Vaibhav Global Research Report By Nirmal Bang

Back On Track – Huge Potential Ahead

Vaibhav Global Ltd’s (VGL) journey has been a roller coaster ride since its inception. After having a decade or so smooth and growth phase at the start, it faced huge losses during the global turmoil which pushed the company into CDR.

However, the management took corrective steps in terms of restructuring the business (like converting the business model from pure jewellery company to retail company, shutting down of loss making subsidiaries etc).

Post this, the company not only came out of the process but had its most profitable years. However, this attracted PE funded new players with much more aggressiveness and newer schemes which impacted VGL’s growth as well as profitability (in FY16 sales declined by 6% and EBITDA margins came down to 4.5% from peak of 11.4% in FY12). Still this didn’t deter the management’s confidence who took the whole situation as an opportunity to rebuild the model and restore the customer’s confidence.

The proactive management took various initiatives like restructuring of its back end operations, launched Budget pay (EMI), introduction of easy returns policy, launch of mobile app etc. All this steps brought the company to a level playing field and also, translated into higher realizations.

VGL has high fixed cost (cost of channel, employees, inventory etc) model which is boon in case of growth period (higher volumes and/or better realizations) as the higher growth directly translates to EBITDA margins.

We are projecting 15% CAGR in sales between FY18-FY21E however expects EBITDA/PAT to grow by 23%/22% during the same period. (marginal decline in PAT growth is due to increase in tax rates)

Key Highlights

• Post the introduction of Budget Pay and easy return policy, the average selling price has been increase for both Web and TV sales. TV average selling price has been increase to $26.6 from $24 in FY16 and for web sales it has increased to $19.7 from $15 in FY16.

• Budget pay comprised 39% and 37% of net sales in US and UK respectively.

• Due to strong balance sheet (net debt free, 20%+ return ratios), healthy cash flows and no major capex lined up, the company has announced a dividend (of Rs 5 per share), after a gap of three years.

Valuations and Recommendations

Over the years, VGL has positioned itself as a strong player in discount electronic retail segment. It provides an unmatched value proposition of offering lowest average selling price in addition to all the options which customers offer. It has the benefit of low cost base which gives it leverage in competing with other players.

We like the asset light business model of VGL and we believe that company is ready for its next leg of growth journey. We expect sales to grow at CAGR of 15% during FY18-21E and EBITDA margins to improve from 9.4% in FY18 to 11.5% in FY21E. We recommend BUY on the stock with a target price of Rs 887 (16x FY20E).