Vaibhav Global : Back from the dead


(Mihir Naik) #81

We can’t compare it with Amazon or other E-commerce companies.

I feel the reason why they dont have return policy is because the products are very cheap. Around 7-8$. In this kind of price point its a no brainer to give return policy and stuff.

These people who buy 8-10$ jewellary are of completely different mindset and I personally dont feel any wrong in not having return policy. Because year by year repeat purchases are increasing.


(PP) #82

On the LC website - they have an auction mechanism… Try the button “$1 rising auctions” on the website.

The vast majority of the products on auction there have fewer than 5 bids… And due to the few bids, the auction prices are not rising above $5 for the vast majority of the products on auction…

To me, it is hard to believe that there is strong demand for VGL products… Or am I seeing this wrong?


(PP) #83

I also find it hard to believe their low-cost-sourcing advantage.

Just doing a basic search on Amazon USA website… There are at least 50,000 jewelry pieces priced below $25…

I have not done much research on this… Just did 2 basic checks on…
(1) demand side (see previous post)
(2) Cost side

Combining both - all I can see is the VGL isnt such a great business…

Disc. Not invested.


(CommonStocks) #84

I think this is an interesting way to sell and goes well with their brand image of low cost jewellery seller. I wouldn’t worry too much about the number of bids or the price point given that they have a lot of SKU’s and online sales is just about a quarter of their overall revenue and we don’t know how much of that quarter comes from this $1 bidding. Also such micro analysis may only help adding negative biases and do not really help in understanding the stock story.

In my view their brand is the medium through which they sell (Liquidation Channel and The Jewellery Channel) and not the products that they sell.


(sreeraj) #85

Investment Note Dated: 17th July 2015
Reasons lead to my Investment in Vaibhav Global Ltd (VGL)
This note is prepared on the basis of advice given by Mohnish Pabrai that when you identify a stock idea, after proper analysis, write a paragraph of a few lines on why he bought the stock. The paragraph should contain the intrinsic value of the business, the target price of the stock and the expected period of holding. This investment thesis is reviewed periodically – every 3 or 6 months and updated up to the intrinsic value of the stock and how it compares with the market price. He explained that business changes and growth takes place on a time scale that is very different from the flashing of the ticker. He also pointed out that he himself does not touch the stocks that he has bought for a year or two or even longer.
Business in simple words: VGL is a manufacturer of discounted fashion jewelry and life style accessories products in India by sourcing quality raw materials cheaply from Asian countries like Taiwan, Indonasia and China and convert this to high quality products and sell them directly through TV, Web and B2B customers in US, UK and Canada. Below are the important reasons to invest in this company:

  1. The sales of VGL during 2014-15 is Rs.1376 crs and net profit is Rs.103 crs. Net profit margin is 8%. Free cash flow is Rs.106 crs. EPS is Rs.32 and FCF per share is Rs.33. Total number of shares issued is 32404521 as on June 2015. ROE 31% and ROCE 44%. VGL has reduced debt of Rs.164 crs in FY 2011 to Nil in FY 2015. TV sales constitute Rs.958 crs (69.60%), Web sales Rs.256 crs (18.60%) and B2B sales Rs.161 crs (11.70%). The closing market price of VGL today is Rs.439.10 translates to a Price to Earning ratio of 13.72.

  2. In TV sales the sales volume in FY13 was 52.39 lacs and average selling price was USD 23, sales volume in FY14 was 64.20 lacs and average selling price was USD 24 and sales volume in FY15 is 68.29 lacs and average selling price is USD 23. It is very interesting to note that the sales volumes increased almost 30% from FY13 to FY15 with no change in average selling price which shows VGL is not compromised in profit margins to increase sales volumns.

  3. According to VGL chairman and md Mr.Sunil Agrawal in a Money control interview dated 21st Nov 2014, he said that “We are into two largest markets in the world and the market size available to us is very large almost USD 20 billion market size.

  4. If we put these valuations to VGL – USD 20 billion is almost INR 126000 crs. VGLs competitors QVC have sales of Rs.54180 crs and HSN have sales of Rs.14490 crs. The market share of VGL to total market size is merely 1.09% in 2014-15. Let us assume VGL will capture just 5% market share in future i.e. Rs.6300 crs, the Net profit will be Rs.504 crs which translates to an Eps of Rs.156. If we put the present Price to Earning ratio of 14 we can arrive at an intrinsic price of Rs.2184 per share which is almost 5x today’s price of Rs.439.10. We are not considering the possible expansion in Price to Earnings ratio. So VGL will be a future five bagger company which can able to grow our investment to five times in 3-5 year period.

  5. The price of VGL when Prof.Sanjay Bakshi released his investment analysis was Rs.750 confirmed that he has invested in VGL , HBJ capital recommended to buy VGL at a price of Rs.725, Mr.Arun Gopalan MBA candidate at oxford and an Indian Equity strategist recommended to buy at a price of Rs.588 also confirmed that he has invested in VGL and Axis capital recommended to buy at Rs.850. Present market price discounts almost 40-50% lower than these recommended prices which offers good margin of safety to enter at this price.

  6. The market price of VGL has come down from Rs.838.90 in April 2015 to 439.10 today. That is its market cap has come down from 2718 crs to 1423 crs! in just 3 months. Earlier also VGL shows such kind of fluctuations when it come down from Rs.849.90 on 3rd Nov 2014 to Rs.470 on 20th Nov 2014 and again increased to 648 by 8th Dec 2014 and against come down to Rs.535 within just 4 days and increased to Rs.858.80 by 30th Jan 2015. Historically VGL shows such fluctuations. Prof.Sanjay Bakshi clearly explained about this type of fluctuations in his investment note which says the Market cap collapsed from 1200 crs in March 2006 to just 40 crs in March 2009 and again market cap has gone up to 2460 crs in March 2015 displayed the exact characteristics that Buffet once displayed in his letter to the shareholders that “the retailing is a tough business. During my investment career I have watched a large number of retailers enjoy terrific growth and superb return on equity for a period, and then suddenly nosedive, often all the way into bankruptcy. This shooting- star phenomenon is far more common in retailing than it is in manufacturing or service businesses. In part, this is because a retailer must stay smart, day after day. Your competitor is always copying then topping whatever you do. Shoppers are meanwhile beckoned in every conceivable way to try a stream of new merchants. In retailing, to coast is to fail”.

  7. Another very important thing is regarding the type of moat created by VGL. The moat of VGL comes from its low cost advantage. They are getting high quality raw materials at a very cheap price from Tailand, China and Indonasia. Large scale manufacturing in low-cost destination like India with skilled labour force. A significant amount of money spent as content and broadcasting expenses act as a fixed cost which is an entry barrier as well as a source of operating leverage.

  8. VGL is almost a cash generating machine. It is interesting to note that during the last two financial years VGL has converted almost 100% of the net profit to free cash flow. The figures shows that during the FY 15 the net profit of VGL is Rs.103 crs and generated a free cash flow of Rs.106 crs, the percentage of FCF to net profit is 103% and percentage of FCF to sales is 8%. During the FY 14 the net profit of VGL is Rs.153 crs and generated a free cash flow of Rs.152 crs, the percentage of FCF to net profit is 99% and percentage of FCF to sales is 12%. During the FY 13 the net profit of VGL is Rs.78 crs and generated a free cash flow of Rs.52 crs, the percentage of FCF to net profit is 67% and percentage of FCF to sales is 6%.

  9. I have invested almost 60% of my portfolio in VGL with a target price of Rs.2000 within a holding period of three financial years starting from 2015-16 to 2017-18.


(sta) #86

@sreerajnsk- is it not a big part of your portfolio in a stock which still doesnt have clarity. u might win and win big but if u lose u might lose big. for as Mr Pabrai says heads i win big tails i dont lose much. you should look into the fact that if you lose then the return of your capital may be in doubt let alone return on your on your investment. waise i am just a novice taking my baby steps in the world of investment. you might ignore me.


(abhishek dey) #87

The screengrabs from the 14-15 AR are attached here. Can’t see Prof. Bakshi or valuequest being still invested in it. If you are coat-tailing him, might be a good idea to check if he’s still involved with this company or not. My 2 cents


(sreeraj) #88

Dear abhishek, shareholders with 1 percent or more holding only shown in the shareholders list. They may be holding less than 1 percent. Another thing I am giving more importance to their views and analysis than their holding of the stock.


(Hitesh Patel) #89

sreeraj,

Allocating 60% of your capital to a single idea seems a dangerous ploy unless the total equity portfolio is a small part of your networth.

If the latter is the case then it doesnt matter too much to the overall financial health.

A look at the price chart of Vaibhav gives the impression that it is a hugely volatile stock and for your top holdings you always want stocks that are largely steady or in a good uptrend and with very very stable fundamentals. There has to be a fair amount of predictability to the top businesses you hold.


(abhishek dey) #90

Hi sreerajnsk,

Please check the attached file. Disclosure of top holding is not restricted to 1% only any more (starting this years ARs). As you can see, there are many shareholders with lower than 1% in that list. If we still can’t find Prof Bakshi, then its either, he sold his holdings or its a really insignificant amount of investment by his fund. Either ways, its a worrying thing if you are a cloner.
If your investment thesis is your own and its based on personal conviction, then it’s ok i guess to hold. But still, as Hitbhai has mentioned, 60% of PF is huge, no matter how small your PF size is.
Cheers


(Augustine Jos) #91

$1 rising auction is last attempt by VGL to sell an unsold inventory. typically new items will go to TV for sales, even after pushing products few times via tv and still it remains unsold its is displayed in website for a month or 2. If this item is still unsold it goes to $1 rising auction and again if its unsold, its used for gifting purposes :wink: So typically these are items with very low demand, however, there are items which gets more bids like 30-40 during evenings ( it will be day in US). this is reason why avg selling price for tv is higher than web.


(Raj Panda) #92

As per the new rule, activity of top 10 shareholders of the company has to be given out.
http://www.safalniveshak.com/5-more-reasons-to-read-annual-reports/


(sjain_13) #93

Hi - Regarding your observation on drawing from a negative reserve to boost profits, can you or someone with good understanding of this issue write to CFO/CEO ? Their mail ID is [email protected] and [email protected]


#94

This is my first Post on ValuePickr (Though I am following it on & off ), I went thru the most of the post in this discussion of Vaibhav Global & I see Ppls here has Missed feeling about Vaibhav Global.

I have entered into Vaibhav Global recently around 550 levels with Small quantity & following it up to get more confidence on Management (Read Promoter), so that I can put large sum into it.

So, Far I have not see anything wrong with Promoter, he looks very Down to earth Person, understand his Business very-very well (This he has shown in his con-calls & now in AR as well),Reducing Debt of the company (Very Positive things), Declared dividend recently (another positive thing) & I have gone to LInkedin to see their employee profile & saw that they have recruited a big numbers of sales & Marketing ppls from various new IIMS (Rohatak, Udiapur etc), this shows that they wants to have BEST talent available in India in his country (Off course he is not Amazon & Flipkart’s of world that he can recruit from IIM A B C L & increase cost of his operation).

I had read their recent AR & after reading that AR I had few queries, which I thought let me clarify from CS directly instead of asking ppls on various forums & get half-backed info. I got very-very Prompt response from their CS Mr Brahma Praksah (within 2 hours of sending my email he acknowledged the receive of the email & within a day I got response for all my queries), so here are few of them (I can not put all here due to obvious reason):

1.Need more info regarding company’s GDRs Listed on Luxembourg Stock Exchange, are these GDRs are actively traded on Luxembourg Stock Exchange?

CS: There is one GDR holder as on date, holding 3,95,000 GDRs convertible into 39,50,000 Equity Shares of Rs 10 each. These GDRs are listed at Luxembourg Stock Exchange for trading purpose. .
*
2.There is around 59% Stocks are publicly held (12.44% by Nalanda & remaining with Public) and remaining 41% with promoters including "Sony Mikes Holdings Ltd”, so what is the reason with LOW promoter holding in company?

CS : Promoter/Promoter Group holding including GDRs is 68.60 % and the balance belongs to public.

3.As on 31 March, 2015, the Company’s (VGL Group) employee base was 3,210 could you please provide a break-up of the employees based in india, US & Uk offices .

CS: In UK, over 95 and in USA over 550 people in sales & marketing, customer service, logistics, TV production, e-commerce and support functions.

4.Could you please provide Remuneration of MD/Chairman Sunil Agrawal, as I am not able to find the same in the AR & it is good idea to put Remuneration of all top management persons in the AR for reference & change year on year.

CS: He is not getting any remuneration from the Company.

5.Why we have Variable Tax Rate?? Why it was almost 10 time tax on the PBT in FY2015, than FY 2014, which has affected the EPS for FY2015 significantly.

CS: The Company had brought forward losses till 13-14 and therefore, tax was minimal. In FY 15, the losses were absorbed and resulted in tax of 24.5 cr on a PBT of 127.6 cr i.e 10% PBT.

So, with Above discussion couple of positives I see: 1. Mr Sunil Agrwal not taking any Salary from VGL, I feel its good sign of ethical & honest promoter. 2. Promoter holding in company is actually 68.60% (GDR holding company Sonymikes is the promoter group company registered in Mauritius & they are converting GDRs to VGL shares (1:1), so including that promoter hold 68.60% around 12.69% is hold by NALANDA INDIA FUND LIMITED (which is LT investor in this company), so it makes almost 80% stock are closely held & Just 20% is available in market for trade, so this is the precise reason I see a sudden fall in VGL stock price like we saw in Hawkins Cooker’s stock price as well from 4700 to around 2300 in matter of couple of months. So this problem always there with low float companies…

So, All in all I like this company, specially its promoter & planning to visit them on their AGM day on 28th July.

My other 2 major holdings are Eicher Motors & Page Industry…


#95

Another good new for Vaibhav Global: Vaibhav Global Ltd has informed BSE that credit rating for the short term bank facilities have been upgraded by one notch from CARE A3+ (A Three Plus) to CARE A2 (A Two) which denotes adequate degree of safety. As the entire long term debts have been repaid, hence, the rating for the same has been withdrawn.

Source : http://www.bseindia.com/corporates/anndet_new.aspx?newsid=48de1137-6ec2-4085-b4cc-d0c8832c2f2d


#96

Reply from management on paying Dividend going forward:

Mr Sunil Agrawal talked about financial restructuring in the Vaibhav global this year, so that we can set off all the losses incurred in previous years, so that can comply for the condition laid down by govt for paying dividend,So could you please let us know in detail, what is being planned as part of financial restructuring and whether this including conversion of remaining GDRs to Vaibhav global Stocks.

CS: The amendments in Companies Act in May, 2015 prevents the Companies with brought forward losses to declare dividend unless such losses have been absorbed. The Company as on 31st March, 2015 had brought forward losses of Rs. 264.27 cr on a standalone bases and this needs to absorbed fully against future year’s profits in order to enable the company to declare the dividend. The Company intends to undertake restructuring with the court’s approval in order to set off the losses.


(Dhiraj Dave) #97

@ash7979,

In Credit rating, please note that what is critical is long term rating as against short term rating. In case company promises to keep Fixed deposit in account, despite default, it may get A1+ rating in short term. The notch upgrade in short term rating would not be very positive news. In case same was long term, it would be more reason to be cheerful.

This message by no means to curtail your enthusiasm. Enjoy the positive but after understanding it correctly. :blush:


#98

Thanks for clarification Dhiraj :slight_smile: But as they have paid all Long term debt, so I feel this should not matter much, if they are not planning to raise debt in near future.


(PP) #99

I am not invested in this…

But for those who are invested in this - it is important to understand what is causing the price fall.

Is it due to earnings fall OR Is it due to derating.

The former is Ok, as the earnings might grow back.
The latter is more tricky, as the market may not be willing to re-rate it.


(Augustine Jos) #100

I did check with management on FCTR issue and below is confirmation -

On standalone basis FCTR arises on loans given by VGL India (standalone) to its wholly owned subsidiaries. In FY 15 some of loans receive back from subsidiaries and exchange gain on realisation has been transferred from FCTR to PnL. This 5.4 cr primarily pertains to exchange difference (gain) on loans lent to subsidiaries when rupee was strong(say 45 to 50 rs=1$) and when repaying rupee has depreciated (say 60rs=1$).

On consolidated basis FCTR being -ve or at loss…

Your understanding is absolutely correct, the differential figure arising on intercompany knock off of all non-monetary items is transferred to FCTR account and differential on monetary items in PnL. For better understanding please find attached here with a note on FCTR treatment.

Note on FCTR.DOCX (15.9 KB)