Redington Ltd. share price target

Redington's revenue growth of 11% YoY was below our and cons estimates (Ple: 15.4%, Cons: 14.3%) due to decline in overseas revenue, -0.4% YoY, while India business grew at strong rate of 30% YoY. Muted performance in overseas was led by decline of 23% YoY in SSA (7% of overseas revenue, due to ongoing shift of vendor business from Singapore to India initiated in 3Q21)...

We interacted with Redington management, Mr. Raj Shankar - Vice Chairman and Managing Director & Mr. S. V. Krishnan - Whole Time Director & CFO. Redington is capitalizing on demand led by accelerated digital adoption amidst work from home during pandemic. Though chip shortage is expected to limit industry growth, Redington being largest distributor for top global brands will benefit from larger share of supplies from these brands as reflected in top 5 brands revenue growth of 37% YoY and decline of 3% YoY in other brands as on Q1FY22. With strong growth potential in hybrid and...

EBIT margins were at all-time high of 2.5% (+80 bps YoY, +20 bps QoQ) Redington delivered strong result in Q4FY21 with led by strong growth in India business. In India, there is strong demand for security, collaboration, mobility and cloud. Though there may be near term softness in India due to COVID, management expects strong pent up demand led recovery in 2HFY22. Growth in overseas business picked up led by META region. There is strong demand led by Government ICT spending in MEA and in areas such as IoT,...

We expect the future overseas profitability to improve with situation improving in turkey post general election also fading of GST related issue will drive the profitability in the domestic market. The Company would benefit by the recovering of the Indian enterprise and government IT spends ,further growing demand for apple products would aid the revenue growth in the coming period. The management expects healthy growth in warehousing and logistics segment in the coming period which urges well for the profitability. The roof top solar equipment business is expected to scale up on the back of removal of antidumping duty and contracts signed...

Redingtons Q2FY18 revenue and margin performance were in line with our estimates. Overseas operations grew ~10% YoY, whereas India operations recorded 6% YoY growth despite the impact of GST (ex-GST growth would have been 11-11.5% YoY). EBITDA at 1.9% was largely steady QoQ.

Emerging businesses: To drive incremental growth, margin, and RoCE. Foray into rooftop solar, and medical and health equipment

Redington'sQ3FY17revenue/PAT were better than our estimates led by ~28% YoY growth in India (~39% share) and ~18% YoY growth in overseas(~61%). The PC business grew higher than the industry in both the geographies. Non-IT maintained growth momentum. Working capital reduced significantly to 43 days..

Good Q2FY17 Earnings; Investing in Emerging Businesses to Gain New Opportunities: Redington India showed a good financial performance in Q2FY17. In Q2FY17,the company posted a revenue growth of 16.1% on a YoY basis at Rs.97256 Mn compared to Q2FY16 of Rs.83803Mn. The turnover grew by 12.0% in India and 19.0% from overseas in Q2FY17. The EBITDA margin declined slightly by 22 bpsin Q2FY17 on YoY basis. The management explained that this was majorly from the forex loss; and had such an off-event taken out, the growth in the earningsin Q2FY17 would had been at 45%.

Redington India is the brand behind the top global brands like Hewlett Packard, Toshiba, IBM, Cisco, Lenovo, Acer, Apple, Blackberry, Xiaomi, HTC and Motorola. The technology distributor with strong partnerships is expanding its horizons into the Middle East, Africa and Turkey (MEAT), Srilanka, Bangladesh and CIS countries. The new acquisitions and partnerships would gain operational synergies and provide inorganic growth in the new regions i.e. Acquired 80% of Turkey based leading Oracle distributor linkplus. The end-to-end supply chain firm has increased it’s smart phone distribution to new markets like UAE and Nigeria. The IT and Telecom industries are now penetrating into small towns and villages, the firm has vertical businesses with pan india presence and would likely to become the largest contributor serving not only new product launches but also for the sustenance of growth of brands in the Indian market and extending its wings to other geographies.

Valuation: At CMP of Rs.106, Redington is currently trading at P/E of 7.5x on FY18E EPS of 14.3.We value the company at P/E of 9.5x of FY18E EPS Rs.14.3 for the target of Rs.136.We initiate coverage on Redington with a “BUY” rating for a target price of Rs.136 representing an upside potential of 28% in 12-15 months period.