Vaibhav Global ~ Vertically integrated value e-tailer of Jewellery and Lifestyle Products

Very highly reputed blue chips do the same thing. Its more common than you think.

Buyback proposal.

https://nseindia.com/corporates/corpInfo/equities/AnnouncementDetail.jsp?symbol=VAIBHAVGBL&desc=Outcome+of+Board+Meeting&tstamp=300520191152&

Interestingly in the concall of Q4fy19 sunil aggarwal mentioned that Q3 and Q4 had 15cr of one time expenses hich will not repeat in FY20.
Now if this is the case there will be substantial operating leverage occuring in fy20. If company succeeds in recording 15% sales growth as guided (last year retail growth was 22%) then profits will rise disproportionately. Profits could be in vicinity of 200 cr
Comany is generating FCF now. In Fy19 it was in 150+ cr. range. Company declared dividend of Rs. 10 during last FY apparantely as company dont require capex as such dont have reinvestment oppurtunities and has of late initiated buyback of shares.
FCF generation will be high this year if sales growth of 15% is achieved (last year as i mentioned before growth was 22%) — so current market cap of 2400 cr. looks cheap.
Company generates high ROE, ROCE for last many years and is debt free.
discl: has bought between 620 and 750 in last 6 months many times

Vaibhav Global, ET NOW, 30th May

  • Rationale behind buy back is business seems is very strong going forward, which generates lot of cash profits. Fully utilized buyback value as per regulation.
  • See strong free cash flow going forward
  • Share is available at very low price available in market compared to its intrinsic value
  • Shareholder should see consistency in the business. Do not need more capital even if it grows beyond our guidance
  • Lot of levers in business, huge opportunity. Adding new products every quarter.

3rd June 2019 – interview

India loses USA trade privileges, USA withdrawal of GSP benefits

  • VGL products in USA attracts duty since ages
  • Do not expect hike or steep hike in our products
  • Current duty impact is about 5%
  • If hiked slightly, we will have more edge over our compaction because our product cost of our sales is about 1/3rd while competitors cost of sales is 2/3rd
  • So, they will have to pay twice of the duty of what we have to pay
  • Our price point in USA is about $25 so assuming if duty is hiked, it would be insignificant
  • Duty is relation to sales is about over 2% so even duty is hike about 50%, impact would be about 1%. That means on a product level price would be about a half dollar which would be easily passed
  • We operate on cost plus basis model, so it is easy for us to do that
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How to justify this 14 lac share selling by promotors when people are talking VGL to become 10k cr company in next few years…

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Q1 FY2020 results presentation (https://www.bseindia.com/xml-data/corpfiling/AttachLive/b853be6b-f2fa-4204-98f4-feabc53bd612.pdf)

Business continues to grow at a decent pace with all the fundamentals intact.

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Going through annual report for FY2019
Noticed few points which needs to be clarified.

1.REMUNERATION PAID TO Mr.Sunil Agrawal
In FY18-19 Mr.Sunil Agrawal was paid Rs.2.60cr which is mentioned in RELATED PARTY TRANSACTIONS but not in ANNEXURE-3 where managerial remuneration is usually mentioned.
What can be possible reason behind the same?

2.HYPOTHECATION OF ASSETS.
Total assets hypothecated as security are Rs.577cr vs Rs.499cr last year.
If they are a debt free company then why hypothecation?

If someone is aware of reasons kindly throw some light.
Thanks.

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Also look at their bad debts number, looks elevated, considering the nature of the business…

Good results. Operating Leverage in play. Revenues up by 7%, EPS up 25% (Link)

Story moving in line with expectations

Disclosure: Invested

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Q3 results. Revenues up by 11%, EPS up by 25% (Link)

Story moving in line with expectations

Disclosure: Invested

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Very good result indeed. Company is recovering and taking advantage of inherent operating leverage in the business.

Discl: Tracking…

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Being a Discretionary company and superbly well run of late, But I feel with the Covid situation with no end in the near term in sigh, it could really take a hit in earnings for 2/3 quarters minimum if not more. In a situation like the US which is nearing nearly 20% unemployment ( last 20-25% was seen in he great depression ) who will be spending money on discount jewellery ? , the value looks great looking at the rear mirror 110%, but maybe not looking forwards. Any thoughts would be welcome… maybe wait 2 quarters and see the impact

I agree but going by the interview of the CFO in the last couple of years he keeps mentioning that the company’s business model can withstand recession …also promoter has bought almost 2.5 lakh shares in the last month which seems to suggest they don’t seem too much bothered as of now

im sure it will withstand, I guess what he means by “withstand” is that they wont go bust. If it was louis Vuitton or Gucci which is ultra luxury I can see the earnings dip but not that much since that section of society is not very price sensitive, but Vaibhav globals target market are the opposite its the price conscious lower and upper middle class. And if covid does stick on longer than expected with a bunch of mom and pop stores shutting down and Layoffs coming after, I don’t see how people would think of buying jewellery. Also if the see the amount of debt per house hold in the US , that pressure to pay off debt plus the possibility of high unemployment , seems very unlikely earnings will stay the same, I would say at least a 20-30% hit in earnings. Not saying they will go bust at all don’t get me wrong, in fact I feel they will come out stronger since allot of competition will go bust since they are one of the most efficient producers, but my point being may get a chance to buy at a much lower level ( I’m not a market timer and I don’t believe in that), But seeing it objectively and looking at the external environment if I may say the probability of this happening Is fairly high.

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I know and it’s a very logical point that you are making …it would be interesting to see how they will combat this problem …although the chart is looking bullish for now who knows maybe the market may already discount the worst and the price may not fall much …if I recall this stock hasn’t fallen when the entire mid and small cap market crashed

yes it didn’t fall cause its sitting at an 8% operating cash yield with a high probability of a 16-17% cagr ( so see it like a bong yielding 8% with a bias and high probability of growth 16-17% the guidance the management gave) also there was no covid scare then the mid caps fell, this is no doubt a high quality company and to quote warren" In the business world, the rear-view mirror is always clearer than the windshield.” And if you really want to see what happens in these situations can study some other artificial jewellery players during recessionary times , and as for chart patterns I don’t even want to debate that haha. I think may get a much better opportunity to buy, I definitely don’t think the earnings hit is NOT discounted in the price for sure.

Alright …I’m holding only 50% of the required quantity anyways so even if your prediction comes true then it will be a good opportunity to buy for me

haha I wouldn’t say “prediction” , more like a logical deduction by looking at the sequence of events, and by seeing the past and how discretionary players have fared in such times, that’s why I say high probability , if there is one thing I have leant in investing is , that nothing is certain its just high and low probability events, Key is the find high probability outcomes and if possible at a mispricing ,basically a mispriced bet with a high probability outcome .Anyways will be interesting to see how the next 2/3 quarters play out.

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