Vaibhav Global Limited has informed the Exchange about Transcript of Analysts/Institutional Investor Meet/Con. Call
VAIBHAV GLOBAL LIMITED
Ref: VGL/CS/2022/87
National Stock Exchange of India Limited (NSE) Exchange Plaza, C‐1, Block G, Bandra Kurla Complex, Bandra, Mumbai – 400 051 Symbol: VAIBHAVGBL
Subject: Submission of transcript of conference call
Dear Sir / Madam,
Date: 09th August, 2022
BSE Limited Phiroze JeejeeBhoy Towers, Dalal Street, Mumbai – 400 001 Scrip Code: 532156
With reference to captioned subject, we are enclosing herewith the transcript of Q1 FY23 Earnings Conference Call held on Wednesday, 03rd August, 2022.
The Transcript of the earnings conference call is uploaded on the website of the Company and can be accessed on the link:
https://www.vaibhavglobal.com/admin_assets/Investor/Investor_Presentation/1740705006014465.pdf
Kindly take the same on record.
Thanking you,
Yours Truly,
For Vaibhav Global Limited
Sushil Sharma Company Secretary
E‐69, EPIP, Sitapura, Jaipur‐302022, Rajasthan, India • Phone: 91‐141‐2770648, Fax: 91‐141‐2770510
Regd. Office: K‐6B, Fateh Tiba, Adarsh Nagar, Jaipur – 302004, Rajasthan, India • Phone: 91‐141‐2601020, Fax: 91‐141‐2605077
CIN: L36911RJ1989PLC004945 • Email: investor_relations@vaibhavglobal.com • Website: www.vaibhavglobal.com
Vaibhav Global Limited Q1 FY23 Earnings Conference Call Transcript: August 3, 2022 Management Attendees: Mr. Sunil Agrawal- Managing Director Mr. Vineet Ganeriwala- Group CFO
Moderator:
Ladies and gentlemen, good day, and welcome to the Vaibhav Global
Limited's earnings conference call. As a reminder, all participant lines will
be in the listen-only mode, and there will be an opportunity for you to ask
questions after the presentation concludes. Should you need assistance
during the conference call, please signal an operator by pressing ‘*’ then ‘0’
on your touchtone phone. Please note that this conference is being
recorded.
I now hand the conference over to Mr. Mit Shah of CDR India. Thank you,
and over to you, Mr. Shah.
Mit Shah:
Thank you. Good evening, everyone, and thank you for joining us on
Vaibhav Global's Q1 FY23 earnings conference call. Today we have with us
Mr. Sunil Agrawal, Managing Director; Mr. Vineet Ganeriwala, Group CFO;
and Mr. Prashant Saraswat, Head of Investor Relations.
We will begin the call with a brief opening remark by Mr. Sunil Agrawal on
the business operations, key initiatives and a broad outlook. Followed by a
discussion on the financial performance by Mr. Vineet Ganeriwala, post
which, the management will open the forum for a Q&A session.
Before we get started, I'd like to point out that certain statements made or
discussed on today's call may be forward-looking in nature and must be
Page 1 of 22
viewed in conjunction with the risks and uncertainties that we face. A
detailed statement and explanation of these risks is included in the earnings
presentation, which has been shared with you all earlier. The company does
not undertake to update these forward-looking statements publicly.
I would like to invite Mr. Sunil Agrawal to make his opening remarks. Thank
you, and over to you, sir.
Sunil Agrawal:
Thank you, Mit. I welcome you all to Vaibhav Global's Q1 FY23 earnings call.
I hope all of you would have reviewed the results. Our presentation
provides further detail both on the business and on the environment, we
are operating in.
The quarter gone by reflects effect of 2 macro environments. First, the
opening up of economies after 2 years of travel restrictions which led
people to go out for revenge outings, impacting all digital retailers like VGL.
Secondly, the high inflation in western economies constrained consumer to
spend on discretionary items. Recent quarterly performance was softer
over an otherwise elevated base of 2 years with revenue reaching Rs. 628
crore, this was 8% down YoY. However, this performance is encouraging
versus a pre-COVID period of Q1 FY20 with a growth of 47%.
Amidst all broader challenges, we see a visible improvement during last 3
months, with revenue trends improving month-over-month. We believe
that this transitional phase will be behind us soon, and we will get back to
our revenue and profitability growth path again. It is worthy to note that
despite this transient phase, the gross margin improved sequentially and
were 62%, owing to our vertically integrated supply chain and better
product mix.
EBITDA margin for the quarter was 7%. Excluding Germany, it is 9.1%.
YoY comparison shows decline in EBITDA margin mainly due to operating
deleverage. Continuing with our strategy of enhancing our digital
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capabilities, we made investments on new OTA homes, digital marketing
spend on OTT, social media and third-party marketplaces. Digital is the
future with huge growth potential, hence, we will continue to concentrate
on the segment and build our strength there.
This quarter, we have achieved the milestone of completing 25 years of
public listing. We take this opportunity to thank our shareholders who
shared this great journey with us. All these years, our deep discounts and
value positioning worked well in various kinds of economic cycles and
delivered consistent results to our shareholders.
During the quarter, VGL's German subsidiary, Shop LC GmbH expanded its
presence by launching its proprietary TV channel on nation-wide OTA
platform ‘Freenet TV’. With this arrangement, Shop LC GmbH also marked
its foray into OTA, that is Over-The-Air platforms and increased its coverage
by approximately 2.5 million households, thus providing further scope of
scalability.
At Shop TJC (UK), the Freeview channel upgradation has started yielding
positive outcome in terms of new TV customer acquisition. In February '22,
new TV customer acquisition rate was negative 17%, which today is positive
24%. We expect that the current trend will continue to benefit TJC with
market-leading growth in the long run. Our vertically integrated supply
chain network spanning 30 countries is the backbone of our business and a
key differentiator. It is helping us with increased product availability, while
many other retailers battle with supply chain constraints.
The low-cost manufacturing with value sourcing enables to serve value
conscious customers in our addressable markets in US, UK, and Germany,
thus achieving industry-leading gross margins. Further, our 4R's framework
- Widening Reach, New Customer Registration, Customer Retention and
Repeat Purchases remains to be our key levers for growth. The reach of our
TV networks by the end of Q1 FY23 was approximately 127 million TV
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homes, which is 24% higher YoY. We reach TV homes through cable,
satellite, telco networks and over-the-air antenna also called as OTA
platforms.
Our products are also available on digital channels, including proprietary
website, smartphone apps, OTT platforms and marketplaces. Our sustained
investments on OTAs and digital channels is yielding desired results in
terms of increase in customer acquisition and sustained retention rates.
Our unique customer base is at 0.5 million, new registrations on TTM basis
are at 3.2 lakh. Similarly, new customer acquisition on TTM basis stands at
2.6 lakh, which is higher by 12% YoY and significantly higher by 27% over
Q1 FY21.
On sustainability aspect, we are pleased to announce the publication of our
first Integrated Annual Report and Annual ESG Report for VGL Group for
FY22. We hold value creation and sustainability as complementary goals.
These reports reflect our continued efforts towards value creation along
with greater transparency, strong governance, and ethical business
practices.
Further, we are glad to announce that 2 of our office buildings in US has
received LEED's Gold certification. This certification reaffirms our focus on
efficient operations and recognizes our efforts towards sustainability.
Another important aspect of sustainability effort is our mid-day meal
program ‘Your Purchase Feeds…’. Recently, we crossed a milestone of 67
million meals with a run rate of 59,000 meals donated every single school
day.
Towards the conclusion, the broader economic environment is bit
uncertain. Our outlook for the year and midterm remains intact. We expect
to deliver mid-single-digit growth in this fiscal year and mid-teens revenue
growth in subsequent periods. We closely monitor our liquidity position
and deploy funds accordingly, while maintaining overall profitability. The
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Board of Directors of your company have declared an interim dividend of
Rs 1.5 per share for the quarter, implying a firm belief in our business model
and a strong performance going forward.
With this, I now hand over the call to Vineet to discuss financial
performance. Over to you, Vineet.
Vineet Ganeriwala:
Thank you, Sunil, and good evening, everyone. A warm welcome to Vaibhav
Global's earning conference call. While Sunil gave you some details on
overall performance and business status, I will now take you through our
financial performance for the quarter ended 30 June 2022 in detail.
Last few months have seen some level of uncertainty around inflation and
resulting subdued consumer behavior. Quarterly revenue of Rs. 628 crore
is on the backdrop of the macroeconomic challenges. It is also pertinent to
note that Q1 of last 2 fiscal years grew exceptionally higher owing to COVID
tailwinds. While the current quarterly growth looks subdued because of
higher base, our 3 years compounded annual growth rate stands at 13%,
with a robust growth of 43% over Q1 of FY'20.
The E-com industry in US and UK, after a tailwind during COVID, have been
witnessing some headwinds with economies fully opening up and lower
demand due to inflation-related worries. The sales mix of E-com market in
US and UK have fallen by 4.1% and 0.3%, respectively, versus December
2021 levels, as suggested by the macro data. Consequently, in local
currency, Shop LC (US) and Shop TJC (UK) had a softer revenue
performance, but we are rapidly adjusting our offerings to changing
consumer demand and the same is reflected in improving revenue numbers
month-on-month.
We are pleased to report that the Freeview channel upgradation in Shop
TJC to slot number 22 from 50 has started yielding positive outcomes.
Today, the rate of new TV customers stands at 24%, which is a delta of 41%
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over February 2022. We perceive that this investment will further enhance
the viewership of TJC, as we have mentioned earlier, and thus offering a
huge future growth potential. Our TV revenue stands at Rs. 386 crore and
digital revenue at Rs. 222 crore. The numbers are down by 9.6% and 9.2%
year-on-year, respectively. However, on comparing against pre-COVID
period of Q1 FY20, the growth is encouraging at 40.7% and 59.8%,
respectively, in both the segments.
Our focused approach on expanding OTA households continued during the
quarter. Sales mix between TV and digital is 64% and 36%, respectively.
Additionally, our investments on expanding omni-channel distribution have
resulted in 58% of new customer acquisition happening on digital platforms
during the quarter. This omni-channel distribution model promotes and
encourages customer to transact on both TV and digital platforms, which
gives them a unique shopping experience and a cross-selling potential for
us.
Omni-channel customers tend to be sticky and have a significantly higher
lifetime value than customers who buy only on TV or only on digital. We
also provide hassle free shopping experience with our budget pay service,
allowing customers to make purchases on EMI basis. Since its launch in
FY16, the service has been gaining good traction, and presently, it is
contributing around 39% of the total retail sales.
Over the last many years, share of non-jewelry has increased multifold,
indicating our ability to take higher wallet share out of the same household.
Jewelry accounts for 72% of the total retail sales, while the rest 28% is
comprised by lifestyle products, which includes apparels, home decor
items, beauty and accessories. Our EBITDA margins dropped from 14.4% to
7% during the quarter Q1 FY23. A large part of this is attributable to our
investment into new Germany unit and our conscious investments on
digital and broadcasting network, all of which are strong future revenue
growth pillars.
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We believe current EBITDA margins, because of these investments, are not
true reflection of our business model, and we are confident of reverting
back to our earlier level of mid-teens range in the medium-term, led by
continued customer growth, improved productivity and cost optimizations.
Profit after tax for the quarter is Rs. 20 crore as against Rs. 66 crore of last
year adjusted for exceptional items. Operating cash flows and free cash
flows were at Rs. 32 crore and Rs. 18 crore, respectively, reflecting impact
of lower profitability. However, the cash generation has improved
sequentially due to efficient capital allocation and focus on costs.
On a TTM basis, ROE and ROCE were at 14% and 22%, respectively. These
return ratios suggest effect of conscious investments on affiliates, digital
marketing and German operations. The Board of Directors of your company
have declared an interim dividend of Rs. 1.50 per share for the quarter.
Towards the end, we would like to reiterate that we have an immense
opportunity ahead, and we continue to invest to create long-term value
while navigating through a volatile short-term market environment.
For fiscal 2023, we reiterate our previously provided guidance of mid-
single-digit revenue growth, while maintaining mid-teens revenue growth
in the long run and our guidance of operating leverage in the current year.
Thank you.
Moderator:
The first question is from the line of Abhilash Sharan, an Individual Investor.
Please go ahead.
Abhilash Sharan:
Sir, can you explain the investments that we are making in the OTA
platform? You had alluded in the past that these OTA investments are much
higher than the normal OTT platform. So, what is the reason for that? And
how are we looking at those investments?
Page 7 of 22
Sunil Agrawal:
OTA is over-the-air antenna platforms. While cable, there is a cord-cutting
mechanism, OTA is increasing year-over-year by 6% to 7%. So that is
expanding in U.S. In U.K., it is already quite large in ratio terms. But in U.S.,
it is expanding. And that is where we are accelerating our investments for
future growth potential, because that is growing year-over-year. And
wherever we are getting opportunity, we are investing in that. Household
revenue from those OTAs are higher than cable, because there are limited
number of channels people see via antenna compared to cable. Cable have
about 1,000 channels, whereas antenna has anywhere between 25 to 100
channels only. And it is broadcasted free of cost to consumers.
Abhilash Sharan:
And sir, what will be the exact difference between the full power OTA and
the low power OTA? You said that full power OTA are kind of much more
expensive than the low power.
Sunil Agrawal:
Yes, that is correct. Good observation. So low power OTA, we are already
in about 16 million homes in US out of about 22 million. Full power, we are
just about 4 million homes out of 22 million. So full power usually has a
much higher signal with a broader area of the antenna tower. And whereas
low power reaches to limited number of homes. And full power is usually
also affiliated with national broadcasters like ABC, CBS, CNN with a large
audience tied into those ABC, CBS and CNN. And when we go to the digital
channel that's called sub-digital Dot-Two to Dot-Nine the audience which
is on the main channel for ABC & CBS, those flow over to dot channels as
well. So full power has more value, it's more expensive also, but higher
revenue per household as well.
Abhilash Sharan:
Okay. Is it correct to then say that the full power OTA average households
income will be higher than the low power OTA households?
Sunil Agrawal:
That is correct. Yes, quite substantially higher.
Page 8 of 22
Abhilash Sharan:
Could you give some broad numbers like what would be the average
household incomes for full power OTA and the low power versus the
normal cable, some just broad numbers?
Sunil Agrawal:
Yes, I don't have it offhand with me. But the multiple between low power
and high power is anywhere from 4x to 8x.
Abhilash Sharan:
Okay. 4x to 8x on the household income front?
Sunil Agrawal:
No. The revenue from full power OTA is about 4x to 8x of the low power
OTA per home basis.
Moderator:
The next question is from the line of Sachin Kasera from Svan Investments.
Please go ahead.
Sachin Kasera:
My question was on the margin side, given the breakup of the impact on
margins are very steady. I'm saying, this margin impact because of 2 or 3
various impacts you have given in the presentation. So if you could just tell
us this gross margin 300 basis point impact, you can tell us a little bit more
in detail. And when do you see this impact of gross margin going away?
Vineet Ganeriwala:
So, we have always guided for 60% plus gross margins, and in this quarter,
while year-on-year, the gross margins are lower from 65% to 62%, but it
remains well above our guardrails of 60% and have also sequentially
improved. So while it's a challenging macroeconomic environment, but we
are happy that we are able to maintain our guardrail of 60% plus gross
margins even in this challenging quarter. Coming to EBITDA margins, I don't
know whether your question was specifically directed towards gross or
EBITDA.
Sachin Kasera:
So I had 2 questions- one was on the gross margin and second was on the
investments in OTA and in Germany that you mentioned. So what do we
guide for Germany to breakeven and drag on Germany to go away? And the
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second was on the increase in the OTA and digital marketing initiatives. Is
it like going to be continuous affair, or is it also a one-time initiative? And
over the next few quarters, the impact of the German margins will go away?
Vineet Ganeriwala:
Sure. So Germany, we have already guided breakeven in H2 of FY24, which
is next year H2. So we reiterate that guidance of breaking even in H2 of next
year. So till that time, the losses will be there in Germany unit, as of now, it
is impacting 2.2% on the EBITDA margin. Sequentially, it is lower from the
March quarter. But yes, it will be breakeven in H2 and we are absolutely in
line with our guidance.
On your point of accelerated investment in digital and broadcasting. So,
we're not shying away from investing in further OTA opportunities if we get
that for future. So, what one needs to understand is that it takes time to
build up revenue from a new household, while the cost may hit from day
one, the customer and their revenue buildup happens after a lag, but then
it gives subsequently a very high revenue as well as leverage opportunity
for future. So, getting such opportunities in OTA households is not very easy
and it comes with a time. As of now, the visibility which we have, in overall
rupee terms, it may not increase by more than, say, it will be very close to
lower double-digit increase in the broadcasting expenditure for the year
versus last year. But if we get more opportunities in OTA, we'll not shy
away, as it is a very strong growth pillar for our future business.
Sachin Kasera:
So instead of all these initiatives, sir, how confident are we to go back to
the mid-teens EBITDA margin over the medium-term that we had before
these various sectors of investments and some impact of inflation impacted
our margins?
Vineet Ganeriwala:
So we reiterated our guidance of reverting back to mid-teens level in the
medium-term. So this year, there are a lot of macro challenges and our
investments into Germany unit as well as broadcasting coming up. But next
year, when it starts unlocking in H2 and all these investments into
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broadcasting giving commensurate revenue in the next year, we guess, we
will recoup a large part of this lost EBITDA margin within next year itself. So
we have reiterated our confidence on reaching to mid-teens level in the
medium-term going forward.
Moderator:
The next question is from the line of Nilesh Shah from Envision Capital.
Please go ahead.
Nilesh Shah:
Vineet, just a clarification in terms of the margin for this year. So we're
guiding for a single-digit revenue growth and the EBITDA margin to be a
function of the operating leverage. So does that mean that if our revenues
grow at, say, 5% this year, we expect our EBITDA absolute number to also
grow at 5%. Is that what we should really understand?
Vineet Ganeriwala:
So, we have not given a number to our EBITDA margin guidance for the
year. But what we've mentioned is, with our mid-single-digit revenue
growth, we will have operating leverage coming in. So profit will grow at
5% or greater than 5%. This is for the current year. And for the next year,
what we have mentioned is reverting back to our mid-teens kind of a
revenue growth in the medium and the long-term. And similarly, for mid-
teens EBITDA margins in the medium and long-term.
Nilesh Shah:
Yes, surely. So if I just do the math, Vineet, it means that for the rest of the
3 quarters of this year, our EBITDA margin will have to be 11.2%, which is
higher than what we have achieved even in FY22. So I just thought, is that
what we should understand? Because that's what the math suggests.
Vineet Ganeriwala:
Yes. So I don't have the exact number of the last 3 quarters of FY22, Nilesh.
But yes, what we have also mentioned is, sequentially, we will see
improvement in EBITDA margins going forward. So the first quarter has a
revenue degrowth over the last year for all the reasons explained about.
Cost optimization initiatives, which we have started since last 3 months
have started kicking in and giving benefits, as I explained in my commentary
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as well. So these 2 things- coming back to positive growth in the coming
quarters and the cost initiatives giving full benefits, the EBITDA margins in
the next 3 quarters will match the revenue growth for the full year.
And Nilesh, not to mention, Q3 is our peak season time, wherein we see a
good amount of operating leverage flowing in. So, it will not be like a flat
11% in all the 3 quarters going forward, but it will see sequential
improvement from here.
Nilesh Shah:
Okay. Just a follow-on question, our realizations on the digital side have
increased quite significantly. I'm not too sure, one of our realizations have
increased quite significantly. What explains that spike in the realizations?
Vineet Ganeriwala:
You are talking about the average selling price, Nilesh. Is that the question?
Nilesh Shah:
Yes. That's right.
Vineet Ganeriwala:
Okay. So average selling price, Nilesh, is a function of what the customers
are pulling at that point of time. So like in the last year, there were a lot of
essentials which were being sold and hence, the prices were low, volumes
were significantly up. So this year, what we're seeing is the impact of all
these economic uncertainties, people are resorting to gold as a like medium
of investment as well. So we are seeing a huge spike in gold chains like
unprecedented, like, what we would have sold earlier. So which is why the
volumes may be low, but the prices are higher.
So what I mean to say is the price and the volume are the function of what
the customers are pulling at a particular point of time, we being vertically
integrated supply chain are rightly poised to take advantage of any rapidly
changing consumer scenario which comes our way. So I would urge not to
look at price and volume quarter-by-quarter rather look at it in the long-
term, because in the short-term, it may vary with respect to changing
consumer needs.
Page 12 of 22
Moderator:
The next question is from the line of Latika Jetha from Concept Investwell.
Please go ahead.
Latika Jetha:
So I have a question. You have mentioned that we are gaining market share.
So I just wanted to check how do we calculate this, whether we are gaining
market share or losing market share? Any particular source or mechanism
to notice?
Vineet Ganeriwala:
Yes, I can take that Sunil. So the way we calculate market share for us is
that we look at similar players. So for example, say, there is QVC and Evine
in US and similarly , there are multiple such operators in UK. So we look at
similar home shopping networks who sell-through TV and online as a
medium of sales just like us. And we take only those companies in
comparison, those numbers are publicly available for everyone to see. So
when we compare ourselves from QVC say, for example, QVC, and Evine in
US, we find that while our revenue growth might be a little muted in the
last few quarters, but that is significantly above the competitors like we
mentioned, and we continue to grow market share quarter-by-quarter,
year-after-year since last many years now. Just to give a broad number,
while we would have grown by low single-digit in Q4, their Q1 numbers are
yet to come. Qurate have degrown by double-digit in the last quarter, i.e.,
Q4.
Latika Jetha:
Okay. So the market share gain, which you have mentioned is not related
to the Q1 quarter, it is for the past 6 months, right?
Vineet Ganeriwala:
So we continue to gain market share quarter-by-quarter and year-by-year.
Their Q1 numbers are yet to come out. They will be coming out later this
week or early next week. But looking at the trends of last many quarters
now, what we mean to say that we have been continuously gaining market
share, consistently.
Page 13 of 22
Moderator:
The next question is from the line of Sameer Dalal from Natverlal & Sons
Stockbrokers. Please go ahead.
Sameer Dalal:
I just want to refer to say, your presentation’s Page 20, where you all are
showing the recent trend improving month-over-month. So, this 9.9%
decline, 8.5% and 5.2%, that is sequentially slowing down growth or this is
over the last year same month? I did not understand that chart. So, if you
could just explain that.
Sunil Agrawal:
Yes, it is over the same month of last year.
Sameer Dalal:
So we're seeing a slowdown. So if I were to look at it actually month-on-
month, can you kind of quantify what has taken the movement of sales over
this period?
Sunil Agrawal:
So this is a sales movement, month-over-month, same year, for example,
April is 9.9% lower than April of last year.
Sameer Dalal:
So April to May to June how has the sales been? It's not month-on-month,
I mean, not over the previous year over the current year?
Sunil Agrawal:
So it is a month of previous year. So April '22 over April '21, May '22 over
May '21 and June '22 over June '21.
Sameer Dalal:
Understood that. What I'm saying is, can you give us some indication on
how the sales have been moving sequentially?
Sunil Agrawal:
I see. Yes. Let me see the data. There's a lot of seasonality month-over-
month or the clearance mechanism that we run. So that may not give you
best picture. So we can give you the data, but I encourage you to look at
year-over-year for the same period rather than month-over-month
sequentially.
Page 14 of 22
Sameer Dalal:
So what we have seen is a big jump in the TV sales average selling price.
And what you rightfully said is last year, there were a lot of your essential
goods because of which the average selling price was lower. But what we
are also seeing over last year, the gross margins have come down. So would
it be fair to assume that the gross margins for the essentials was higher
than that of what we are selling normally?
Sunil Agrawal:
Yes. So last year, essential also gave higher margin and the customer pull
was there, so we could get our overall higher margin on our products.
Customers were at home during last 2 years, and we could gain that
leverage to get margin. This year, the costs are slightly elevated due to
shipping costs and all that. And the customer’s eyeballs are lesser on TV.
So, the leverage that you must gain extra margin is also less. So, there are
2 reasons for that..
Sameer Dalal:
No, my question is, that if we remove the essentials, now that essentials
may not sell to the same quantum what they did in the past, can we assume
that the gross margins would be more around the range of 62% levels for
the entire year going forward? Or do you think you can scale back up
towards the 65%? That's the question I'm trying to address.
Sunil Agrawal:
Yes. So we don't give those specific margin guidance, Sameer. We give the
guidance, but we'll keep it at minimum 60%. Above that, we look at the
opportunities and then take benefit of that. So from quarter-to-quarter, we
don't give or even year-to-year we don't give gross margin specific
guidance. But what I can say is, that we'll be above 60%, and we'll have
leverage of profitability over last year, this financial year we'll have leverage
over last year.
Sameer Dalal:
Okay. And now one last question. If you look at your depreciation, that has
seen quite a big jump. This has to do with some amount of the amortization
also of the TV channels, I mean the upgrade of the TV channels or that has
still not come?
Page 15 of 22
Sunil Agrawal:
Yes. It's already part of that.
Sameer Dalal:
It's already. So this would be the probably stable rate going forward right,
now?
Sunil Agrawal:
That is correct. So we moderated our CapEx for the time being. Only CapEx
that will come is our new headquarter construction that will start in Q4 this
year. So that will come in, but that will last for about 2 years. The
amortization will start to kick in after it becomes operational in FY25.
Moderator:
The next question is from the line of Sachin Kasera from Svan Investments.
Please go ahead.
Sachin Kasera:
Sir, in the presentation, you have mentioned 3 initiatives on the cost cutting
and cost savings, which should yield between $5 million to $7 million yearly
sales. So one, any benefit we have seen in the current quarter? And
secondly, will we see the full benefit in FY23 or part benefit of this in FY23
and partly in FY24?
Vineet Ganeriwala:
So some benefits have started coming in Q1, definitely. And the amount
which we have given out there is for this financial year. So FY'23, the full
benefit is in the range of that $6 million to $7 million, which we have guided
out there. So all the 3 initiatives- the call center, shipping & warehousing
and the contract renewables have started kicking in from Q1 itself, but they
will keep picking speed in the coming quarters and the full year benefit of
about $6 million to $7 million as stated earlier, is achievable.
Sachin Kasera:
So that itself should add another around 150 basis points reported EBITDA
margin, just to the math, isn't it?
Vineet Ganeriwala:
Yes. Like we mentioned, the mid-single-digit revenue growth, along with
this cost initiatives will more than offset the investments which we need to
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continue to do in Germany and in the broadcasting network. And we would
see positive leverage this year as well. So, this mid-single-digit revenue
growth and the cost exercise is what the guidance is based of.
Sachin Kasera:
Sir, just one more question more from a medium to long-term, say, 3 to 5
years perspective. So, you had periods of very strong growth and then you
need to hedge some investments for digital as well as getting into new
geography. So how should we model from a 5-year perspective? Is it that a
mid-teen growth and mid-teen margin sustainable? Or is it that to sustain
mid-teens growth, while we've periodically seen mid-teen margin, but the
average for say, 3 to 5 year period may be a little lower, maybe like low
double-digit, something like that. If you could comment on that. And are
we looking at any more geographies to enter once the Germany stabilizes
after say another 6 to 8 quarters from now?
Sunil Agrawal:
Yes. So, for our 5-year plan, I think as we have demonstrated over our 25
years of listing, over the period we have shown about 18% growth. So going
forward, we are giving a guidance of mid-teens growth with leverage.
Leverage may decline as a percentage, but we are hoping to see the
leverage in future. So if we go into new country, that will have a larger base
of 3 countries becoming profitable, and absorbing some of the initial losses
of say 3 years of that new geography. And then our digital investment that
we are making, OTA investments, OTT, so they'll also start to kick in. So we
feel fairly confident of mid-teens revenue growth with leverage coming in
for foreseeable future.
Sachin Kasera:
If I see your numbers for the last at least 10 to 12 years, which I have right
now access to. From the period 2010 to 2018-19, our EBITDA margin range
used to be between 5% to 6% on the lower side to 10% to 11%. And this
time despite the investment that we are doing, at least in the last 3-4 years,
the range looks more to be like between 10% to 11% on the low side and
14% to 15% on the higher side. Is that structurally the way company has
now evolved? We have every 5 years keep moving to a little higher band,
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so within a 5-year period, we'll see volatility in terms of margins, but that
band will keep moving higher every 5 years because of the way the business
is evolving.
Sunil Agrawal:
Yes. So I can't commit to those 5% for every 5 years. But we expect this
because of our business model. As we leverage our sales up on the same
asset base or get more wallet share of the customer, we will get the
leverage. Now if some volatility comes like we are seeing now, we saw in
2008 to 2009, so that is kind of unforeseen, but we believe in the long-term
growth of the business, we designed the model in such a way that it will
continue to see leverage. At what point of time it will plateau out at the top
growth level, I cannot foresee at this time. But for the foreseeable future,
we expect the leverage to continue to kick in.
Sachin Kasera:
And sir, are you looking at any major geographies once German stabilizes
to enter in the next 3 to 5 years?
Sunil Agrawal:
Yes. So we have researched and our plan is to go into Japan, but not till the
time, Germany is fully stable and very profitable. We won't go in while this
business is still developing.
Moderator:
The next question is from the line of Abhilash Sharan, an Individual
Investor. Please go ahead.
Abhilash Sharan:
Yes. Sir, can you provide the cost for acquiring household for low OTA, high
power OTA or a normal cable?
Sunil Agrawal:
Yes. So we don't publish those numbers, because we have a confidentiality
agreement with those providers. As I mentioned earlier, the low power
versus full power has 5x to 8x multiple on the revenue side. And from cost
side, it is somewhere between 5x to 10x of those low power as well. We
can't give specific numbers, because of the NDAs that we have signed.
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Abhilash Sharan:
Okay. So sir, can you explain the tenures of these agreements that you
signed, like how long are these agreements? And what are the cost
escalations broadly for the OTA and OTT agreements?
Sunil Agrawal:
So OTT is different. So that's a good question. For OTA, since the
households are increasing in that space, the last 5-year growth rate has
been almost 7%. So the cost escalation some of the agreements that we
have done for 3 years have about 4% cost escalation built in. And some
agreements are just for 1-year, and there is no cost escalation, because
they are not longer-term. And some agreements are 1-year, but aggregates
clause with 3 months' notice period. So there is no such cost escalation with
them. But there is a leverage for us, if their households continue to increase
by 6%, 7% and the cost increase is 4%, then there is continued leverage for
us in OTA.
Abhilash Sharan:
Okay. And sir, is there any clause which represents that if we achieve
certain revenues from these existing households, then we have to also
share some kind of a revenue share or a royalty with these OTA providers?
Or is it only specific to just a fixed cost kind of for household costs?
Sunil Agrawal:
Yes. It's a fixed cost in OTA. And I forgot to add to your earlier question of
OTT. So OTT, there are multiple kinds of OTT, one is the smart televisions
that is linear like AT&T which is now DirectTV Stream, Roku TV or YouTube
TV. So those are linear TV where you broadcast through the online. And the
other one is the apps. For example, we have apps on Fire TV, Apple TV, Roku
and Samsung or Hisense TV. So those apps you advertise, and people
download the app. So, there's no fixed cost with those apps. There is no
fixed cost on the smart TV, but there is a fixed cost on linear streaming on
OTT. And there is no escalation built in with those folks yet.
Abhilash Sharan:
Okay, sir. And sir, can you share the percentage of multichannel customers
in our FY22 and Q1 FY23?
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Sunil Agrawal:
Yes. So it's about 10% to 12% of our total customer base is omnichannel.
Abhilash Sharan:
Right. So sir, like they have kind of bought from us during this quarter as
well, right? Like these 10% to 12% customers have contributed to the
revenue, right?
Sunil Agrawal:
Yes. So we calculate all on trailing 12 months basis. The customers who
bought in trailing 12 months also bought in previous trailing 12 months.
Abhilash Sharan:
Sir, you had mentioned that the CLTV of a multichannel customer is higher
than the normal customer. So then what are the reasons for the CLTV to be
higher for a multichannel, is it related to the disposable incomes being
higher?
Sunil Agrawal:
No. The reason is that the TV is push medium. The customer sits back and
we suggest the product that they should own or they will look good and
they will enjoy it for a long time to come. And the digital is pull medium. So
what we discovered, if the customer buys from both medium, pull and
push, their engagement is substantially higher than just the push or the
pull. Just to give you an example, a TV customer who just buys from TV in
US, their lifetime value is about $340. The customer who only buys from
one sliver of the property called FPC, that is just a catalogue, CLTV is only
$57.
But the customer who buys from FPC as well as TV, their lifetime value is
about $2,700. This is trailing 12-month for US alone. Now customer who
buys on web TV, within web, as well as FPC (so, there's a live TV on web and
the catalogue), their lifetime value is about $1,000. So, a customer who
buys from only web TV is $70 and only FPC the value is $57. And if you can
get that customer to buy from both it jumps to $1,000, because it is push
and pull. So, we do not fully know why this behavior jump so much, but we
think the customer becomes more sticky and more engaged with us as they
engage with us in push and pull.
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Abhilash Sharan:
And sir, what measures do we take to ensure that we convert this either a
TV standalone or a web standalone customer to a multichannel customer?
What are the measures that Vaibhav Global puts in place so that the
customer becomes a multichannel?
Sunil Agrawal:
So, we incentivize them. We promote on television. We promote our web
properties and on web, we promote television. Also, we just recently
started to promote incentivizing customers from buying on both. There is a
plan in place that will kick in, in a few weeks, 2 or 3 weeks, and that plan
would encourage customers to buy on both properties on the same day,
and then we'll incentivize them with certain discounts. But that has not fully
kicked in. We are doing a lot of different initiatives to migrate them in
different ways.
Abhilash Sharan:
And sir, one last question. Sir, how much time does it take for a new
customer to become the first customer who buys on the platform to reach
the repeat purchases of whatever 25-27 levels that we have, what is the
time period through which he travels to become a repeat customer at that
level?
Sunil Agrawal:
Some customer buys the first day in multiple pieces, some customer takes
6 months. So there is no formula for that.
Moderator:
As there are no further questions, I now hand the conference over to the
management for closing comments.
Sunil Agrawal:
So I want to thank all the participants for your time and great questions.
And I also thank you for your support to VGL past years. If you have any
further questions, please free to reach Prashant Saraswat at VGL or Mit
Shah at CDR India. And we'll be happy to answer your questions. Thank you
once again.
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Moderator:
Thank you. On behalf of Vaibhav Global Limited, that concludes this
conference call. Thank you for joining us, and you may now disconnect your
lines.
This is a transcription and may contain transcription errors. The transcript has been edited for clarity. The Company takes no responsibility of such errors, although an effort has been made to ensure high level of accuracy
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