Vaibhav Global: Temporary Headwinds or Permanent Downtrend?

Summary

A business that appeared resilient and experienced strong growth during Covid has faltered during recent quarters. The stock has more than halved during the last 1 year and looking at the chart it seems like the business is doomed, but, is it?

Vaibhav Global Limited is an electronic retailer of fashion jewellery and lifestyle accessories. It sells its products through its proprietary home shopping channels, Shop LC in the United States and TJC in the United Kingdom. Vaibhav Global Limited was established in 1980 by Mr. Sunil Agrawal as Vaibhav Enterprises and later rebranded as Vaibhav Global Limited (VGL).

Product Portfolio:

• Fashion Jewellery – Products offered are bracelets, bangles, earrings, studded jewellery etc.
• Fashion Accessories – Products include watches, bags, phone protective shells etc.
• Lifestyle Products – Office and home décor items, bed linens, kitchen and beauty products.

Business of Vaibhav Global:

VGL is engaged in the marketing of fashion jewellery, accessories, lifestyle and essential products. The company sources its products from global locations, designs around US and UK consumer trends and uses omni-channels (home shopping TV, e-commerce platforms, market-places and social media) to market products in advanced economies. VGL focuses on driving up volumes by keeping its average selling price (ASP) low unlike other players in the industry focusing on higher realisations. VGL, through its distinctive business model, has created a niche for itself in the global retail space, especially in the jewellery, accessories and lifestyle product segments of two of the largest economies of the world - the US and UK.

Shop LC:

Shop LC, formerly known as Liquidation Channel, is the American TV network of Vaibhav Global through which it markets its products in the US. Formed in 2007, Shop LC was originally known as The Jewellery Channel (TJC). Shortly after the launch of TJC, the United States entered a recession, and sales declined. The company set out to liquidate merchandise and cease operations, TJC changed its name to Liquidation Channel. As the company started liquidating inventory at low prices, it witnessed steady growth in traction. This led to the company changing its business model to sell products at low costs.

Over the years, the Shop LC business model has evolved into an expansive shopping experience. Beyond jewellery and gemstones, precious metals and collectibles, Shop LC features handbags and fashion accessories, beauty essentials, the latest in cooking and kitchen supplies as well as luxurious, comfortable bedding and bath products for the whole family.

Shop LC reaches to 79 million households including 18 million Over-the-Air households. Shop LC live TV stream is also available on shoplc.com, YouTube, Facebook and Amazon Live. Shop LC mobile app is also available on ios and Android.

Besides the above platforms, Shop LC has also extended its reach to OTT platforms with availability on RokuTv, Samsung Smart TV, Apple TV, Xumo, Vizio, Amazon Fire etc. The company also engages in social retail of targeted products on Facebook and Instagram.

The Company caters to an older audience that prefers to surf channels rather than browse. VGL has expanded households reach through Over-the-Air (OTA) households and strengthened engagement across other sales platforms including Over-the-Top (OTT), proprietary web, social and marketplaces. The Company has integrated Pixlee with the Shop LC website. This has enabled user generated content sharing and boosted customer engagement by leveraging its presence on leading social media platforms such as Instagram and Facebook.

Shop TJC:

TJC is the British home shopping channel of Vaibhav Global and online retailer specialising in jewellery, home, beauty, fashion, gemstones and other lifestyle accessories. TJC was launched in 2006 with the vision to be the value leader in electronic retailing of jewellery and life style products. A large proportion of the UK population is plugged into free-to-air channels. This aids the business of the company.

Shop TJC Proprietary TV channels have a reach of 25 million households including 17 million Over the Air households. Shop TJC live TV stream is available on tjc.co.uk, YouTube and Facebook. Shop TJC mobile app is available on ios and google play store. The company also engages in social retail of targeted products on Facebook and Instagram. The company also makes Europe delivery available through the UK operations.

The four Rs Driving the Business of VGL:

Reach – VGL reaches its customers through television format with simulcast channels on Over-the- Air (OTA) markets, the Over-the-Top (OTT) segment on streaming platforms, market-places and through social media. VGL through its proprietary channels reaches to more than 124 million households.

Within the web, VGL is focused on deepening its penetration on mobile platforms (mobile app and mobile web browser), engaging customers through the influencer programme for social media platforms, expending on improved visibility on OTT platforms and incentivising customers on market places for transitioning to proprietary platforms.

Registration – Mere reaching out to potential customers is not enough, VGL has to induce new customer registrations. Incremental customer registration is a factor of getting all three, product, price and content, right.

VGL has enriched its product portfolio with designs drawn from different ethnicities, cultures and countries in line with US and UK consumer preferences. These products are marketed differently. They are woven around engrossing content presented by familiar hosts translating into a strong consumer pull. Besides this presentation and positioning, a widening bouquet of brands across categories, infrastructure, logistics and operational support results in strong registrations.

Retention – Customer retention ensures revenue visibility. The longer a customer is retained, stronger the profitability. VGL ensures this through a competent call centre support, convenience features like Budget Pay (EMI) and easy returns, value for money, engaging content, omni-channel presence and an expanding product portfolio. All these efforts facilitate customer retention.

The Company has repeatedly invested in digitalisation, including investments in Artificial Intelligence. This has strengthened its ability to mine consumer preferences, evolve merchandise, strengthen the pace of offtake and improve our financial efficiency.

Repeat Purchase – When the company gets the above three right, it is rewarded by repeat purchase from customers. Through the last few years, VGL strengthened its value proposition by providing convenience features like easy returns and EMIs which incentivise repeat purchases.

Introduction of fashion accessories and lifestyle products has the ability to drive offtake and has also improved cross-selling opportunities. VGL is attractively placed to build on its existing momentum as a consumer electronic retail Company with deep value pricing in the US and UK markets.

Vertically Integrated Business Model

A competitive advantage that VGL has created for itself is by manufacturing fashion jewellery itself from its plant situated in Jaipur, India and sourcing other products from micro markets of developing nations. The brands owned by company include LucyQ by Lucy Quartermaine, Royal Jaipur, Cougar Beauty, Living Gold, Rachel Galley, Bali Legacy Connection, Giusseppe Perez, Homesmart, Alicia Douvall, NVY Beauty etc.

The company owns the T.V shopping channels in U.S and U.K and markets the proprietary brands on T.V as well as web. This end-to-end vertical integration has allowed VGL to maintain gross margins of more than 60%. The industry leading margin allows VGL to offer products at deeply discounted prices. Low-cost production assets together with flexible and scalable worldwide procurement capabilities enable VGL to remain proactive in identifying current trends while offering products with compelling stories of value to a thriving customer base.

Positionsing for E-commerce

VGL, which started as a T.V shopping company, has made necessary changes to present itself better in this online world. The live stream of VGL’s broadcast is available on YouTube and other streaming platforms. Customers can also purchase the products from ShopLC’s and TJC’s mobile apps and website. VGL is focused on driving up the engagement on its platform through the launch of influencer programme for social media platforms, expending on improved visibility on OTT platforms and incentivising customers on market places for transitioning to proprietary platforms through initiatives like the warranty programme. Web revenues constituted 37% of total revenues for VGL in FY22 and its share has been increasing consistently over the years.  

Dealing with the cord cutters

The way people consume content is changing with the advent of high-definition 4k technology and IPTV, emergence of smart TVs, proliferation of high-quality content delivery platforms and increasing preference for live streaming devices. Shop LC and The Jewellery Channel are already available on all digital platforms offering live video content. This combined with the mobile apps and website puts VGL in a sweet spot to serve its customer in whatever way the customer desires.

Entry in Germany

Vaibhav Global entered the tele shopping market of Germany last year. According to the company, this has increased their total addressable market by 20%. It is currently broadcasting in 27 million housholds in Germany (including 2 million in Austria). The company has guided for achieveing breakeven in the German market by Q3FY24 and until then it is expected to loose $3-5 mn per year. During FY23, the company has planned to expand its offering through OTT and OTA medium in Germany apart from TV and also establish a presence on marketplaces.

What's behind recent underperformance?

Its not a single factor but a confluence of factors which has resulted in significantly subdued performance. For starters, the company has attributed the softness in topline to revenge outings and vacations by customers where they are preferring to shop in person rather than online. However, the effect has been more than what one would expect and this resulted in company reducing its guidance to single digit growth from double digits earlier. The fall in margins was something that was expected due to investments in building the capabilities in Germany but it got much worse affected by the steep rise in freight costs as well as enhanced investments on the digital side. The company has made investments in digital marketing, digital marketplace, OTT digital, and mobile and desktop digital. It has also had opportunities in OTA space, in US and acquired one SKY channel in UK, and in Germany too they had to front end the investment which has led to higher outflows in past couple of quarters. FY21 was an unusually great year for the company and extrapolating that into the future might be a mistake.

Financials

Sales/EBITDA/PAT has clocked in a CAGR of 14%/27%/30% respectively in the last 5 years. EBITDA margin improved from 6% to 14% between FY17 to FY21 before falling down to 10% in FY22. 

Debt/Equity stands at 0.1x with ROE/ROCE 21%/18%. The last 10 years cumulative CFO/PAT has been 103% indicating ability to convert profits into cash. 

Receivable days at ~31 has been showing an increasing trend. This is because of the company introducing the Budget Pay (EMI) feature for its products. 

Valuation

Even after falling >50% in last 1 year, Vaibhav Global is still at a P/E multiple of 36 as the earnings have also fallen a lot, shrinking the denominator of P/E ratio. The median 5 year multiple is ~23x earnings and thats a region where one should seriously at the stock.