Vaibhav Global came to my attention when Vineeta Mahnot of Hem Securities put a buy on it in August 2013. I watched spell bound as the stock price rocketed from Rs. 176 to a high of Rs. 975 on 26th August 2014 giving an incredible return of 454% in a year’s time. Vineeta’s current target price is Rs. 1050.
Vaibhav Global has had a tumultuous past. In the period from 2007 to 2010, it incurred heavy losses and was on the brink of bankruptcy. Its stock price slumped from a high of Rs. 230 to a low of Rs. 11. Warburg Pincus had invested Rs. 245 crore in the company. It sold its entire holding in March 2011 for a paltry Rs. 11 crore and booked a loss of 92%.
However, since then, Vaibhav Global has staged a dramatic turnaround. It downsized its operations and changed its business model to full year discount retailing of artificial jewellery and fashion accessories through 24×7 TV channels in the US and UK. The company has access to about 92 million households.
The company has attracted a number of savvy investors and analysts. Notable among the investors is Nalanda Capital which holds 12.71% of the equity (since 2007). Mathews India Fund is a recent entrant (Sept 2014) with a 1.55% stake.
Among the analysts, apart from Vineeta Mahnot, Nirmal Bang is a believer in the story. They initiated coverage in January 2013 (when the stock price was Rs. 133) with the caption “Ready to sparkle”. What appealed to them is Vaibhav’s unique & highly scalable e-commerce business model. The high ROEs and commitment to reduce debt are also positive factors it was felt.
A recent recommendation is from Axis Capital which suggests a buy on the premise of “Catch it young”. Axis points out that the potential of Vaibhav Global 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%.
Vaibhav Global has also issued an impressive presentation which explains the entire business model of the company.
In the midst of all this cheer, some heavy duty investor has been dumping the stock. The stock plunged about 8% yesterday. Today, it plunged nearly 13%. The volumes were inordinately high with 271,097 shares on BSE and 89,076 shares as against the 30 day average of about 22,000 shares on the NSE and 7,500 shares on the BSE.
If you are looking for a conspiracy theory, then there is the resignation of Sri Burugapalli, Sr. VP, Group Strategy in August 2014. Maybe, his resignation was a routine one. Maybe it wasn’t. The stock price did go soft since then.
I can think of three reasons why the heavy-duty investor could be selling the stock:
(i) The weak Q1FY15 & Q2FY15 results have spooked the investor:
However, this is unlikely because the management made it clear that Q1 was an aberration owing to (a) change in call center from in-house to third party, (b) build-up of inventory at studio & (c) installation of new software. Also, Q2 is known to a seasonally weak quarter for the company. Sunil Agrawal, CMD, did however, refer to “aggressive marketing tactics” by a close competitor which was a “growth roadblock” being addressed.
(ii) Profit booking, raising cash for a better option:
This is possible given the ferocious surge in the price in just the last one year. However, a savvy investor would not dump his holding in this reckless manner but would look for a bulk buyer.
(iii) Some skeletons in the cupboard?
Barring the resignation of Sri Burugapalli, there is nothing to suggest that there are any skeletons tumbling out of the cupboard. Also, the factor against the skeletons theory is the aggressive buying by promoter companies like Krishkin Impex & Brett Plastics. Krishkin has itself scooped up 75000 shares in the past few days. However, the buying has done nothing to stem the tidal wave of selling.
Its too early to say anything but we must remember at the back of our mind that a tidal wave of selling usually means that bad news is around the corner. We saw that in Zylog Systems.
Now, we have to wait and watch how the story unfolds from here.