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Vaibhav Global Q4FY14 results update

May 23, 2014, Friday, 12:54 GMT | 07:54 EST | 16:24 IST | 18:54 SGT
Contributed by Nirmal Bang

Despite Q4 being a seasonally weak quarter, VGL reported result in-line of our expectation where net revenue grew by 58.3% YoY to Rs. 259.6cr largely driven on volume growth and marginally down by 2.9% QoQ (Q3 being the strongest quarter). EBITDA up by 740bps YoY margin at 9.4% and down by 360bps QoQ.

During FY14, VGL has repaid Rs. 52cr of debt from the cash generated from operation and plan to make the company debt free in FY15E. The dollar revenue grew YoY 31% in FY14 and management expect to maintain the growth going forward. Additionally, EBITDA margin is expected to improve marginally since rupee is appreciating company may not have forex gain compared to Rs. 19cr in FY14. Carry forward losses have exhausted and company will be paying tax in FY15E onwards. Management guided for 25% tax for FY15. 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 have introduced FY16E numbers. We expect VGL to report an EPS of Rs. 45 and Rs. 58 in FY15E and FY16E respectively. At CMP of Rs. 740, VGL is trading at a PE of 16.5x FY15E and 12.8x FY16E. We roll-over our target multiple to 16x FY16E with a TP of Rs. 925 per share. We maintain HOLD rating.

- Higher growth in TV and Web volumes led to substantial jump in Net revenue: Despite Q4 being a seasonally weak quarter, VGL have clocked a strong net revenue growth of 58.3% YoY in Q4FY14 and marginally down by 2.9% QoQ (Q3 is the strongest quarter) to Rs 359.6cr mainly led by higher volumes, and relatively stable price realization. The TV volume registered a growth of 24.5% YoY and Web volume growth of 71.3% YoY.

- EBITDA margin improved YoY: VGL reported an EBITDA margin of 9.4% was up by 740bps YoY and down by 360bps QoQ. The expansion in margin is attributed to the jump in sales and decline in employee cost by 150bps Yoy to 16.5% in Q4FY14 and Other expenses by 540bps YoY to 38.1% in Q4FY14. In addition, Gross Profit was up by 61.2% YoY to Rs. 226.1cr and down by 10.2% QoQ. Gross margin increased by 120bps YoY to 62.9% in Q4FY14.

- PBT (excluding exeptional item of Rs 167cr in Q4FY13) up by 51% YoY: Despite forex gain of Rs 19.2cr and excluding Rs 167cr as an exceptional item in Q4FY13, and forex gain of Rs 1.5cr in Q4FY14, the PBT was up by 51% YoY to Rs 29.8cr.

- VGL to be taxable from FY15E onwards: Management has guided that from FY15E onwards, on consolidated level, VGL will be taxable in range of 25%.

- Sales to be moderated in Q1FY15E: Due to inventory compression (inventory reduced in the channel front in dollar terms by 14% but sales increased by 31%. Management is taking corrective action where inventory compression will be from sourcing end and not from channel end) and outsourced call centre in US to third party in Q4FY14, the sale is expected to be moderated in Q1FY15E which is expected to improve in coming quarters.