Company Name – Vaibhav Global Limited (Vaibhav Global) Current Share Price – INR 308 (June 16, 2023) Market Cap – INR 5,091 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 to date can be broken down into 3 phases:
Transition from B2B to B2C (FY03-08)
Focus on Teleshopping (FY09-16)
The transition from single-category exposure (Jewelry) on a single platform (Teleshopping) to becoming an Omni-Channel lifestyle retailer (FY16-23)
Over FY16-21 the company has
Invested heavily in Omni channel (Digital now contributes 37% of FY23 sales)
Hired senior management with Digital background
An expanded gamut of product offerings (Non-jewelry up from 9% to 27% of revenue over FY16-23)
Vaibhav Global has an 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 help the company manufacture high-quality products at the best possible prices. Recently the company incorporated Vaibhav Vistar and Vaibhav Lifestyle for the manufacture and export of jewelry and lifestyle products and textile and apparel products respectively.
The company follows a 4R strategy:
Reach (141 million TV households as of FY23)
Registrations (3 lakh new registrations in FY23) - falling for the last 2 years!
Retention
Repeat purchases (23 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 customers by increasing retention and repeat purchases. The Company has been struggling in FY23 after benefiting from COVID-19 led increase in TV/Digital purchases which aided revenue growth and increase in gross/EBITDA margin.
Industry overview:
Teleshopping is an oligopolistic market with QVC (Qurate) controlling 90-95% of the market. While traditional pay television continues to be integral to the US household, internet penetration and the 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 omnichannel not only increases TAM but 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 a low market share of 1-2% across the global teleshopping market; its differentiated value proposition through deep discounting presents an opportunity to grow faster than peers either organically (US/UK) or through new geographies such as Germany.
Moats
Vertically integrated jewelry manufacturing leads to a 60%+ gross margin that is tough for peers to match
A deep discounting model with an ASP of 50% of peers (USD 35-40) leads to high inventory turnover and is less affected during financially stretched times.
Priorities going forward
Increase market share in US and UK (existing markets)
Turning Germany operations EBITDA positive
Investing in Omni-channel that offers scope for cross-selling and improves customer experience
Strengthening own brand portfolio: increase revenue mix from ~30% of B2C in FY23 to ~50% in FY27
2. Key Historical Financials
Company revenue and profit have been growing 11% and -1% on a CAGR basis respectively in the last 5 years
Revenue jumped in FY21 on the back of COVID-19 but growth has been poor in FY22 and FY23 - driven by weak customer sentiment and customers looking for experiences. Management had guided mid single-digit growth in FY23 - it has underperformed the guidance with actual growth coming at -2%. They have also reduced guidance for FY24 as the year progressed
Gross margin has come down from 64-65% in FY21 to ~61% in FY23
EBITDA margin has fallen from 15% in FY21 to 7% in FY23 driven by lower gross margin, higher advertisement/reach expenses, and losses from German operations. Management has guided towards an 8-10% margin in the near term
Net profit crashed more than 55% in FY23 on a YoY basis
Cash flow conversion (CFO/EBITDA) has been poor in FY22 and FY23 on the back of an increase in working capital levels
ROCE and ROE fell significantly to 11% and 9% respectively in FY23
3. What is my view on company valuation?
The highest point of the stock price was in May 2021, reaching ~INR 1000. Currently, the stock is trading at around 70% of that peak. However, it's worth noting that the stock's TTM PE of 49x is higher than its 5-year median of 27x. This, along with lackluster growth expected in FY24 & FY25 and return ratios below the cost of capital, suggests that the valuation is expensive.
Based on the analysis, I believe that a fair value for the Company would be a P/E ratio of 15-20x, which would represent a 40-50% discount from the current price.
4. What are the risks to the investment analysis?
Risks to the analysis are:
Shift from Teleshopping to Digital will increase TAM but also expose the company to higher competition from e-commerce retailers
The ability to diversify across product categories (non-jewelry) profitably is a key challenge
Key man risk: Sunil Agarwal is a hands-on promoter and is actively involved in running the business. Next-level management’s ability to grow the business has still not been tested
About the Author
Lifelong learner of the stock market.
Disclosure
I have no stock, option, or similar derivative position in any of the companies mentioned in the last 30 days, and shall not initiate any such positions within the next 5 days. 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.
I am not a SEBI registered advisor. This article is purely for educational purposes and is not to be construed as investment advice. Please consult your financial advisor before acting on it.
I have used publicly available information while writing this article.