Stock Fundamentals

Redington India: The clicks are getting louder

K Venkatasubramanian | Updated on January 24, 2018

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Strong tie-ups with corporates and retailers help this distributor of IT products

Even as the markets are seeing a heavy correction due to uncertainty in economic take-off, there are segments that are somewhat insular to a weak demand environment. Electronics and IT products is one such category.

Redington India distributes IT products, such as desktops, laptops, servers and routers, as well as digital devices, such as smart phones and tablets. It has strong presence domestically as well as in growth markets, such as West Asia, Africa, Turkey and Sri Lanka.

Over the years the company has had strong partnerships with the best names in the technology business. This has enabled it to cater to a wide domestic clientele ranging from corporates, retail outlets and now e-commerce companies as well.

At ₹104, the Redington stock trades at 10 times its likely per share earnings for 2015-16, lower than its historical average of around 12 times. This presents an attractive entry point for investors with a two-year perspective.

In 2014-15, Redington’s revenue grew nearly 13 per cent over 2013-14 to ₹31,555 crore, while its net profit rose about 15 per cent to ₹386.5 crore.

The stock price corrected about 20 per cent from its highs a couple of months ago as Apple appointed a sole distributor for its products in North India. Though this may impact Redington’s iPhone sales in the short term, the company can expand its footprint in the rest of the country to make up for this. Besides, its product basket is wide enough with several other products of other vendors.

Increasing penetration

Redington derives over 58 per cent of its revenue from overseas geographies and the rest from India.

The domestic market is slowly witnessing increase in IT spends. Software majors, such as Wipro and TCS, which witnessed tepid growth in other geographies, have seen robust traction over the past couple of quarters in India-specific deals.

A report by research firm Gartner says that IT spending in India will be $73.4 billion in 2015, up 9.4 per cent over 2014. This is likely to grow to $79 billion by 2016. It has also indicated that the devices market would grow even faster over the next couple of years. According to research firm IDC, segments such as banks, insurance companies, healthcare and retail are expected to lead the growth in IT services. Along with SMEs, the government is expected to be a big spender as it strives for efficiency in areas such as e-governance, financial services and power reforms. This, in turn, should benefit distributors of IT products such as Redington.

In West Asia and Africa, despite the political turmoil, there has not been any significant disruption in Redington’s business. This is thanks to the company’s major operations being in the UAE, Saudi Arabia, Turkey and Qatar, as well as in stable African countries.

HP, the company’s top partner for server shipments and personal computers, has a reasonably strong presence domestically as well as in West Asia.

Good partnerships

As competition intensifies for HP from Dell in the PC segment, Redington has also enhanced its partnership with Dell in recent times. Recently, Dell emerged as the top player in the PC market in India by market share. Redington has also tied up with other global players such as IBM, Oracle, Cisco and Hitachi.

With cloud computing and big data management being talked about as the next important technology wave, Redington has tied up with EMC, the leading player in this space, to distribute the latter’s storage products.The company has also tied up with Motorola in West Asia for smartphone distribution. Motorola experienced huge success with its releases in India (Moto G and Moto E).

Apart from corporates, Redington has strong relationships with large retailers in India, West Asia and Africa.

Pricing pressure due to competition from large players, such as Ingram Micro, Tech Data and Synnex could affect Redington’s margins.

Published on June 13, 2015

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