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Vaibhav Global Q1FY15 results update

August 1, 2014, Friday, 07:13 GMT | 03:13 EST | 11:43 IST | 14:13 SGT
Contributed by Nirmal Bang

As expected, the company reported sales growth of 20.3% yoy to Rs 301 cr, on account of sluggish TV Sales, which posted volume growth of 3.3% (vs 24.5% in Q4FY14 and 25.1% in Q1FY14), was down because of (1) Change in call center from in-house to third party (2) Build up of inventory at studio ¡V as indicated by the company before the start of the quarter (3) Installation of new software. On account of above factors, we believe Q1 is a temporary blip and expect the growth to be normalized from Q3 onwards (Q2 is seasonally weak quarter for the company). Web sales volume grew by 36% and we expect to remain strong for the rest for the year. EBITDA has declined 24.5% yoy to Rs 26.3 cr. Consequently margins have also come down to 8.7% as against 13.9% in Q1FY14.

We continue to like asset light business model of VGL which can generate high ROCE and free cash. VGL has stabilized itself as a retailer of discount fashion accessories through TV channel in US and UK market with access to over 100 million households and also trying to monetize its TV channel through development of web sales. We expect VGL to report an EPS of Rs. 45.2 and Rs. 58.8 in FY15E and FY16E respectively. At CMP of Rs. 850, VGL is trading at a PE of 18.8x FY15E and 14.5x FY16E. On 16x FY16E earnings our target price comes to Rs. 925 per share. We maintain HOLD rating.

- Increase in average selling price: VGL reported increase in average selling price both in TV sales and Web sales segment. This is testament to company¡¦s growing acceptability in the targeted markets. Web sales average selling price is $14 as compared to $11 in Q1FY14 whereas TV sales average price is $25 as compared to $ 24 in Q1FY14.

- Web Sales supported the sales growth: Web sales grew by 79% to Rs 59 cr, compensated the decline in TV sales were impacted on account of one-time factors. We expect the company to continue the growth momentum for Web sales and believe TV sales to come back on track from Q3 onwards.

- EBITDA declined: VGL reported an EBITDA margin of 8.7% down from 13.9% in Q1FY14 due to additional one-time cost the company has incurred during the quarter. The fact can be validated by difference between the gross margins which 68.8% in Q1FY15 vs 70.5% in QFY14. We expect VGL to report 12.4% margins for FY15E as against 11.0% in FY14.

- PAT down: PAT is partially down by lower EBITDA and partially by higher tax. PAT for Q1FY15 is Rs 21.8 cr, down 45.5% yoy. As VGL¡¦s accumulated losses got over, it¡¦s both units ¡V US and India have started paying tax (India under MAT and US full tax) and expected to have average tax rate of 25% for FY15.

- Strong Cash Flow: The Company is having strong cash flow and utilizing the same to repay its debt. It has repaid Rs 29 cr in Q1FY15 and likely to debt free by FY15.