Vaibhav Global - E-tailer of Jewelry products on teleshopping platforms

Updated: Feb 15


Company Name – Vaibhav Global Limited (Vaibhav Global)


Current Share Price – INR 525 (December 2, 2021)


Market Cap – INR 8,592 cr


 

1. What is interesting about the stock?

Company Background & Business Overview:


Vaibhav Global Limited is an online retailer of low cost/discounted fashion jewelry selling primarily through television and the internet in the US and UK. Vaibhav Global brings in the best of both worlds with control on:

  • Back-end (supply chain/ manufacturing) which aids superior cost control, inventory turns and quality; and

  • Front-end (teleshopping and web) which helps customer engagement and retention.

Vaibhav Global’s journey till date can be broken down into 3 phases:

  1. Transition from B2B to B2C (FY03-08)

  2. Focus on Teleshopping (FY09-16)

  3. Transition from single category exposure (Jewelry) on single platform (Teleshopping) to becoming Omni-Channel lifestyle retailer (FY16-21)

Over FY16-21 the company has

  • Invested heavily in Omni channel (Digital now contributes 36% of FY21 sales)

  • Hired senior management with Digital background

  • Expanded gamut of product offerings (Non-jewelry up from 9% to 31% of revenue over FY16-21)

Vaibhav Global has excellent direct sourcing network (30+ countries; especially from India, China, Thailand and Indonesia) that allows it to competitively price products. The company also owns 3 ISO certified manufacturing facilities located at Sitapura, Jaipur that helps the company manufacture high quality products at the best possible prices. Recently the company incorporated Vaibhav Vistar and Vaibhav Lifestyle for manufacture and export of jewelry and lifestyle products and textile and apparel products respectively.


The company follows a 4R strategy:

  1. Reach (104 million TV households as of FY21)

  2. Registrations (3.4 lakh new registrations in FY21)

  3. Retention (51.5% retention rate)

  4. Repeat purchases (27 pieces per customer enabled by cross-selling and expanding wallet share)

Vaibhav Global’s future growth is dependent on its ability to keep adding new customers and increase the lifetime value of customer by increasing retention and repeat purchases. Given that the company only did about 5 lac+ (0.5 million) unique customers in FY21 (compare this with QVC that has ~22 million active customers) shows that there is huge potential to increase the consumer base while also increasing retention (75%+ for QVC customers) and repeat purchases. Given the huge growth potential I believe the company can deliver constant currency revenue growth of more than 15%.


Industry overview:


Teleshopping is an oligopolistic market with QVC (Qurate) controlling 93% of the market. While traditional pay television continues to be integral to the US household, internet penetration and rise of streaming services have resulted in cord-cutting over the years. To counter this trend Teleshopping companies have started focusing on digital channels to extend reach and conversion. While switching to omni-channel not only increases TAM but it also increases competitive intensity.


Some of the competitors in this space are:

  • QVC (Qurate)

  • HSN

  • Shop HQ

  • Ideal Shopping

None of the above teleshopping retailers addressed low price jewelry and thus provided a white space for Vaibhav Global to fill. Vaibhav Global has low market share 1-2% across global teleshopping market; its differentiated value proposition through deep discounting presents opportunity to grow faster than peers either organically (US/UK) or through new geographies such as Germany.


Moats

  • Vertically integrated jewelry manufacturing leading to 60%+ gross margin that is tough for peers to match

  • Deep discounting model with ASP 50% of peers (USD 25-30) leads to high inventory turnover and is less affected during financially stretched times. This got validated in FY21 (arguably one of the toughest years in global business), when the company reported its best numbers ever, increasing retail revenues by 31% and free cash flows by over 50%.

Priorities going forward

  • Increase market share in US and UK (existing markets)

  • Operationalizing German business

  • Investing in Omni-channel that offers scope for cross selling and improves customer experience

  • Strengthening backward integration in non-jewelry business

  • Investing in technology for higher automation, data analytics, robotics to ensure customer satisfaction and seamless supply chain operations

2. Key Historical Financials


Company had a fall in EBITDA margins in Q2FY22 due several factors like g higher shipping costs owing to global supply chain constraints, initial operating costs in the recently launched German operations, increased airtime spend as onboarded new TV channels and OTT platforms and stepped-up digital marketing investments. Vaibhav Global sees both growth and margin pressures as transient, being linked to either strategic growth initiatives or near-term changes in the operating environment. However, we should keep track of these pressures.


3. What is my view on company valuation?


I believe the company is in a unique position where it can deliver 15%+ revenue CAGR for the next 5 years at 15%+ EBITDA margin. The company has been able to grow its EBITDA margins from 6% in FY17 to about 15% in FY21 and this is expected to go up even further driven by:

  • Further operating leverage from fixed TV broadcasting expense

  • Increase in web and Omni-channel sales

  • Cost reduction through automation, robotics and increase in efficiency

With these metrics the company will be able to sustainably deliver 30%+ ROCE and ROE going forward, which by the way is superior to any of its listed large peers in the US.


Currently the stock is trading at TTM PE of 29.7x, which is at a huge discount to some of the Indian peers in similar space like Titan (PE of 82x after annualizing Sep-21 quarter profit) and Trent (PE of 98x after annualizing Sep-21 quarter profit).


However, the company trades at a premium to QVC (TTM PE of 8.1x) and that can be explained by the low 5 year sales growth (9%) and low ROCE of 16% for QVC.


Company looks attractive at PE (TTM) of 29.7x (5 year PE ratio of 20x) in comparison to the domestic and international peers based on the expected revenue growth and high ROE level (30%+). Stock has increased almost 3x since March 2020 so could be accumulated on a price 20-30% lower than the current level.


4. What are the risks to the investment analysis?


Risks to the analysis are:

  • Stickiness of lower EBITDA margin can drive down the PE multiple and stock price

  • Shift from Teleshopping to Digital will increase TAM but also expose the company to higher competition from e-commerce retailers

  • Ability to diversify across product categories (non- jewelry) in a profitable way is a key challenge

  • Key man risk: Sunil Agarwal is a hands-on promoter and actively involved in running the business. Next level management’s ability to grow the business has still not been tested

 

About the Author


I am currently working as a Research Analyst and Portfolio Manager at Green Portfolio. I have close to 7 years of experience in Equity Research and Investment Banking across firms like Edelweiss, Zanskar Advisors and Cognizant (Buy side M&A). I have completed my Engineering (Mechanical) from NIT Surat and MBA from IIM Shillong.


Disclosure


I hold this stock in my personal portfolio and this is also part of the Green Portfolio ESG Fund that I manage directly. Views maybe biased. Please consult your advisor before investing. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.


This article is purely for educational purpose and not to be construed as an investment advice. Please consult your financial advisor before acting on it.


I have used publicly available information while writing this article.




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