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

gurjota · December 15, 2021, 10:04pm

The promoters seem to be doing a daily SIP of certain quantity of shares. Even though the quantity is not that substantial, they’ve been buying from from 490 odd levels all the way up to 625 (CMP) as of yesterday.

If this continues for the rest of the month, it should give great confidence to existing investors that all is well with the company. A 55% brutal correction from ATH during a mega bull market can probably even shake the confidence of market veterans let alone new comers.

Q3 is generally the best quarter of the company with the festive season in the West, promoter purchase could also be an early indicator of the same.

Disc: Invested (trimmed allocation in recent up move)

abhi.ty · December 16, 2021, 1:45pm

Recently I saw a post on reddit about Vaibhav Global how their US ecommerce website is down and people are complaining about it . Quoting from post

Their major business Shop LC US site doesn’t work anymore, I mean the whole website which earns major revenues is crashed from quite some time now.People all over the US have been putting up issues and reviews quite clearly.Site not working! - Page 2 - SHOP LC
You can check as well their ShopLC site- it never opens https://www.shoplc.com/

Is any one aware about this?

Marathondreams · December 16, 2021, 2:19pm

all complaints are one year old. Shop LC website is opening all right for me. so I don’t see any issue. Am I missing something?

sahil_vi · December 17, 2021, 1:50am

For posterity,
reddit post: https://www.reddit.com/r/DalalStreetTalks/comments/rfv743/why_vaibhav_global_fell_over_48/

ShopLC community thread: Site not working! - Page 2 - SHOP LC

You’re right & not missing anything.

Zaki_Ahmad · December 17, 2021, 2:54am

It’s working now. Just checked.

Suyog_Patil · December 21, 2021, 4:00pm

Started learning about this very interesting business model, can you please help me understand this:

What according to you all is a real MOAT of vaibhav global?
I mean its is low cost , is it better efficiency or is it brand ? And how?
Also is the moat actually expanding? And what are the drivers of this moat expanding?
For me , the moat currently looks like just low cost producer as of now

madhug · December 21, 2021, 4:27pm

For lack of time, I will be brief and shall try to edit this answer with some more details when I get a chance. To me, the secret sauce that Vaibhav brings to the table is their vertical integration, supply chain and adoption of technology.

abhishek_chanani · December 21, 2021, 4:36pm

If you haven’t read already, I think the first resource to read and understand Vaibhav Global should be Prof. Sanjay Bakshi’s analysis

Suyog_Patil · January 5, 2022, 2:00pm

Very good writeup on vgl!
Also watched the Vaibhav global presentation on Sanjay bakshi sir’s YouTube channel: https://youtube.com/playlist?list=PLgAkbY5uEbBQVsZiatRPjThqSNV2TcvW3

Also interestingly, i found that in the downturn of the business in 2015-16, Sanjay bakshi sir exited and told it as his mistake!

xmenwolverine · January 23, 2022, 10:40am

Acquisition of 60% Equity Share Capital of Encase Packaging Private Limited, subject to certain conditions precedent.

Vaibhav Global Limited announces the successful execution of Share Subscription and Shareholders’
Agreements for acquisition of majority stake of 60% in Encase Packaging Private Limited. Purchase
consideration of Rs. 4 crores have been determined and the same has been financed through internal
accruals and cash balances. The acquisition will be completed in approximately 2 months.

Based out of Sri City in Andhra Pradesh, Encase Packaging is engaged in the business of manufacturing and trading of all kinds of packaging material. Currently, VGL is largely dependent on sourcing packaging material from China for its jewellery products. Hence, this acquisition will further strengthen our supply chain network providing requisite flexibility and cost advantage.

Encase Packaging Private Limited incorporated on 28th October, 2021 (converted from LLP to a Private Limited Company). The entity to be acquired, is carrying business of manufacturing, trading of all kinds of packaging material.
The entity has started its operation in FY 2020-21 being a LLP and the turnover of LLP for the year ended 31st March, 2021 was Rs. 77.92 lacs. The turnover of LLP before conversion, for the period from 1st April, 2021 till 28th October, 2021 was Rs. 83.59 lacs.

Madhu_BD · January 27, 2022, 7:32pm

Q3 Results

sahil_vi · January 28, 2022, 4:28am

Vaibhav global performance in Q3 has been quite disappointing. In addition to the poor 3% YoY growth, their revenue growth guidance for entire year has been reduced from 15-17% for FY22 to 10% for FY22. In addition the growth guidance for fy23 has been reduced to 13-15%.

Reason for exiting is 4 fold:

Valuations look too stretched for 13% growth specially given that margins will be under pressure as well due to investments in Germany operations.
Better opportunities exist not just from growth but quality of cashflow perspective.
Evaluating: iifl finance, intellect design arena, schrodinger.
Management inability to walk the talk.
Management had guided to grow 15-17% on top of last year growth but that has not happened. Jewellery vs non jewellery mix has not improved.
Full marks for the disclosure & honesty. Poor marks for execution. When numbers don’t match narrative, i give management some quarters; oct-dec being their best Q still they are unable to show good growth, and since better opportunities exist, i don’t mind switching even at a 25% loss.
We have seen in many many biz that when growth & margin go for a toss biz suffers. So does valuations. Will continue to evaluate & track for growth triggers. Fy24 or fy25 might be a good year to reevaluate this picture. Let’s see.

Build your own conviction. Do your own research. I am only sharing this in the interest of full disclosure.

Not a buy or sell reco. I am not an investment advisor.

Suyog_Patil · January 28, 2022, 5:51am

Has anyone did some search on this management guidance? How many times in the past the management has missed or lowered the guidance like what they have done now?

Krishna_Kumar · January 29, 2022, 5:57am

Retention rate at 42.3 TTM vs 51.4 for the same period last year…

sujay85 · March 10, 2022, 6:51pm

Suyog_Patil · March 11, 2022, 2:41am

This buying increased the total shareholding by just 0.01%!

Chirag.jain48 · April 19, 2022, 5:33am

Vaibhav Global - A Small Fish in a Ocean

Apr 17

Estimated time to read - 15 minutes

Brief –

The company is business of jewelry & lifestyle retailing directly to customers in US, UK & Germany. The company caters to 2% of addressable market size. Vaibhav Global is somewhat like Naaptol.com (just for ease of understanding) where different products are displayed through TV & web. But subtle difference exists between Naaptol.com & Vaibhav Global.

Company –

The company was incorporated in 1989 primarily sold jewelry to other business (B2B) segment. By 2004, it gained acceptance from WalMart, Sterling, Macys, Zales, Friedmam, White Hall and Sears & focused majorly on B2B segment.

By 2006, the sales mix looked like this -

Source - annual report

B2B Segment -

Large departmental store = sales to Walmart
Speciality Jewellery store = sales of jewellery to standalone jewellery stores
TV channels = sales to TV channels like QVC, HSN, etc.

B2C segment –

Holiday retailing – sales to customers onboard on a ship where company rented premises on cruise
TV channel = company launched own TV channel named The Jewellery Channel for US & UK markets
Online shopping site = launched own website for jewellery sales

In 2006, company also acquired STS group which had front end presence in US, UK, Canada, Japan & Hong Kong. The company sourced products from China, Thailand, India, Russia & Bangkok. Company’s sales were majorly B2B & premium pricing. The company’s strategy, revenue & profits were moving in the positive direction until . . . . .

2008 crisis occurred –

The Global financial crisis had a deep impact on US & UK economy from where the company generated majority of its revenue. As the company sold premium jewelry priced in the premium range its sales were affected. In order to survive the downturn, company aggressively reduced prices of its jewelry. Also, the company shut down physical operations in Germany, Canada & Japan.

New beginnings –

While liquidating inventory the company found out that low priced jewelry ($40/ piece) had higher acceptance in the market compared to premium segment ($130/ piece) & there was none following the discount jewelry at that point in time. So company ventured into direct retailing to customer through TV aggressively with low priced jewelry through own channel named The Jewellery Channel (TJC) in UK & Liquidation Channel (LC) in US in 2011.

To sum up –

Company initially started as B2B, ventured into physical retailing but due to Global financial crisis the company faced survival crisis**. The company entered Corporate Debt Restructuring (CDR) whereby the company requested lenders to delay debt repayments for a period of 3 years & at the same time the promoter infused 94 crore in the company in 2008 in order to survive the downturn.** The company revamped business model by selling lower priced jewelry & started marketing directly to customers through TV in US & UK where majority (60%) of costs are fixed, 30% variable & 10% semi variable.

Company flourishes –

From 2012, the company hired professional team for TV & web sale of B2C platform as the company already had own manufacturing facility along with sourcing facility from various countries. The jewelry business is more Operational expenditure (Opex) led rather than being Capital expenditure (Capex) led as it requires more working capital.

In 2012, of 645 crore of revenue 85% of revenue was derived from B2C segment reflecting the acceptance of company’s products. The company’s working capital was being blocked in inventory rather than debtors.

Revamped current business model –

1. TV sales -

The company retails its various products through TV & simultaneous live stream on web . On the show various hosts promote the product & customers can book their orders by calling on IVR (automatic order booking through call). The company retails fashion jewelry rather than jewelry which majority is made up of gold which is sold in India majorly.

Company’s product made from gemstone, silver & gold

2. Web sales -

a. Rising auction - To clear old inventory the company launched reverse auction mechanism whereby the company would price a product at $1 & customers can bid against each other & raise the prices until a winner bids out other.

b. Catalog – where people can search items available on website & buy what they like

c. Streaming of live tv on web – the program being aired on TV is streamed simultaneously on company’s website for customers.

d. Marketplace & influencer sale - the company sells through Walmart.com, Amazon & Ebay in various geographies like Canada, Australia, etc. Also, it has tied up with various influencers on social media to promote live stream buying.

3. B2B sales –

sales to other TV channels, jewelry shops or stores (like Walmart). But the company is focusing on reducing B2B sales & increasing B2C sales.

New initiatives post 2014 –

1. Launch of Budget Pay in 2016 – The facility of budget pay allows customers to pay for their products priced above $20 to be paid in installments. With the first installment paid right away & rest deducted from credit card. The credit risk is with the company & company shows the budget pay/ EMI sales in debtors. Company management states that cost of EMI sales outsourced to 3rd party is higher than company manages to. The current default rate is sub 2%.

2. Increased contribution of lifestyle division – The lifestyle division consists sales from handbags, apparels, etc.

3. Ventured into manufacturing of textile – The company has started manufacturing of lifestyle products at own facility along with purchasing products from 3rd party vendors. The company hasn’t disclosed much about what it is manufacturing till yet.

4. Moved to SAP Hybris in 2015 & further to salesforce platform in 2021 – The company has consistently transformed its platform in order to improve customer web experience & own warehouse management. It first transitioned to SAP Hybris (a product by SAP for e-commerce retailers). Then it moved to Salesforce which allows a better integration compared to SAP Hybris.

5. Launched TV & web operations in Germany in April 2022 – The company has once again entered Germany market post failure in 2008. The company expects to burn $5-10 million annually in Germany market for next 3 years & from there on it predicts path to profitability.

6. Rebranded US channel to Shop LC & UK channel to TJC in 2017

7. Launched TJC (UK) membership where customer can get orders shipped free.

8. Professional management team for managing day to day operations.

9. Company focused on creating, sourcing & selling products to women above 40 years of age.

Financials –

Source - screener

Key ratio –

Source - screener

Competitors –

1. Qurate Retail Limited (QVC) – leader in TV shopping in USA. It sells everything & hasn’t restricted itself to particular category. Majority of items are sourced from 3rd party vendors. It also has higher average selling price compared to Vaibhav Global. The company also acquired competitor HSN (Home shopping network) which was number 2 in the market which further cemented QVC leadership.

Source - investor presentation of QVC

2. The Jewellery TV (JTV) – Due to company being privately held not much information is available in the public domain. But according to Vaibhav global management, JTV is also present in discount jewelry segment where it gives tough fight to company.

Management -

Mr. Sunil Agarwal - Managing Director - Mr. Sunil Agrawal is a commerce graduate with an MBA from Columbia University, New York (USA). A first-generation entrepreneur, he established Vaibhav Enterprises in 1980, intending to professionalize the Gems and Jewellery Trade. He has traveled widely and garnered immense knowledge of gemstones and jewellery. He has brought this expertise to bear on the success of the Company. He has represented the Company at most significant international trade shows and jewellery fairs and is also credited with pioneering the commercialization of popular gemstones like Tanzanite.

Conclusion –

The company started as a B2B platform moved to B2C over next 20 years. It has also continuously transformed itself to meet the changing needs of customers in house jewelry rather than sourcing from 3rd party manufacturers in jewelry like QVC. Management sells 3rd party products when 60% gross margin exists for company & majority of time it takes inventory risk which allows lower pricing compared to competitors which keep sales return clause.

The dominant contributor of revenue is still jewelry which is expected to reduce with time as lifestyle products are brought in. Company’s management constantly tries products on trial & error basis. The management seems to be clean & has been able to grow in a competitive market with cut throat competition. Also, the German market entry is expected to boost topline & bottom line & even if it doesn’t work majority of costs are already being expensed off.

Disclosure - invested.

vibhor_vaish · May 28, 2022, 9:51am

VGL’s German subsidiary, Shop LC GmbH, further expanded its presence in Germany by launching
its proprietary TV channel on nationwide DTT platform ‘Freenet TV’. With this arrangement, Shop
LC has increased it coverage by approx. 2.5 million households, thus providing huge scope of
scalability.
Shop LC is airing on position 108 on Freenet TV. With this arrangement, Shop LC GmbH also
marks its foray into OTA (Over-the-Air) platforms in Germany.

Santosh_Sinha · June 10, 2022, 3:32am

Note : This is my personal journaling. I am just putting it in hope that it helps someone.

I was frustrated. I had taken a Top Up home loan of 7.5 lacs planning to double it in 3 years and pay back main loan as well as top up loan. I selected a list of companies with High RoCE and low Market cap/FCF. Anatony Waste was one from the list in which I invested Rs.2.5 lacs. So far it has tuned out to be a good investment with approx 20% return. However I am still sitting at 5 lacs cash without any great idea. I was researching companies after companies and rejecting them. Zensar was last company I researched but I am not that clear about business prospects. Supply chain disruption due to Russian war puts manufacturing companies in untested waters. Predicting their future becomes difficult. Although they seem discounted. It is this frustration that I started looking at “Super Star Investor” portfolio again.

Idea was to look at the companies which have not moved much in last 6 months/1 year and hence available at a discount. P.E.Analytics ws first company that I looked at. It is part of Sh. Mukul Aggarwal’s portfolio. Will write about that in a seperate blog.

Vaibhav Global is part of Sh.Vijay Kedia’s portfolio. He purchased it before 2017. Company was trading at very low market cap at that time.

However he did increase his share slightly in last 2 quarters. That’s something which caught my interest.

My regular research process includes looking at valuation first. If I like them (at least somewhat), I go for further study. However in this case, I went for research first. My first step was reading last investor meet transcripts. There were certain red flags that I got there.

Management was too focused on giving revenue guidelines and meeting them. That itself is a dampener for me. At the same time they were not giving any EBIDTA guidelines.
They were evasive about effect of some of the initiatives like digital promotion and its impact on revenue. In my mind this is one of core matrix they should look at.

Their investment in new office in Austin also leaves lot of unanswered questions. A 32 Mn investment against total opex saving of 1.5 Mn/year (20+ years payback), does not seem like a very prudent cash utilization. Situation becomes even serious considering that company expects serious headwinds in coming year.

I then went to read about company business model (talk about doing things reverse way :)). Screener.com has a very precise description that gives a quick overview of business. Below is a summary in my own words (graphs actually). Few observation here was

Overly dependent on 2 geographies. Germany expansion is not expected to yield any major revenue yet.
Budget pay revenue (selling on EMI) is a riskier and low margin as per my understanding.
Piling up of inventory from 180 days in FY 2020 to 231 days in FY 2022. Although to be fair it has touched such high levels in past.

I then went back to evaluation to make final decision. It cam a cropper there. Company has issued a guideline of mid single digit growth next year. There is no guidelines on margin for next year however chances are very slim that it will improve much. Hence any significant improvement in cash flow is highly unlikely.

Last year cash flow was suppressed at 84 Cr. So I took last 4 year average Free Cash Flow of Rs. 180 Cr. Even with that consideration, company has to grow at 18% for next 10 years to justify current valuation.

Hence I have given this a pass for time being.

Ravi_Hegde · June 10, 2022, 6:41am

VGL bagholder here at high 400 levels (it’s a small 50k holding). I am retarded, not
a recommendation, read at your own risk…

VGL was a pandemic play stock. It got pumped up to rich valuations during the pandemic. Now ecom in US, UK returning to historic growth rates. At best, it’s long term top line growth would be 15% or so, likely, going to be sub 10% in reality. If recession does hit, then may even degrow.
In my opinion 200 is where this is headed for near term, maybe even lower.

Plus points

Jewelry, textile, lifestyle are essential purchases. VGL has highly optimized cost structure
Preserved gross margins of 60%+, may allow it to increase market share in this scenario.
no mgmt redflags, long track record. Good dividend track etc.
Seems to have customer stickiness with middle aged women demographic. Note midd aged women have the most free time and disc spending ability.
Debt free

Negatives

Ecom (Qurate retail etc.) have done very badly recently in share price, biz performance.
Vgc has grown top line, these guys degrew (qurate is more than jewelry, lifestyle, so not apples to apples). Not studied etsy yet. While gross margins are high in us, UK, Germany…markets are mature and don’t really see any explosive growth possible for VGL. They can expand channels, regions and SKUs, which they are doing. But 15% is quite optimistic IMHO. I don’t know why VGL can’t compete in India and other growth economies.
Don’t see a high energy mgmt, successors or growth ambitions. People presume that handicraft jewelry is a permanent moat. I don’t think so. Perhaps additive manufacturing and consumer preference for artificial gems etc may destroy the developing country cost advantages.
What about consumer preference for modern styles?
They could be acquiring brands, designers etc. But, instead going for asset heavy (office complex in Austin). Cash could be returned via buyback or stakes in adjacent startups. Again, shows a lack of hunger for growth.
Missed guidance. I don’t think mgmt has a good handle on how much to invest in various channels (TV, digital, omni). Many times, concall questions have arisen and answers remain vague and unsatisfactory. How much data does VGL collect and are they using AI ml to monetize the data asset properly? I remain unconvinced about their tech expertise, talent etc.
Acquiring a ecom tech would be a good idea, but don’t see this thinking.