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Vaibhav Global Q3FY14 results update

January 29, 2014, Wednesday, 05:38 GMT | 01:38 EST | 11:08 IST | 13:38 SGT
Contributed by Nirmal Bang


With holiday season and aggressive advertisement & promotion during Q3FY14, VGL reported result ahead of our expectation in terms of net revenue which grew by 49.3% YoY and by 16.7% QoQ to Rs. 370.4cr largely driven on volume growth. EBITDA margin reported at 13% was up by 140bps YoY and in-line with management guidance of 13%-14% in rupee terms; and marginally up by 20bps QoQ. The higher growth in sales and expansion in margin was primarily driven by increase in sales volume (TV volume growth of 28.6% YoY and Web volume growth of 80.8%). The trend is expected to continue even in Q4FY14 on account of events like Valentine Day and Mothers’ Day coming up in February and March respectively. 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.
 
Owing to consistent improvement in quarterly performance, improvement in US economy, UK business becoming PAT positive in Q3FY14, we have revised our estimates upwards and now expect Net Sales to grow by 40.3% (earlier 30.1%) FY14E and 20.8% (earlier 19.5%) FY15E. We expect VGL to report an EPS of Rs. 39.2 and Rs. 46.4 in FY14E and FY15E respectively. At CMP of Rs. 750, VGL is trading at a PE of 19.1x FY14E and 16.0x FY15E. We continue to retain HOLD rating with a revised target price of Rs. 750 per share (16x PE FY15E). Though business outlook continue to remain positive, considering the rich valuation, we advise book partial profits.
 
- Higher volumes due to holiday season led to substantial jump in Net revenue: With the holiday season at bay and aggressive advertisement & promotion campaign during Q3, VGL have clocked a strong net revenue growth of 49.3% YoY in Q3FY13 and by 16.7% QoQ to Rs 370.4cr mainly led by higher volumes (TV volume growth of 28.6% YoY and Web volume growth of 80.8% YoY), rupee depreciation and relatively stable price realization. Sales in dollar terms had increased YoY both in TV and Web by 28.6% and 56.7% respectively.
 
- EBITDA margin came in-line of expectation: VGL reported an EBITDA margin of 13% was up by 140bps YoY and in-line with expectation and up by 20bps QoQ. Gross Profit was up by 47.8% YoY to Rs. 251.9cr and by 18.2% QoQ. Increase in demand and rupee depreciation, culminated the increase in Gross margin by 90bps YoY to 68% in Q3FY14.
 
- Adjusted PAT up by almost two times YoY: Despite forex loss of Rs 3.6cr in Q3FY14 as against forex loss of Rs 0.1cr in Q3FY13, PAT increased by almost two times YoY to Rs. 31.8cr. However, PAT was down by 27.7% QoQ due to higher depreciation, interest cost and tax rate.
 
- VGL to be taxable from FY15E onwards: Management has guided that from FY15E onwards, on consolidated level, VGL will be taxable in range of 16%-17%. The increase in tax rate will impact the profitability going forward.

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