Vijay Kedia

The key to success is not necessarily about being ahead of time but then it’s most definitely of not being late either! The Jaipur-based Vaibhav Global (VGL) is one such company which was ahead of its time but has used this period to learn and create a marketplace for itself.

VGL, which clocked a turnover of close to Rs.16 billion in FY18, has delivered a deep value proposition to discount-seeking customers in fashion jewellery and lifestyle products, offering a price point of $18-20 per piece of jewellery. The 100% export-oriented company has expanded its portfolio, focusing on adjacent product categories such as lifestyle accessories, home textiles, kitchenware and cosmetics that target similar market segments. 

My philosophy for evaluating a management boils down to three qualities: honesty, hunger and smartness. Over the past two decades, the world has seen the evolution of technology impacting every business and so has been the case with VGL too, which has also changed its business in keeping with the times.

In 2006, VGL ventured into electronic retail in the UK with a live TV shopping channel and an e-commerce platform, The Jewellery Channel. Seeing the success of the model, VGL opened another TV shopping channel and e-commerce platform, Liquidation Channel, in Austin, Texas to address the US market. The vertical model allowed VGL to rapidly capture market share both in the UK and US. The household TV shopping channel reaches 100 million households, 75 million in the US and 25 million in the UK. A majority of VGL’s customers are middle-aged women.

Post the global crisis, which eroded the buying power of its consumers in the US significantly, the company, in 2010, brought down the price range of its products to an average of $18-25 per piece as against an average price of $100 per piece. Currently, nearly 70 per cent of its revenue come from the US, and the remaining from the UK.

By managing the transition, VGL has emerged as the only profitable and vertically-integrated Indian electronic B2C fashion retailer with proprietary TV home shopping, e-commerce, mobile app platforms in the two big developed markets. In FY18, VGL earned Rs.9.93 billion (63%) through the TV shopping channel, Rs.3.71 billion (24%) through web and Rs.2 billion (13%) through B2B sales.

Shining Through

Last year, the company successfully integrated its TV and web operations, allowing streaming of TV broadcasting over the web. This has resulted in increased customer engagement on the web which, in turn, resulted in higher retail sales. E-commerce sales have contributed 31% to total retail sales of Rs.4.83 billion, growing almost 33% in Q3FY19.

It’s among the rare companies manufacturing products in India and selling entirely in developed markets, competing with companies that generate billions of dollars in revenue, thus, proving its inherent quality and strength.

The market leader, QVC Inc, in this category, has $12 billion revenue, while VGL generates $230 million. The capability of the company can be gauged by the fact that the market leader itself is one of its customers! The US alone is a $20-billion market. But if the company ever decides to venture out beyond the US, then there is huge potential in Japan, Germany, China, and also back home in India. 

The strength of VGL lies in the supply chain it has created over the years. It has created a solid infrastructure backbone by making investments in customer interface, production, warehousing facilities, call centres, supply chain and CRM. Over the years, it has created a scalable model and a business that won’t require significant capex for growth.

Innovative thinking by the management such as launching Budget Pay EMI, mobile app, re-branding of TV channels and focus on e-commerce has enabled the company to capitalise on the opportunity present in the UK and the US by growing revenue in double digits. Expanding Budget Pay on to the web platform has spurred demand, leading to an incremental revenue of about Rs.960 million in FY18, also driving growth in sales volumes and average selling price (ASP). In FY18, the ASP through TV channel was $26.9, up 8% YoY, and on the web it was $20.3, up 16% YoY.

VGL is hungry for growth and has been inventing new ideas for customer acquisition. Recently, Shop LC launched Fulfillment by Amazon, enabling placement of select inventory at Amazon fulfillment centres, which raises brand awareness with customers, helping the company convert them from Amazon to Shop LC at a low acquisition cost.

Innovation has started impacting the way TV is viewed. VGL has aligned itself with the change in technology and now the company is also available on OTT platforms. Along with it, the company is also spending on social media, web and mobile.

The Right Numbers

Growth in revenue and margin expansion with tight control over working capital have resulted in a sharp increase in free cash flow (FCF). In FY18, FCF was Rs.180 million whereas, for the nine months ended December 2018, FCF was Rs.1.58 billion. The company has also maintained a healthy and rapidly growing RoCE and RoE at 37% and 23% in the current fiscal.

In Q3FY19, VGL achieved another milestone by exceeding revenue of Rs.5 billion and profit exceeding Rs.500 million on a quarterly basis. On a constant currency basis, retail revenue growth was 10% in the US, and 25% in the UK, largely driven by strong volumes. Retail revenue, in rupee terms, expanded 23% during the quarter and 22% in the nine months of FY19. Gross margin for the quarter stood at 64%, largely driven by higher contribution from retail sales. 

In the third quarter, the company added 59,000 new registrations, and now caters to 337,000 unique customers. On an average, one customer buys 33 pieces in repeat purchases in a year, which shows high customer stickiness. The customer retention rate in the US stands at 47.9% and in the UK at 55.6%. 

VGL is a debt-free company with a net cash flow of Rs.1.04 billion. Since most of the capex is over, operating leverage will kick in as the company increases its sales. The management is guiding a double-digit growth, 14-16%, and, in all probability, the growth in the bottomline, too, will surpass that. At Rs.628, the stock is trading at a multiple of 13 times trailing 12-month earnings. I have invested in VGL as it also fits into my theory of SMILE — that is, companies which are ‘small in size, medium in experience, large in aspiration and extra large in market potential.’

The feature is a personal analysis by the writer who has invested in VGL and is not to be construed as a recommendation to buy or sell the stock