last year? You are asking the same thing, thank you, Aman. Thank you. That was the last question in queue. I now hand the conference over to the management for their closing comments. Page 17 of 18

18 Thank you very much everyone, it was nice chatting with all of you and I hope we could answer all of your questions and we are blessed at the position we are at and hope to grow as usual may be probably better than the previous years and once again thank you very much, looking forward to seeing and hearing from you in the next quarter. Thank you. Thank you all of you, if we have not been able to answer any of your questions, please have a little bit of patience and hopefully over the next four weeks we should have some good news in terms of demerger and then obviously download the presentation on both sides. I would also request Girish and if anybody wants to meet you. Thank you and if anybody wants to have queries, I am available, please get in touch with my higher or me and let us answer your queries. Thank you. Ladies and Gentlemen, on behalf of Centrum Broking Limited, that concludes this conference call for today. Thank you for joining us and you may now disconnect your lines. Page 18 of 18