Vaibhav Global qualifies for a forensic case study analysis at the hands of Prof. Sanjay Bakshi and other experts. It has the unique distinction of going from riches to rags and to riches again. Where it stands now is not clear. In the meanwhile, its shareholders have gone from ecstasy to despair and to ecstasy again.
Vaibhav Global had a torrid time during FY07 to FY10. It incurred heavy losses owing to the heavy investments that it made for acquisitions and launch of TV Channels. The stock price plunged from a high of Rs. 230 to a low of Rs. 11. The situation got so bad that the mighty Warburg Pincus was forced to sell its entire investment of Rs. 245 crore at Rs. 11 crore, suffering a loss of 92%.
However, Nalanda Capital, one of the early investors kept its faith in the stock.
Vaibhav Global came back into the investors’ radar in 2013 when Nirmal Bang and Hem Securities put a buy on it. The logic was that the remedial steps taken by Vaibhav of changing its business model to a full year discount retailing of artificial jewelry through 24×7 TV Channels is a unique, profitable and highly scalable business model. At that time, the stock was at Rs. 133. Within a short time, the stock surged and gave huge multi-bagger returns.
Axis Capital issued a recommendation in August 2014 advising a buy with a target price of Rs. 1140. Axis explains that Vaibhav Global’s potential lies in “simple business economics” that volume ramp up and operating leverage will lead to a spurt in profitability. It estimates that Vaibhav will post 20%/ 30% revenue/ PAT CAGR with sustainable RoE of 30%.
However, after that, something mysterious happened in November 2014 and the stock price slumped. From a high of Rs. 845 on 30.10.2014, it plunged to a low of Rs. 479 on 20.11.2014.
What caused the plunge of nearly 43% in a period of about a month is still a great mystery.
None of the big-ticket shareholders appear to have sold the stock. Maybe the Q3FY15 results may throw some light.
In his write up titled “62 Bagger And Counting: An E-commerce Business That Actually Makes MONEY But Almost Didn’t”, Prof. Sanjay Bakshi looks at Vaibhav Global with a “psychology lens” and portrays an emotional side of how Sunil Agrawal, the promoter of Vaibhav Global, displayed gritty determination and snatched victory from the jaws of defeat by changing the business model.
What is important for us is the “finance lens” through which Prof Bakashi X-Rays Vaibhav Global and explains how the Company now has a virtually “impenetrable moat” due to its “low cost advantage formula”. He states that “VGL’s moat comes from its low cost advantage which is very hard to replicate”.
Prof. Bakshi also emphasizes that the huge cost of Rs. 609 crore that Vaibhav Global incurred from FY 11 to FY 14 (and which almost led to its ruin) in setting up TV Channels has now become an “entry barrier” and a source of “operating leverage”.
After more detailed analysis, Prof. Bakshi concludes that Vaibhav Global is a “highly profitable, cash generating, extremely well financed, and dominant business in its space”.
Towards the end, Prof. Bakshi discloses that he has invested in Vaibhav Global “after spending a lot of time thinking about the business, and the man who is running it”. He adds that “After considering various factors, I figured that based on what Sunil has been able to accomplish so far, VGL’s tomorrow will be alright”.