Hello Sir,
Hope you are doing well.
I was recently reading about Vaibhav Global.
The company has a unique business model, wherein it sources Jewelry, accessories, lifestyle products from India and other Asian countries and retails in US, UK and Germany through its 24 hours live shopping channels and websites/apps.
The stock recorded a high of 1,000 odd levels in May’21 and currently trading around 300 odd levels, i.e., down 70% from peak.
The management has been guiding for double digit growth in sales in the medium term and expects improvement in EBITDA margins with operating leverage.
Below, we have shared our notes from the Q2 FY 25 con-call of the company to understand the outlook for the business.
Before that: Recently, we recommended a cyclical company related to food processing sector to our Alpha and Alpha + members
In last 10 years, this stock has gone through 2 major upcycles:
- FY 15 – FY 18 – From FY 15 lows, the PAT of the company increased 10x by FY 18 and the stock price increased almost 20x from lows
- FY 20 – FY 21 – In FY 20, the company incurred loss and in FY 21 the company recorded highest ever profit and the stock went up 5x from lows
FY 23 and FY 24 were again periods of downcycle. FY 25 started on a good note. Valuations are attractive and in case of an upcycle, it may again go through earnings and valuations rerating. You can read about it HERE
Vaibhav Global – Notes from Q2 FY 25 concall
– Overall Performance & Strategy:
- VGL reported a 13% revenue growth year-over-year
- Q2 FY’25 revenue totalled INR 796 crores, up from INR 705 crores in Q2 FY’24
- In constant currency terms, this reflects 10.2% growth, supported by a 9.3% rise in volumes
- Content and broadcasting expenses as a share of revenue fell to 19.4% in Q2 from 20.6% in Q1 and are expected to reach 18% for the full financial year
- The company maintained a strong gross margin of 63.5%, attributed to strategic pricing, a favourable product mix and its vertically integrated supply chain
- EBITDA margins were 8.7% of revenue, a decrease from 9.5% in the same period last year, due to planned investments in digital marketing, higher airtime costs in the US, and airtime costs for Ideal World
- The company is focused on a 4R strategy: widening Reach, new customer Registration & Acquisition, strengthening customer Retention and Repeat purchases
- VGL reaffirmed its FY ’25 revenue growth target of 14% to 17% and projects mid-teen revenue growth in the coming years with decent operating leverage
– Market Performance:
- US revenue declined by 1.6% year-over-year, impacted by the election and Olympics89. The company expects demand to increase in the upcoming holiday season
- UK revenue grew by 15% year-over-year, with Ideal World contributing significantly89. The UK economy is showing signs of improvement, suggesting a potential recovery in consumer demand
- Germany’s revenue grew by 15.3% year-over-year, with a 25% quarter-on-quarter growth. Operating losses in Germany also decreased substantially by 41%. The company is confident of achieving breakeven at the operating level by the second half of FY ’25
– Customer Base & Retention:
- The unique customer base has increased by 51% year-over-year to approximately 682,000
- Customer retention is solid at 41%, with an average of 23 pieces purchased per customer annually
– Ideal World & Mindful Souls:
- Ideal World, acquired a year ago, operates 24/7 and reaches 27 million UK households. It is currently profitable on a direct cost basis, with sales of GBP 17 million over the past year, and is expected to reach full cost profitability from Q3 onwards
- Mindful Souls has a solid base of over 100,000 unique customers and achieved a PBT margin of 10% on a trailing 12-month basis. VGL is working to further enhance Mindful Souls’ profitability by leveraging its supply chain and launching new subscription boxes
– Budget Pay/Financing:
- The company offers it to facilitate purchases, particularly for high-end products
- VGL has experienced low bad debt rates with Budget Pay
- The company doesn’t charge interest to the customers for budget pay options
– Content & Broadcasting Costs:
- There are two components: airtime costs and e-commerce marketing costs
- Approximately 11% of the 18% total content and broadcasting costs are related to airtime, and the remaining 7% to digital marketing
- Airtime costs include fixed costs for Germany and Ideal World, and a lower channel position in the US to secure better future growth
- Digital advertising costs have increased and are generating new customer acquisitions
- For television, content and broadcasting costs are expected to remain relatively flat, while digital marketing costs may gradually increase. The overall costs are expected to be 18% of revenue by the end of the financial year
(End)
Disclaimer: This is not a recommendation to buy/sell Vaibhav Global. The securities quoted are for illustration only and are not recommendatory.
Best Regards,
Ekansh Mittal
Research Analyst
Web: https://www.katalystwealth.
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