Riken Mehta
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Vaibhav Global , a retailer of fashion jewelry and lifestyle accessories reported close to 30 percent jump in its net sales at Rs 261.4 crore. The company's net profit also surged by 42 percent from Rs 28 crore to Rs 40 crore.
Interest cost was down to Rs 3.46 crore from Rs 3.78 crore a year ago.
Here is a moneycontrol exclusive interview with Mr. Sunil Agrawal, chairman at Vaibhav Global Limited on its quarterly results.
Q. Sales and net profits were up 30 percent in this quarter. Can you elaborate more on your quarterly performance and margins?
In FY2013, Vaibhav Global recorded total income of Rs 931 crore, up 38% YoY, EBITDA margin was 11%, profit after tax at Rs 78 crore (excluding exceptional items). The company reduced debt by Rs 31 crore from internal accruals and reported Return on Equity at 49% and Return on Capital Employed at 34%. Sales volume increased from 4 million units to almost 7 million units comprising the company’s fashion jewelry and lifestyle accessories products sold on TV and Internet. The company’s proprietary TV home shopping channels reach over 100 million households in the US, UK and Canada on all major DTH and cable platforms. VGL’s e-commerce websites in these countries create another important sales platform for its products.
In Q1 FY2014, VGL recorded total income of Rs. 264 crore, up 28% YoY, EBITDA margin was 14%, profit after tax at Rs. 40 crore. The company reported Return on Equity at 50% and Return on Capital Employed at 31%. Sales volume increased from 1.4 million units to 1.9 million units of the company’s fashion jewelry and lifestyle accessories products. In Q2, we see 15 to 20% revenue growth and EBITDA margin at 11%. Q2 is traditionally a low quarter for our business as we organize the annual summer clearance sale before the holiday season. Last year in Q2, EBITDA margin was only 6%, so there should be strong growth this year. During the current year, we expect to deliver steady growth and margins.
Q. How the company will benefit from the recent rupee depreciation?
Vaibhav Global is an export oriented company with majority of its revenues in USD and GBP, and to that extent rupee devaluation is largely positive and favorable to our business subject to positions taken through forward contracts and hedging options.
Q. Can you give us the revenue break-up in terms of domestic and exports along with margins? Also list of major countries where the company exports its diamonds and jewellery.
Vaibhav Global's key markets are in the US, UK and Canada, there are no domestic sales. Therefore, the business does not have the same cost structures as traditional precious jewelry companies.
We assess our business in the following segments fashion jewelry and lifestyle accessories on three platforms: TV retail, web retail and B2B. In Q1, volumes in TV Retail segment grew from 1.1million units to 1.4 million units on a y-on-y basis, revenues expanded from Rs. 150 crore to Rs. 188 crore. Our e-commerce websites are liquidationchannel.com in the US/Canada and thejewellerychannel.tv in UK. In Q1, volumes on web sales grew from 0.3 million units to 0.5 million units on a y-on-y basis, revenues increased from Rs 21 crore to Rs 33 crore. The B2B segment is the wholesale part of the business, which largely supplies to our own TV and web platforms. B2B Q1 external revenues increased marginally from Rs 29 crore to Rs 30 crore.
Our revenue mix is 75% from TV retail sales, 13% from web retail sales and 12% from B2B sales in Q1.
Q. What is your outlook on gems and diamond prices and availability going ahead?
There is very limited usage of gold and diamonds in the company’s range of products.
Q. What is the total outstanding loan book?
The outstanding net debt as on 31st March 2013 was Rs. 114 crore, compared to Rs. 146 crore as on 31st March 2012. The management is now focused on fully paying down debt from the company’s strong internal cash accruals.
Q. Have making, polishing and cutting charges (labor charges) gone up in this quarter?
Vaibhav Global is a retailer of fashion jewelry and lifestyle accessories. Therefore the business does not have the same cost structures as traditional precious jewelry companies.
Q. Is the company planning to introduce new schemes to lure customers? Order bookings via web and TV have also registered phenomenal growth in this quarter. Will the company invest heavily in these mediums going ahead?
We are looking at long term and will continue to invest in marketing, operations, facilities, people and technology to create a great customer experience. Most of these investments are reflected in our financials, being expensed out every quarter. Our business model requires low incremental capital investments and throws up strong operating and free cash flows. Last year, we generated cash of Rs. 76.7 crore from operations, capital expenditure was Rs. 13.5 crore, resulting in free cash flow of over Rs. 63 crore. We expect to drive strong cash flows this year as well.
Q. How much of the future receivables has the company hedge in FY14? What was net forex gain/loss in this quarter? What is your outlook on exports going ahead?
For FY14 our hedging is to the tune of USD 15m receivables. Net forex gain/loss in Q1 was Rs 10.78 crore.
Q. Can you give us the full year sales, profit and margin guidance for FY14?
During the current year, we expect to deliver steady growth with margins of 11-12%. We will be focused on paying down debt from operating cash accruals, allowing revenue and profit growth on a smaller balance sheet leading to strong return ratios. As indicated earlier, in Q1 we reported Return on Equity at 50% and Return on Capital Employed at 31%. We believe that there is scope to deliver even stronger returns on long term basis.
Q. How many stores are operational by end of June quarter? How many new stores are you planning to add in FY14?
The company plans to expand household access in existing markets to create growth opportunities. It does not operate any brick and mortar shops/stores.
Q. Can you give us some details about the Rs 163 crore loss and Rs 10 crore exceptional loss incurred in FY 13 & FY 12 respectively. Is this recurring in nature?
For FY'13 goodwill written off was Rs 151.10 crore, CDR interest Rs 11.17 crore and loss on subsidiary Rs. 1.44 crore. For FY'12 loss on 2 subsidiaries were Rs 8.11 crore and Rs 1.93 crore respectively. These are non recurring transactions.
Q. What is your outlook on the demand for imitation jewellery going ahead?
Being a retailer of fashion jewelry and lifestyle accessories on TV and Internet platforms, we are currently focused on improving on our key operating of average revenue per household, contribution per minute of TV airtime, repeat buying activity and lifetime value per customer. We will use the wide access of our US and UK home shopping channels to engage deeper with existing customers and add more customers. We are also making some strategic investments in our web interface to improve the customer experience. Further, the company plans to expand TV household access in existing markets to create growth opportunities. At present, we sell about 20,000 products every day which is 3-4 times volume growth over the last 2-3 years, indicative of the tremendous progress made by our business model. We expect to continue the strong growth momentum this year.
Our strategy is to create a value perception through lowest price guarantee. Our focus is on the discount seeking buyer, a market that has historically continued to expand across various stages of the growth cycle. To support our customer proposition, we have developed a strong supply chain infrastructure that includes our manufacturing operations in Jaipur and outsourcing from micro markets in China, Thailand and Indonesia. We closely follow the latest fashion trends to keep the product aligned with our customers’ needs. Given these unique attributes of our business, we are confident that the markets for our products will keep expanding in the foreseeable future along with increase in our market share. This will deliver growth and create value for all stakeholders.
