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

Stock Opportunities Untested - but worth a good look
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in Q1 results I dont think they lost much market to competition even when they were doing lots of restructuring both in their TV software & Web platform (Which is completely changed from home Grown platform to industry leading e-commerce platform provide by Hybris, a SAP company).

Company has released a presentation for Q1 results (I feel they are very-very good in communication & this shows by they are releasing a investor presentation for quarterly results, how many company do this of size of Vaibhav Global), link of same is
http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/F0DE6680_873E_4D28_BA80_6D0D0F0E7CFC_200022.pdf

So, if you see the investor presentation they have given details of each & every small things, few key things to look from the investor presentation are:

  1. Number of household reach improved from 100 million (FTE) households to 105 million (FTE) households on TV shopping in the US, UK and Canada.
  2. In Q1FY16, Retail Volumes stable at 2.1 Million Units , 5% higher volumes on Home TV shopping, Volume growth driven by fashion jewellery, Gross Margin expansion to 67% from 62%

So, even with all these changes, actually TV volume increased by 5% (1422000 to 1499000 units) and ASP reduced by 1 USD to 22 USD/unit & reason for that also they have mentioned in the presentation, TV ASP decreased due to cessation of high-end products in both US and UK.

So, there is some impact on web sale,which promoter has already upfront informed promptly to everybody in his last concall in May-2015 & there is major change (Decrease) in B2B sales from 34 cr to 15 cr YoY w.r.t. Q1 FY 15 & that has improved the gross Margin further to 67% from 62% (Significant reduction in B2B sales of rough stones and addition of import duty to the end of quarter inventory resulted in higher gross margins).

Reduction in B2B sales is good sign, as that is LOW margin business (Selling rough stones to B2B players).

As this is High Fixed cost business (Almost 17-18% fixed cost goes into TV channel Airtime), so any impact on Topline will have severe impact or bottom line, So around 25 Cr of topline reduction has impact of around 14 cr in PAT & any increase in topline will have similar impact on bottomlineā€¦

and on Page # 17 you can see they have made around 14 cr investment in this Quarter for TV rights in UK & 3 CR spent in new Facility in SEZ in Jaipur (Free cash flow impacted by investments in improved channel positioning in UK (Sky652 Rs. 11 crore) and new SEZ facility (Rs. 3 crore).

So, All changes are done in TV & web software & all investment has been made on infrastructure, so I feel, as suggested by promoter himself Q2 might be flat or with no growth again, but Q3 should recover the lost growth, which is the strongest quarter of company due to festive season both in US & UK .

I am hopeful, that by dec we will see much improved performance of company & stock price will also follow the course with that & by this year end (FY2017 by March 2017) we will again see the price close to 1000 Rs or so (which will be almost 2 & 1/2 time of the current price), so I am buying it whenever I have free money available :smile:

Any questions related to Q1 performance are most welcome ā€¦

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Great writeup Ashish. Your grip on this company and its development is phenomenal.
Just wanted clarification on one thing, Vaibhav Global have shared cash flow statement in their quarterly results too, which is quite rare a thing. Is it coz of their voluntary disclosures or if any SEBI new rule has been brought in?
Please clarify.
Thanks in advance.

Vikas Kukreja

Disc: Invested heavily from 800/share (averaging down)

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30 Day money back guarantee- on first sight it looks ordinary. But I think it has deeper meaning and repercussions attached to it.
Online business is all about trust. When customer order something just seeing it, shares his credit card, relies on quality - at all stages it is trust. Now a days it is common to give money back guarantee across streams. As such when vaibhav was not offering the same it creates a natural doubt in mind of customers as to the quality of product which could have stopped many potential customers from ordering.
As such it is more a psychological tool which now should help its long term sales growth.

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Vikas, I find Vaibhav very good company,as far as regular updates to investors in concernedā€¦

How many companies are publishing presentation for every quarter, that too such a small (~1000 cr MCap or so) & I must say I started looking at Vaibhav just 2 months back, but as so much info has been provided by company itself thru their presentations, I am able to get those & share with all hereā€¦

I had issue with Q1 results, but if you check their presentation you will see actually their TV sales increased at least in Volume terms that is good sign & Web sales also not impacted much, even when they are doing restructuring of their web platform & their upfront guidance of soft Q1 & Q2 led to stock beatingā€¦

To answer your question, I dont know whether SEBI has made it compulsory for providing cash flow for quarterly results but I feel its good if they are providing that & I feel its BIG Positiveā€¦ I know in Q1 they have spent 14 cr of TV Rights in UK & on facility augmentationā€¦

I have high regard for management for their honesty, integrity and business up & down is part of every business, but once they start STRECH PAY I feel they will be back with BANG :slight_smile:

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Dear VP members and VGL investors,

I am keen to understand how would VGL be impacted in face of competition from Amazon ?

Amazon is also selling fashion jewellery and some 3.28 lac items are listed on Amazon.com for ā€œfashion jewelleryā€. The listed jewellery is also competitively priced. A number of them below USD 20.

VGL_Amazon.JPG1133Ɨ545 95.6 KB

Amazon can keep adding sellers across the globe and I am sure there will be atleast few jewellery manufacturers who can manufacture at lower costs and will not have high fixed costs such as TV rights. If long term future is shifting from TV sales to websales, then can liquidationchannel.com compete with amazon.com.

Please share your thoughts and understanding.

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liquidationchannel.com is the speciality jewellery website, where you can narrow down your search with various filters like Gem stone, jewellery type etc also I feel speciality Jewellery website can offer new designs at the rapid pace, as they are into one thing (focussed approach) & I donā€™t think Amazon can & will do that, as they will be more interested in selling BIG TICKET items, like Electronics, Watches etcā€¦

And as total market size is around 20B USD, so I feel it can accomodate Amazon.com as & I am 100% sure Amazon.com donā€™t wanna compete with liquidationchannel.com or JTV or similar websites for such a small business than large electronic retailer like bestbuy.com etcā€¦

But, you have very valid concerns, going forward when more business move to web then TV then I feel they need some differentiator which can keep customer with them than going to Amazon.com for buying Gemstine jewellery.

One More points, I went to Amazon.com & I see the they have also have almost all jewellery deep discounted, offering 50-70% discount on the listed price, so is this not affect QVC, HSN & JTV more than Vaibhav, as their price point is much higher than Vaibhav & Amazonā€™s ??

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This indeed seems to be concern point for VGL. Amazon can be disruptive for them and hence will be interesting to watch how VGL competes with amazon going ahead.
I think their TV sales, average price and online sales needs to be monitored closely to check if Amazon is eating into VGLā€™s business or not.
Though market pie is big enough for VGL to grow, nothing can be said for certain and it can be a tight rope to walk on.

Regards,
Vikas kukreja

Disc: Invested heavily from 800/share (averaging down)

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Apparently no clear answer for this. But an indication can be drawn from the fact- repeat purchases by customers of up to 17 times. It means customers who are shopping love its products. Migration to web will happen slowly and meanwhile company can deepen it roots.
Also take comfort in the fact that Mr. sunil aggarwal knows all of this which can inferred from that he speaks about business models of zara etc in his communications.

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I thought of adding this in the context of competetion from online competetiors like amazon.com. My understanding is that VGLā€™s main business is on TV and web will continue to act as an extension to its TV channels (this goes against management thinking of web getting better sales share than TV over a period of time). The business on web must compliment and extend the business on TV and cannot replace the TV medium. The excitement and drama that the host creates has a much better effect on TV and psychological effects (notably deprivation effect and contrast caused distortion of prices) also plays out well on TV. Having a web based medium is good but expecting too much from this medium is probably not realistic. Probably over a few years they will have enough data harvested from their web site customers which can provide them some insights (SAP Hybris) to find further growth from web. Otherwise web is a perfect platform to do $1 auctions and similar sales that compliment and extend TV sales.

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Hi there,

Amazon is not a focused fashion-jewelry player. Fashion jewelry is one of the many many departments as of now and yet to come-up in the e-tailerā€™s weblist. The jewelry being listed in Amazon is being sold on market-place model - which means, Amazon will take commission on the items listed and sold through its website. Also, as many many players can sell through Amazon, there is going to be a intense competition for any one player to shine "big until and otherwise there is something unique about that player which can arise from unqiue designs or low-cost or great quality. The low-cost advantage is very tough to achieve until the Amazon players have integrated sourcing, designing and manufacturing capabilities in a cheap-skilled-labor destinations like India. In addition to this, if these players are selling only through web, then their economies of scale would be again weak to compete on cost front, even though they sail through with some decent RoE of 10%. Even though web-sales does not have fixed costs related to air-time and broadcasting as in the case for VGL, pure web-players still need to worry about customer service, product returns, call-center, shipping etc. which will anyway add to operational expenses (fixed ones). And last but not the least, when a lady wants to buy jewelry, especially jewelry, wonā€™t she love to see another lady explaining about it? Talking high about it? Story-telling is very important and watching the LC online-video is so compelling - even for a man like me! (May be I have commitment and confirmation bias!). I believe with many many fragmented players using the crowded amazon market place will harm each other than do any good to themselves at least in the next several years and in fact all these amazon based web-players do more good to VGL than any harm as VGL can copy the best designs from Amazon, VGL can use the listed prices to price their items sold on TV and web etcā€¦ Many of the VGLā€™s customerā€™s are women in the age group of 50-65 (I believe) and many in the states live alone (widow, divorcee, live-in live-out etc) and for these women TV story-telling is a great place to relax! This experience will not be there in a crowded Amazon. I am not saying that Amazon is not a threat to VGL, what I am saying is at least at present for some years to come it does not seem to be a threat. It can become a threat if Amazon by itself or any other competitor with a huge pocket starts to replicate the low-cost integrated model of VGL through hard-work and persistence (and this is unlikely and if someone is so persistent it may take easily 5-7 years). Even if a competitor exactly replicates and takes VGL head-on in 5 years from now by copying VGLā€™s model, we need not forget that in these 5 years VGL could do a lot to do advertising and create a solid brand equity with its existing customersā€¦And in Jewelery business, word of mouth matters as well and it has a huge first mover advantage!

I see you have pasted an Amazon image to highlight your concern about many fashion-jewels, listed items, selling at less than 20 USD. I do not know what you used as keyword in Amazon - the items that i see in your picture seem not to have semi-precious gemstones embedded. VGL is a semi-precious gemstome Jeweler - gemstone fashion jewelery its their forte.Yesterday I was watching LC TV and the TV host was selling green Jade earings for 20 USD per pair and exactly the same Jade piece is listed in Amazon even now at 100 USD! I have not seen that many gemstone fashion jewelry items at competitive prices at Amazon. VGL is a cost-leader with experience. I hope that at least for some more (5) years this competitive advantage will remain steady (and even much longer) and this is the period we need to sit patiently with an eagle eye to make profits. Then we can make our mind to either continue to hold or sell VGL as facts change! As someone pointed out, VGLā€™s market share is just 1% - 200 million of 20 billion and so there is room for all competitors to grow while VGL can outgrow most of them.

See the image below that i have copied from Amazon website and the Jade ring listed in there. It sells at 100 USD and VGL sold it and still sells it at 20 USD!

jade.png3350Ɨ1846 617 KB

The average price point in Amazon for fashion Jewelery seems much higher than 20 USD of VGL.

If Amazon becomes a hot maket-place for fashion jewellery web-sales, so be it - in such cases, VGL can also start listing its items in Amazon market place and capture more new customers who otherwise would not have known about LC.

Disclaimer: I am a passionate value investor. Views are personal and heavily-biased. Invested heavily in VGL. Watched the videos of Mr. Sunil Aggarwal and have developed huge respect for him. Apart from analyzing a business as many analysts do (I am also very logical, rational, risk-averse person with analyst bent), being an hobby astrologer (I believe in the Divineā€™s grace and hence irrational), I also seek Divineā€™s help in making a final decision when there are many open questions combined with information assymetry, pyschological biases and many uncertainities involved - as is the case for investing in stock markets! :smile:

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For those interested, the Q1FY16 concall transcript is now available on researchbytes.

As per Sunil Agrawal, confident of double digit growth from FY17 onwards.
Q2FY16 will continue to be soft
For current FY16 H2, growth outlook is in single digit.
Competitors do 50%-80% of their business on EMI
USD 4m (SAP Hybris) and GBP 1.8m (new channel) to be capitalized over the next few years. This will be 3 years for SAP Hybris and 7-10 years for the new channel.

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Thank you for sharing the information Madhu

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This who has doubt of the business model of selling Jewellery TV, please watch below video of QVC entering 7th Country France with their TV based saleā€¦QVC has USD 8,8 Billion in revenue (They sell everything possible thru tv channel including jewellery)ā€¦

http://finance.yahoo.com/news/qvc-expands-reach--takes-on-amazon-and-other-shopping-giants-184545240.html

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Agree Ashish. People who look at this critically are focussing too much on web which is wrong. My only concern is whether VGL can show 25-30% growth FY17 onwards which I doubt. At CMP if we go by the words of Sunil Agarwal and assume Q2 is going to be degrowth (similar to Q1), Q3 single digit growth and Q4 just about double digit growth then the stock may not command more than 15 to 20x forward PE which only leave about 10-15% upside in the stock price in the next 12-18 months as per my calculations. Do you think VGL can grow at 25-30%? If yes then I would like to know your thoughts behind it.

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BTW Liberty Interactive (owners of QVC) is declaring their Q2 results tomorrow and there is going to be an earnings call tomorrow. Those who are betting big on VGL should check it out. One canā€™t really compare VGL with QVC because of the size but it kind of tells if there are any industry headwinds/tailwinds.
Disclosure: No position as of now.

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I feel Q3 should grow more than single digit, as by Q3 they will have all restructuring completed (including Mobile & tablet friendly web site) & they are adding more SKUs in fashion & beauty products & if that does not happen then no point holding this Stockā€¦

But in Q1 also they have not done very BAD, so I am hopeful good Festive season(Q3) for Vaibhav global & that should increase the PATā€¦ If they can not grow by 25-30% on such a low base then I feel NO point holding this stockā€¦Lets wait & watch for Q3 & Q4 and then we can take decisionā€¦

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Liberty interactive declared their Q2 results today & their Consolidated revenue fall by 1% (US revenue up by 4%) & Stock reacted positively & up by almost 8% as of now !!

http://www.businesswire.com/news/home/20150805005613/en/Liberty-Interactive-Corporation-Reports-Quarter-2015-Financial#.VcISCeiqqko

I feel Vaibhav as has lower base should be able to do better than liberty interactive & for reference, liberty interactive trades at 35 PE & has MCAp ~ 21B USD with revenue of 8.8 B USD in FY15.

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Can anybody explain the point 8 in results notes (highlighted in red)?

Pasted image1037Ɨ523 387 KB

How this can affect the balance sheet( share capital, reserves) , P&L( eps) and cash flow for the company? also its affects on the share price?

Thanks,
Vaibhav

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Share premium is the amount received by a company over and above the face value of its shares.
Face value of a share is its value that is printed on the share certificate. For example, face value of a $1 share is one dollar. But just because the value of share is printed $1 does not necessarily mean that the share is worth only one dollar. If a company has a history of good financial performance, it can sell its shares at a price higher than the face value of the shares. This difference between the selling price and the face value of a share is known as share premium.
It is important to note that share premium arises only when the ā€œcompanyā€ sells the shares. It arises only when a company issues new equity shares. It does not arise when the ā€œinvestorā€ sells shares at a price greater than face value. If a company sells a share whose face value is $1 at a price of $2, the company earns a share premium of $1. But subsequently if the investor sells the same share to someone else at a price of $4, no share premium will be gained by the company. The investor will benefit from this gain.
Share premium is a non-distributable reserve. The company can use it only for the purposes that are defined in the bylaws of that company. It cannot be used for purposes not defined in the companyā€™s laws. Usually the companies are not allowed to use the share premium for payment of dividends to the shareholders and to set off the operating losses. Share premium can usually be used for paying equity related expenses such as underwriterā€™s fees. It can also be used to issue bonus shares to the shareholders. The costs and expenses relating to issuance of new shares can also be paid from the share premium.

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According to this company can not offset operating losses against share premium account. If vaibhav global is not able to offset their losses then we can assume they will not be able to pay dividend in the near future.
any pointers?

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They will try everything that takes to keep paying dividends. Here is a company run by a straight forward guy who doesnā€™t take salary, pay taxes and doesnā€™t short change shareholders. Its in his interest to keep paying dividends, the poor guy might also have some bills to pay :wink:

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