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
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