Vaibhav Global : Back from the dead


(A.Ramsankar) #121

Thanks Ashish,

Grateful if you have any update about other products growth(Home and Beauty segment)


#122

This is what I have seen in comments section of Q1 results:

5 The business activities in respect of new line of business of trading in lifestyle products is not significant for the quarter and therefore no disclosures as required by Para IV (d) of Clause 41 of the Listing Agreement has been made.

So, I feel still the new products are not adding to top line & these are kind of in pipeline for future growth once the web site upgrade & other issue get settled down by Q2 this year…


#123

Financial Results Presentation for Q1 FY 2016 : http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/F0DE6680_873E_4D28_BA80_6D0D0F0E7CFC_200022.pdf

ONLY positive thing for this quarter is “Significant reduction in B2B sales of
rough stones and addition of import duty to the end of quarter inventory resulted in higher gross margins.”

Gross margin rose to 67% from 62% on YOY basis…


(v4value) #124

Key issue appears to be competition and revenue growth for these guys. In this context the 2 key takeaways for me from their results were:

  1. Volume of Web sales declined materially. Mix will move to Web in the future and if they cant compete effectively here they will lose. De-wrosification into garments has to be seen in this context. Mgmt spending so much time on this is a BIG red flag - are they compensating for this market loss?
  2. the price (asp) for web is half that of tv. As the market moves to web there will be deflationary pressure from mix will intensify.

Disclosure:looking to invest but getting increasingly wary


(CommonStocks) #125

The issue seems to be the inability to introduce stretch pay immediately. Introducing stretch pay requires changes to their technology platform and they won’t be able to go live with this till H2 (this is my reading from AR/concall). Clearly the management was wrong in expecting stretch pay is not going to affect them and not preparing for this.

As far as sales is concerned the big hit is taken by B2B, web and TV based sales has gone down only marginally. Don’t think the stock is going to go up till next quarter results are out.


(roysavio) #126

To answer some of the issues that a few had asked, I saw on their latest presentation that the Web avg price point is $14 while it is $22 for TV sales. Maybe their are selling at reduced margins on the Web (30% of sales) for now and volumes to the Web over a period of time (if that happens) will offset the reduced price. It is also possible that a Web sale is in itself cheaper than a TV sale but I didn’t see any numbers to justify this.

Regarding the addressable market, Mr Agrawal might have said it is USD 20billion. However, per the presentation, it shows the total market at USD85 billion for the US and USD14billion for the UK. I guess the market is there. What is moot now is if Vaibhav can really increase topline and justify it in the numbers.

Given the soft guidance for the first 2 quarters, this will be an interesting stock to watch.

Thanks again @ash7979 for the nice summary.

Discl: I have invested a small amount for tracking. Will gradually change my exposure in the line with the results. :smile:


#127

Promoter has main focus on the Jewellery business ONLY & other fashion accessories & Home textile (NOT GARMENTS) they are planning to use items which they can “Cross-sell” to same customers & I feel that is not Di-wrosification & as of now, you can see in the in comments section of Q1 results that these items are not have significant portion in the sales, so they are reporting results in ONLY one segment which is “Jewellery”. And I have personally seen their new factory coming up in new SEZ in Jaipur which will be add 50% more capacity on Jewellery capacity, so I dont see that have less focus on the MAIN business & I feel Cross-sell is good thing not Di-wrosification.

Second points getting less realisation on Web in due to Web they are mostly using Rising-Auction for the items which are get unsold on the TV even after feating them for 2-3 times on TV…SO Rising Option starts from 1 USD , Yes Just 1 USD !! for anything which they might be selling at 20-30 USD on TV & finally they might be able to sell that less then 10 USD based on how ppls take this in auction, but eventually post their web platform upgrade they are thinking that that will increase catalogue sale on web platform which has almost same realisation level like TV and even that involve less cost of sale as compared to TV & MR Sunil Agrawal was confident that eventually sale Mix will shift to Web as compared to TV & that is good for company…

As company has given up-front guidance of SOFT H1 due to which stock price is going down (this he confirmed me to face to face talking with him yesterday) & H2 will be robust due to Q3, which is their strongest Quarter (Due to Christmas & thanksgiving and other festivals/occasions in US)… I am adding till Q3 results & I feel we will get better numbers by Q3 and I feel promoters has timed well for restructuring post last year Q3, so that by this years Q3 they will be back with BANG !!


(jainaj) #128

Thanks ashish for compiling all information comprehensively.
Did they said any thing about how they perceive web sales as a percentage of total sales in future.


(sjain_13) #129

Lower ASP on web as compared to TV - One of the possibilities is that buyers get following on web that leads to low ASP -

  1. No impulsive buying as compared to TV
  2. They can spend more time to browse through the portfolio available and choose something they like and is also available at a lower price point
  3. Rising auction and USD 1 auction for clearing inventory

I get a feeling they define their business as the entire space in which QVC and HSN operates. And now may end up selling everything from lingerie to apparels. Has anyone studied how HSN and QVC web business is placed as compared to Amazon. If they are well placed and can stand upto Amazon, then VGL may be able to do it better because of low cost and passionate & sincere promoter.

Can any other smart Indian/Asian player with jewellery making expertise (there would be lots of them) sell on Amazon US at cheaper price and make a dent to VGL ? Amazon has 10% of the US online retail marketshare.


(jainaj) #130

I saw the results. Going by what happened in Q1 with regard to their websites- My sense is topline is better than my expectations and bottomline is bad.
Regarding profits it is apparent that this is operating leverage game. As most of their cost is fixed any increase in topline will have a disproportionate effect on profits as put by ashish [So they feel that once they increase sell even by 15-20% but EBDTIA margin will improve more than that due to Operating leverage]
Stretch pay + money back +website overhaul = better sales Q3-Q4 onwards. If this scenario fails to pan out then some serious thinking is invited as to long term prospects of business


(CommonStocks) #131

I sold my tracking position and booked loss.

Positives:

  1. Management Integrity
  2. Good Financials
    Negatives:
  3. Management not keeping up with competitors
  4. Some of the competitors are leaders and have years of experience in discount sale unlike Vaibhav which seem to learning on the job

Overall I admire Sunil Agarwal and my position as a retail investor in this was insignificant and should not be construed as a sell recommendation. I will continue to watch this for a couple of quarters. For those invested I can sense that they might increase dividends (both in absolute terms and also in terms of payout) in the near term.


#132

Yes if they are not able to put their act together even in Q3 (Which is Most imp quarter for them) then I feel it will further de-rated to single digit PE…

No They will not go into all these business of selling apparels & lingerie in near future, as they MR Sunil Agrawal started with Gem stone Trader in say 1990s when this company used to be Vaibhav Gems & then they gone into value addition & started making gem stone Jewellery & started selling that B2B & thru physical Stores in US at the price range close to 100 USD or so till 2007-2008 & then they saw the CRASH…Everything restarted while they are liquidating the UNSOLD stock of left over goods in US at the distress price to pay back to their creditors & for their surprise once the price come down to say 50 USD or so they are able to sell everything very easily from their the idea of liquidation channel came into their mind… thats why they say that this Business Model they have discovered accidentally & at this Price point they are able to do very well :smile:

So, their main Bread & butter will be Jewellery business ONLY more precise Semi-precious Gems Jewellery which they can sell at around 23-24 USD average Price Point…Going into Beauty products & Hime textiles (like Towels etc) they are doing to cross sell to the same customers to get more USD/customer, but HE clearly told that they dont want to go for revenue growth like flipkart & likes (He did mentioned the name of flipkart & few others) without a Gross margin of 60% or so and they see ENOUGH head room to increase revenue ONLY with Jewellery business than going for too much Di-worstification & recent drop in revenue is effect of recent restructuring they have done with their TV production SW, Outsourced their US call centre to third party in US, migrated to Hybris based Web platform etc…so with so much changes I feel revenue drop is not too much (they lost mostly in their B2B business, which is low margin business & I feel they might be purposefully wanted to get out from that business) & yes its Operating leverage business with almost constant FIXED cost (except cost of material consumed) so any drop in revenue will impact PAT significantly & reverse is also TRUE that any increase in revenue will have dis-proportionate impact on PAT & I am hoping for that too happen in Q3 this year, so till date time, I will be keep adding at every fall :smile:

Disclaimer: My Views are extremely biased towards this stock & its promoters, as I am invested & I regard this promoter one of the best in their business & even more after meeting with promoter yesterday :slight_smile: and few facts mentioned in my post are taken from various sources of internet during my research of this stock, so please take everything what I have written with a pinch of salt…


(v4value) #133

Hi Ashish,

Thanks for your efforts and response.

I think the business is clearly going through changes - transition to web/mobile based buying from TV, increased competiton with changed pricing mechanisms, changes in CRM/software infra, etc. I feel at times like this, mgmt being small vs the big organized players, should be completely focussed on navigating these changes. If on teh other hand mgmt is spending time in China understanding how to compete in selling towels with Walmart (below quote from conf cal) it would raise a red flag. Mgmt typically dont do this when they are excited about growth in core business. I have seen mgmts do this from a position of weakness when core is under threat and they dont see thmselves win.

“The management of the company has clarified your first question in their recent concall .excerpts
” first of all we are not going to garment yet but we are going to home product like home textile home decor or living room bath room etc. About how we do compet with Walmarts of the world? I was in China recently with my team and we compared the prices of towels wit Walmart and Homesead .- they are two major players in the US. This set of 12 towels at Walmart was being sold at $49,And when we are merchandising our price was also comming at $49 giving our gross margins .We could not sell cheaper than them and our proposition is that we should sell cheaper than them .In that case what we do is to differentiate the product like make the product with a bit of satin in there and a bit of bamboo fibre inside the cotton towel so that it is nor head-to-head competition for exactly same product .""

The public data gives me enough cause to worry the transitions are structural changes in business. Maybe mgmt can pivot to selling towels and do well. I dont know. But I would not want to pay 20+PE multiple for this.


#134

V4value,

I dont want to defend his comments in his concall, but if you see their Q1 results they did mentioned that these other business is not a significant contribution in the revenue.They have put money to expand their Jewellery making capacity by 50%, so I feel they might be seeing growth in the Jewellery business, that why they have put so much investment in new factory & after meeting Mr Sunil Agrawal in his office & after watching their Coporate office, I can say they are very FRUGAL in their spending money on anything, so new factory with increased production capacity should bring more sales & I am 200% sure they dont wanna become a normal retailer like selling Towels & Garments online, as they are traditionally from GEMs stone trading business & I dont think they have any plan to shift from this business in near future, I feel we are reading too much into his answer which he has given for a pointed question asking about how he can keep the gross margins intact with new textile products… Like going to china for buying Towel, so that have their office in china thru a subsidiary & he travel to china not to buy Towel but mostly for buying Raw material (Gem stones) for their core business & he also told us that they have 250 ppls string team who work in Jewellery design in Indian including ppls in US & UK who work on spotting trends in Jewellery while visiting fashion shows or any such events…

But, Yes I agree the kind of performance we have see recently with company so far it should command more than 20 PE thats the reason its available at even 12 PE & nobody is buying, but meeting promoter really helped you understand many things which give you comfort for buying it at this price/PE…


(v4value) #135

Makes sense, thanks Ashish.


#136

And on more things , I am holding 2 other companies Eicher Motors & Page Industries where I have major holding & those are reasonable predictable growth companies and stock price is also reflecting the growth very well, but their PE is so high that new entry has vert low margin of safety…

So, I understand from stock market for making good money with you have to pay BIG PE or ready to take PAIN for some time & you can make money, if and only if promoter is HONEST, CAPABLE & minority stockholders friendly… I saw all these qualities in Mr Sunil Agrawal & by paying all the long term debt while making its Debt free company, having consistently high RoE & starting paying dividend is all good sign…

So, I maybe wrong untimely, but I wants to give them some chance for at least 2 years otherwise I am making money with my other 2 investments (and few others in small quantity) & if this investment gone wrong then also I wont loose much, but possibility of getting dis-proposnate returns in case of Vaibhav looks good to me…


(jainaj) #137

Don’t forget guys, JTV is incurring heavy losses. Will be nice to see how long it remains in game considering vaibhav has introduced stretch pay and money back. One thing to notice is if JTV packed its bag then vaibhav will see instant lift in margins. Though a little ambitious to think this at this point of time. :smiley:


#138

HI,

I feel this 20 B USD is for Jewellery alone, as total market size Mr
Agrawal once mentioned I feel in one of the con call is 85 $USD is total
Market size, I feel that was for all the products that QVC sell over TV…

As QVC is already has revenue close to 8 B USD & then their might be other
players as well…

I feel Vaibhav Global is looking to grab some Market share from QVC &
others once they complete their restructuring by Q2 this year…

Thanks,
-Ashish


(jainaj) #139

The way I m following company- I think they should report good numbers in this quarter itself because apart from stretch pay everything is operational now. This quarter itself will give indications to us about whether vaibhav will be out of woods sooner or not.


(CommonStocks) #140

The current scenario is that they are poised to loose market share, remember the talk about competition by management. From this position for them to come back and actually gain market share is too high an expectation. I would let me come out with the next quarter numbers and then take this call and it is ok to buy Vaibhav at 10/20/30% higher than CMP after some earnings come out rather than buy more at current valuation (which is expensive considering the fall in profits).