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Increased guidance reflects higher visibility

Vaibhav Global Ltd (VGL) reported robust sales growth of 28.7% at Rs 725 cr registering one of the highest ever EBITDA margins at 16.9%, an improvement of 220 bps yoy and 90 bps qoq. The strong performance was led by robust growth in retail business which grew 30% yoy. The company witnessed broad based growth with both the US and the UK growing at healthy rates during the quarter. In constant currency terms US grew 20% and UK 33% yoy. US grew despite there were U.S. presidential elections which generally diverts the TV viewership.

The company’s focus on 4Rs (Reach, Registrations, Retention and Repeat Purchases) have been yielding results and showing improvement steadily. VGL is progressing gradually to diversify its business. Non jewellery business contributed 32% in 9MFY21 as against 22% for FY20. Gross margins remained robust at 61.4%, above the management’s threshold of 60%.

However, moderation in employee cost and other expenses led to improvement in EBITDA margins, which is a testament to our rationale of operating leverage playing out with higher sales growth. Driven by the robust demand outlook, the management has again increased the growth guidance to 21-23% from the earlier 18-20% in constant currency terms. The management is also confident of achieving 15-17% cc growth for FY22E, despite strong FY21.

Key highlights

* Both TV and Web witnessed strong volume growth of 24% and 25% resp. in Q3FY21.

* The average selling price (ASP) for web has improved sequentially to $23.7 against $21.7/$21.6 in Q2FY21/Q3FY20 resspectively. Improvement in ASP coincides with the reduction in essential goods. For TV segment, the ASP continues to remain stable at $29.2 compred to $29.4/$30.5 in Q2FY21/Q3FY20 respectively.

* In 9M, contribution of Budget Pay was 36% as against 39% in FY20.

* Shop LC expanded presence on third-party marketplaces by listing products on Amazon, eBay and Walmart in Canada. At Shop TJC, the copany launched the TJC Plus customer loyalty program that offers members several benefits and services which has been well received by the customers

* It declared third interim dividend of Rs 7.5/share during the quarter, taking cumulative dividend to Rs 17.5/share in 9MFY21

Valuations and Recommendations

The stock continued its outperformance against the broader indices backed by its strong and consistent financial performance. We remain positive on the future prospects of the company. We are projecting 24%/37% CAGR in sales/EBITDA between FY20-FY23E, led by improvement in EBITDA margins to 16.5% in FY23E from 13.2% in FY20. We are introducing FY23E projections and shifting our target multiple FY23E. The stock is currently trading at 18.5x on our FY23E earnings. Though the stock has achieved all our earlier targets, we ermain upbeat on the near to medium term prospects and recommend HOLD on the stock with a target price of Rs 3593 (23x FY23E)

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