Rationale

While assigning the credit rating, ICRA has taken a consolidated view of Vaibhav Global Limited (VGL), its seven subsidiaries and five step-down subsidiaries, given the common management and significant operational and financial linkages among them. The assigned rating factors in the extensive experience of over two decades of VGL's promoters in the fashion jewellery and lifestyle products e-retail business, its end-to-end vertically integrated business model with an established supplier network. High share of private label sales as well as attractive value positioning of its products helped VGL generate consistent gross profit margins of over 60% over the last five fiscals. The rating also favourably factors in the extensive coverage of the companyoperated television channels with a reach of 104 million households in FY2021 across the US and the UK. The rating also derives strength from the strong financial risk profile of the company, characterised by comfortable capital structure and robust debt coverage indicators along with its adequate liquidity position with cash and liquid investments of Rs. 468.4 crore as on March 31, 2021. The rating is, however, constrained by VGL's exposure to high geographical concentration risk with sales primarily emanating from the US and the UK regions as well as intense competition in these geographies, where the company directly competes with large and established players in TV - home shopping segment, as well as from other e-commerce players. Besides, VGL's operations remain exposed to local regulations as well as demand prospects in these countries. The rating is also constrained by the inventory carrying risk because of high inventory holding period (given VGL's vast product range), which resulted in high working capital intensity of operations. ICRA, however, notes that the company is generally able to liquidate its aged inventory through innovative mechanisms like rising auctions. Around 36% of the company's sales (in FY2021) came through budget-pay schemes, which expose VGL's operating profit margins (OPM) to the risk of bad/doubtful debts. ICRA notes that the OPM of the company also remains susceptible to foreign exchange fluctuations on account of its foreign operations, though it hedges the major portion of the same through forward contracts. ICRA notes that the company has received a notice from the Income Tax Department under Section 148 of the Income Tax Act, 1961. The Hon'ble Rajasthan High Court has, however, stayed the above order. As per the management, the demand is not tenable in law. ICRA would continue to monitor developments in this regard. The Stable outlook reflects ICRA's opinion that VGL would continue to witness healthy growth momentum over the near-tomedium term, supported by attr