Vaibhav Global Ltd Research Report

Date of report May 29, 2017
Target Price (Rs) 608
Gain (%) 20

Vaibhav Global Ltd Research Report

Vaibhav Global Ltd (VGL) continued the recovery during the quarter as well and posted positive volume growth in both the segments – TV as well as Web. As we have keep highlighting that the company’s business model involves high fixed cost (cost of channel, employees, inventory etc) hence the leverage of higher growth directly translates to EBITDA level which is evident from the improvement seen in margins during current quarter. EBITDA margins for Q4FY17 improved to 7.2% vs 3.1% in Q4FY16, despite flat gross margins. Net sales grew by 8.2% to Rs 376 cr from Rs 347 cr in Q4FY16. The company has completed all the up gradation and developmental work (introduction of Budget pay (EMI), allowed return of goods, launch of mobile app) it was undertaking and now is at par with nearest competitor but with lowest average selling price. We believe the company has now completed its transition phase and poised for healthy volume growth and strong margins. Management has maintained its low double digit volume growth for FY18 which we believe will directly translate to profitability.

Key highlights

 TV sales witnessed volume growth of 15% vs negative 28% % seen in Q4FY16. Web sales saw positive volume growth of 20% vs negative 37% in Q4FY16.

 Gross margins were flat yoy at 60% however improved marginally sequentially from 58% in Q3FY17, despite higher share of B2B business. For FY17 gross margins have come down from 63% in FY16 to 60% in FY17 but due to higher leverage of fixed cost EBITDA margins have improved to 6.2% from 5.2%.

 The company has launched mobile app both in US and UK markets

 Sales return has stabilized to 15%

 The company added 42,000 new customers and now total number of unique customers are 3,40,000

 VGL has seen repeat buying 19 times with 26.7 pieces per customer

Valuations and Recommendations

We continue to like the asset light business model of VGL and we believe that company has reached an inflection point. We expect the company to report 13% sales CAGR over FY17-19E with net profit CAGR of 42%. Due to heavy fixed cost business model, we expect EBITDA margins to increase higher. The stock has run up in recent past and trading at 52W high. At CMP it is trading at a PE of 14.1x on our FY19E earnings. We recommend HOLD on the stock with a target price of Rs 608 (17x FY19E).

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