Cult.fit, a leading fitness company in India, is preparing to launch its initial public offering (IPO), aiming to raise ₹950 crore through a fresh issue and an offer for sale of 17.8 crore shares. This move has sparked interest as it is the first significant IPO from the fitness sector in nearly a decade. Founded in 2016 and backed by venture capital, Cult.fit plans to use the funds to expand its network of fitness centers across India.
The IPO announcement has also brought back memories of Talwalkars Better Value Fitness, a once-prominent fitness chain that went public in 2010 but later faced bankruptcy due to financial mismanagement and fraud. The contrasting journeys of these two companies highlight the evolving fitness industry landscape in India.
India’s Fitness Market: Untapped Potential
India’s middle class is increasingly investing in health and wellness, creating a promising opportunity for fitness companies. According to Cult.fit’s draft red herring prospectus (DRHP), less than 1% of Indians currently have gym memberships, compared to 25% in the United States and 5.5% in China. This suggests a vast market yet to be fully explored.
The fitness sector has seen growing demand as more people prioritize health, but the industry remains underpenetrated. Cult.fit’s IPO is positioned to capitalize on this trend by expanding its presence nationwide.
Lessons from Talwalkars’ Rise and Fall
Talwalkars Better Value Fitness was a household name with a 50-year legacy when it went public in 2010. At its peak, it operated 152 centers across more than 80 cities, serving over 200,000 customers. The company also partnered with the UK-based David Lloyd Leisure Group to develop luxury clubs and invested in boutique yoga studios.
In 2018, Talwalkars split into two entities: Talwalkars Better Value Fitness, focusing on lifestyle and wellness, and Talwalkars Health Clubs, handling gym operations. Despite this, the companies shared bank accounts and branches, leading to operational confusion.
Financial troubles surfaced in 2019 when the company defaulted on a ₹3.5 crore interest payment despite showing ₹77 crore in cash. This triggered a forensic audit by KPMG, uncovering major accounting fraud involving fictitious entries and fund diversion. The actual cash balance was found to be only ₹5 crore, far less than reported.
Following these revelations, landlords closed gyms due to unpaid rent, and Axis Bank initiated bankruptcy proceedings. The companies were eventually liquidated, with Talwalkars Better Value Fitness sold for just ₹15 crore. Shareholders lost their investments as the company’s value was wiped out.
What Cult.fit’s IPO Means for the Fitness Industry
Cult.fit’s IPO comes at a time when its business model shows strong growth. According to a report cited in the DRHP, Cult.fit is four times larger than its nearest competitor and generates 14 times more revenue. However, the company is still operating at a loss and plans to enter a capital-intensive phase by launching new formats like Cult Elite and Cult Neo gyms.
These new centers will offer hybrid and pro-segment gym experiences, requiring significant investment. Cult.fit has allocated ₹276 crore from the IPO proceeds for this expansion. The company’s ability to manage this growth without repeating Talwalkars’ mistakes will be closely watched by investors and industry observers.
The fitness market in India is evolving rapidly, and Cult.fit’s success or failure could set important precedents for future players in this sector.
Frequently Asked Questions
Q: What caused Talwalkars’ bankruptcy despite its long history?
A: Talwalkars faced bankruptcy due to accounting fraud, including fictitious cash balances and fund diversion, which led to financial instability and loss of investor confidence.
Q: How is Cult.fit different from Talwalkars?
A: Cult.fit operates with a modern business model backed by venture capital, focusing on technology-driven fitness services and plans to expand with new gym formats, while Talwalkars struggled with operational overlaps and financial mismanagement.
Q: Why is the fitness market in India considered underpenetrated?
A: Less than 1% of Indians have gym memberships, which is low compared to other countries, indicating significant growth potential as more people prioritize health and wellness.
