Vijay Kedia recommended four stocks for 2019
I reported earlier that Vijay Kedia has cherry-picked four high-quality and fail-safe stocks for us to invest in 2019 (see Vijay Kedia Recommends 4 Multibagger Stocks For 2019).
I have already conducted a meticulous assessment of the prospects of all four stocks and explained why they have the potential to delight us with multibagger gains in the foreseeable future.
Vaibhav Global is a “rare” company with “inherent quality & strength”
Now, Vijay Kedia has provided further explanation with regard to one of the four stocks, namely, Vaibhav Global.
In an article in ET titled “One stock idea I can’t take my eyes off in 2019”, Vijay Kedia has provided a systematic and masterful analysis of the numerous virtues of the stock.
His logic is quite convincing and is as follows:
(i) Rare company with inherent quality and strength:
Vijay Kedia has pointed out that Vaibhav Global is India’s only profitable and vertically-integrated electronic B2C fashion retailer with proprietary TV home shopping, e-commerce, mobile app platforms in the US and the UK.
It runs a 24×7 auction programme on youtube named “Liqudation Channel”.
Vaibhav Global is counted among the rare companies which manufacture products in India and sell 100 per cent in developed economies such as the US and the UK.
It competes with companies that generate billion dollars in revenue.
This shows Vaibhav Global’s inherent quality and strength, Vijay Kedia opined.
(Shop LC, Vaibhav Global’s Live YouTube Channel)
(ii) Deep value proposition for customers:
Vaibhav Global’s USP is that it delivers “deep value proposition” to discount-seeking customers in fashion jewellery and lifestyle products, Vijay Kedia has explained.
The company has expanded its portfolio, focusing on adjacent product categories such as lifestyle accessories, home textiles, kitchenware and cosmetics that target similar market segments.
(iii) Top notch management:
Vijay Kedia has emphasized that Vaibhav Global has management with decades of experience.
Puru Aggarwal, the CFO, has worked with multinational giants like Teva Pharmaceuticals, Coca-Cola and E&Y and knows the ins and outs of business.
(iv) Trial by fire:
Vaibhav Global has gone through a harrowing time in the past over the past 10 ears.
This has hardened the management and they now know how to deal with market uncertainties.
“In spite of two big falls in last 10 years due to market uncertainties, helping the management with new learning through this phase, Vaibhav Global still stands tall,” Vijay Kedia said with admiration in his tone.
(v) Mammoth size of market:
Vijay Kedia has pointed out that the size of the market is colossal and this is brought out by the fact that QVC, Vaibhav Global’s arch rival, is effortlessly raking in revenue of $12 billion.
In comparison, Vaibhav Global is still a Lilliput with revenue of only Rs 1,575 crore.
It is obvious that if Vaibhav Global walks in QVC’s illustrious footsteps and captures a bit of the latter’s market share, multibagger gains will effortlessly gush out of the stock.
(Live channel of QVC TV which rakes in $12 Billion)
(vi) Moat in supply chain:
Naturally, the question will arise in the minds of novices as to what is to prevent competitors from barging into the market place and snatching business from Vaibhav Global.
Vijay Kedia has explained that Vaibhav Global’s strength lies in its supply chain that it has created over the years.
The company has low cost of sourcing and supplies to competitors like QVC.
He also pointed out that in price competition, Vaibhav Global has benefits over others as it has access to grassroots-level understanding of trends that are existing and upcoming in the market.
(vii) Affluent teeny-boppers in US & UK send cash registers ringing:
It is well known that teenagers have a fascination for jewellery and trinkets, especially when they are being sold at a discount.
Vaibhav Global has capitalised on the opportunity presented by the US and the UK and grown its revenues in mid double digits in constant currency terms with decent Ebidta margin expansion, Vijay Kedia stated.
He added that Vaibhav Global’s recent moves to launch budget pay, mobile app, re-branding of TV channels and focus on e-commerce have fetched desired results.
(viii) Massive growth in E-commerce sales:
E-commerce sales in the USA contributed 9 per cent of total retail sales, growing almost 17 per cent YoY in 2017, Vijay Kedia said.
The company through its footing in strong e-commerce has captured immense market size and this should help it have a shot at continued growth in the years to come, he added.
(ix) Excellent financials:
Vijay Kedia is known to have a keen eye for the financials of the companies that he invests in.
Thankfully, Vaibhav Global has received a clean chit for its capital allocation.
“Growth in revenue and margin expansion with tight control over working capital has resulted in sharp increase in free cash flow to the company,” Vijay Kedia said.
“In FY18, free cash flow was worth Rs 18 crore whereas in H1FY19, it was Rs 85 Cr,” he added, proving that he has analyzed the financials with a toothcomb.
He also anticipated concerns from novice investors that the rising interest costs in the USA could torpedo Vaibhav Global’s fortunes.
“Rising interest cost, even in countries like the USA, won’t impact financials of the company as it is debt free with a net cash flow of Rs 104 crore,” he stated in a soothing tone.
He also pointed out that since most of the capex is over, operating leverage will kick in as the company increases its sales.
(x) Bottom line will grow at over 40 per cent
Vaibhav Global is growing at a scorching pace and has projected that it will grow at 12%+.
It is obvious that if a company grows at 12%+ and if it reaps the benefits of operating leverage, a 40 per cent growth in the bottom line may be a cakewalk.
Vaibhav Global has terrific management & is phenomenal: Sumeet Nagar of Malabar Fund
Sumeet Nagar’s Malabar Fund is one of the distinguished shareholders of Vaibhav Global.
In his latest interview, Sumeet Nagar showered rich praise on Vaibhav Global. He described it a company with a “terrific management theme”.
He pointed out that the Company is very focussed on creating an opportunity and that what it has been able to do is “nothing short of phenomenal”.
“To be in that business in the US where there are only a handful of people, maybe four or five people who have been able to create businesses of that size despite huge barriers to entry. It is amazing,” he added.
He also pointed out that Vaibhav Global enjoys “tremendous operating leverage” and that over the last one year, its’ earnings have more than doubled.
It will also benefit from the steep depreciation in the rupee, he opined.
Vaibhav Global is “back on track” and has “huge potential ahead”: Nirmal Bang
Runjhun Jain of Nirmal Bang knows the innards of Vaibhav Global like the back of her hand.
She has been tracking the stock since time immemorial.
In her latest recommendation report, Runjhun Jain has advised us to tuck into the stock on the premise that it is on a high growth trajectory.
“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,” she advised.
“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),” it was added.
Given the unanimity of opinion amongst the luminaries regarding the multibagger prospects of Vaibhav Global, we have to give serious consideration on whether to add the stock to our portfolios or not!