Prof Sanjay Bakshi’s Fav E-Com Stock Is A Buy Now: Nirmal Bang

At one time in the not-so-distant past, Prof Sanjay Bakshi, the authority on value investing, ran an open house. Anyone could walk up to him on twitter and engage in a long and fruitful discussion on esoteric and arcane issues relating to investment theory.

However, this privilege was abused by some mischievous elements who began to badger the Prof with inane questions like “What is the price target for TISCO for tomorrow?”

Understandably, the Prof lost his temper. He not only threw the mischievous elements out but also slammed the door shut behind them.

The result of this sorry state of affairs is that now only a few chosen ones in the Prof’s inner circle of followers have access to his sayings. The hoi polloi have no access unless if there are first screened and given the all-clear.

Vaibhav Global is a stock that the Prof introduced to us with great fanfare. The Prof wrote a teaching note titled “62 Bagger And Counting: An E-commerce Business That Actually Makes MONEY But Almost Didn’t” in which he waxed eloquent about the prospects of Vaibhav Global. The Prof examined the stock from a “psychology lens” and also from a “finance lens” and gave it full marks on both counts. The Prof was especially gung ho about Vaibhav Global’s “low cost advantage formula” and “entry barrier” and he called it a “highly profitable, cash generating, extremely well financed, and dominant business in its space”.

Sadly, none of the attributes that the Prof referred to are visible in Vaibhav Global’s performance so far. The Company has been regularly reporting poor results. In fact, since the fateful day when the Prof wrote the glowing tribute (27.01.2015), the stock is down a whopping 48%. On a YOY basis, the stock is down 53%.

Luckily for us, Runjhun Jain of Nirmal Bang has conducted a detailed study of the innards of Vaibhav Global and identified the factors that are ailing it. He has set out the company’s tale of woe in the following eloquent words:

“Due to its ongoing restructuring to face competition Vaibhav Global posted yet another muted quarter with Sales declining 8% yoy to Rs 276.4 cr. Key reasons for the same are (1) Decline in B2B sales of Rs 20 cr (2) Loss of revenues of rs 11 due to launch of new website (3) discontinuation of high end (low margin) products. Web volumes were down 13% yoy whereas TV volumes grew by 5% yoy. Volumes were flat in US but pricing was down by 4% however exchange of 6% helped the company in registering overall growth of 2% in rupee terms in US. In UK volumes were down by 5%. To be more customer friendly, VGL has started new Mobile and Tablet Apps. Also, to face the competition the company has also started the sales return policy and is expected to start EMI option from Q2FY16. We believe, now VGL is at par with other players in terms of offerings and still has its edge of lower price points products. It is also in the process of starting Beauty and Home furnishing products however, it is most likely to start from FY17 onwards. EBITDA margins declined to 5.3% from 8.7% in Q1FY15 and 9.7% in Q4FY15 despite higher gross margins (74.7% vs 69% in Q1/65.1% in Q4 (on account of change in accounting of export incentive on closing inventory). Net profit has declined by 66% to Rs 7.3 cr due to (1) Lower top line (2) Higher depreciation (3) higher tax provisions”.

At the end of his analysis, Runjhun Jain has offered the comforting advice that there is “limited downside”. He has also advised a buy of the stock. He says:

“Though we continue to like asset light business model of VGL which can generate high ROCE and free cash, we believe the stock can remain range bound in near future. We expect the company to realize the full benefit of its efforts from FY17 and believe it could return to double digit growth then. At CMP of Rs. 397, VGL is trading at a PE of 12.9x/10.6x on FY16E/FY17E expected earnings. At 15x FY17E earnings our target price comes to Rs. 493 per share. We recommend BUY.”

If Runjhun Jain is right about the target price, we are talking about an upside of 23% from the CMP of Rs. 398. Of course, if Vaibhav Global does achieve all of what the Prof has visualized for it, then the sky is the limit!