Vaibhav global is a jewelry business but it is unlike any other business. It has a fully vertical supply chain and produces and sources products and sells them in US,UK and Germany through digital media and TV. It follows the Zara model and has a strong focus on Gross margins being 60%+
Anyways
Let’s get to the thesis
Thesis
The management is really good and I remember them mentioning they take pride in meeting and succeeding their guidance every single time except post covid. The management has guided for 14-17% growth for the next FY25 with strong operating leverage I have assumed the higher side to see the best possible scenario, I would suggest taking the lower end too in a different model to know the full spectrum of possibilities. However, they acquired two new companies and are hopeful of getting 40-45 million(which is 17 million rn) If that happens, they can surely go past their guidance
EBITDA
EBITDA and sales are all there is to track here. EBITDA was 12% (ended up as 9.5% adding other incomes)
barring the losses of Germany. Germany is expected to break even H2FY25 and hence that drag will go away!
I have been conservative with the margins and only factored in 1.5% reduction of drag from Germany and no improvement in environment of UK and US and acquisition margins to stay the same(highly unlikely)
Management said 15-18% margins are possible in the long term so there is huge growth ahead!
Other income
Other incomes is 0.5% of revenue to factor a 1.5% increase in margins each year
Interest and depreciation shouldn’t move much except a new acquisition. But that should boost revenue as well!
Antithesis
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Fragile state of western economy, especially the UK has caused a lot of problems before and the business is prone to deleverage as well!
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Failure of expected break even of Germany will spoil the improvement of margin
Final thoughts
I think the business is really good and is quite unique. The ROCE is to improve which can increase the bandwidth of exit multiples
Moreover, the TAM of the business is really high as they haven’t penetrated much in their countries(for example US is 15 billion dollars and Vaibhav has 3% share)
And they are open to stating business in Japan and India after Germany is steady and profitable
A lot of consolidation
At support
Let’s see how it goes
I think earnings will catch up a bit for valuation comfort before prices go
But it’s anyone’s guess
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