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Ended FY21 with a Bang, Gearing Up for Future

Vaibhav Global Ltd (VGL) reported robust sales growth of 33.7% at Rs 666 cr for Q4, led by retail business. For full year, the company reported sales growth of 28% at Rs 2540 cr, with volume growth of 30%, one of the highest in the history of the company. EBITDA margins improved to 14.6% for FY21 from 13.2% in FY20 backed by strong volumes. For Q4, margins were slightly better than last year at 11.8% vs 11.3%. Q4 is seasonally soft quarter w.r.t. margins, hence it is not prudent to compare margins sequentially.

Gross margin has remained largerly stable even though the product mix continued to diversify the higher contribution from non-jewelry segments, which was 31% vs 22% in FY20. During the quarter, the company has forayed into Germany with ~2mn investment. VGL is confident of breaking even in Germany within three years of roll out, given it the country has large shopping market with 38 mn TV at homes. In the first year i.e. FY22, Germany is expected to do loss of $3-5 mn. For FY22, the management has guided for 16-18% retail volume growth, which doesn’t include any contribution of Germany.

Key highlights

* Both TV and Web witnessed strong volume growth of 34% and 26% resp. in Q4FY21. For the full year, TV/Web reported volume growth of 29% and 32% resp, much ahead of the overall guidance given by the company.

* Contribution of Budget Pay was 36% as against 39% in FY20.

* There was significant addition in unique customers (TTM basis) at 38% yoy to 501,169. However, due to this, average purchases looks less at 27 pieces as against 30 last year. Customer retention rate continue to remain healthy at 51.5% on TTM basis, as compared to 50% of last year.

* At Shop TJC, the company has launched a new channel , TJC Beauty, which focuses on offering beauty products by providing viewers expert reviews and trends in beauty market. Currently, it is for four hours only, however as it scales up, the company intends to increase the time to 8 hrs. This channel is already profitable. Overall TJC grew by 35%/31.7% in Q4/FY21 resp.

* Shop LC, USA add international marketplaces like Amazon and Walmart Canada to its system which is visible in sales growth. The segment grew by 29% in Q4 vs the average run rate growth of 20% in 9MFY21. For full year, it grew by 25% as compared to 11% in FY20.

Valuations and Recommendations

The stock has surged sharply during last 3-4 months continuing its outperformance against the broader indices on the back of strong and consistent financial performance. Also, as the market has understood the business model of the company, it is being compared with other FMCG hence the PE has been rerated, in similar lines of our argument. We are projecting 18.5%/24.2% CAGR in sales/EBITDA between FY21-FY23E. The stock is currently trading at 31.2x on our FY23E earnings. Considering the sharp surge, we recommend investors to partial book profits and continue to hold remaining shares, as the long term outlook is positive.

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