Redington India is promoted by Redington (Mauritius), an investment holding company, which in turn, is a subsidiary of Kewalram Chanrai Holdings (a company incorporated in Jersey).
Redington distributes IT products in India, Middle East and Africa. Recently, the company started distributing mobile handsets and accessories in Nigeria and in limited territories of India. Besides distribution, it also provides support services for IT hardware and mobile phones. Domestic business contributed 54.4% and international business 45.6% to its revenue in FY 2006.
Redington started with distribution of HP peripherals and continued adding new products/brands to its portfolio, growing from five employees, three branches and 25 dealers in 1994 to over 30 global brands and a few local brands, more than 750 permanent employees (only for distribution business), 35 branches and 10,474 channel partners. In 2003, GTL (formerly Global Telesystems) announced its intention to acquire the Redington group. However post-due-diligence, the takeover was abandoned.
Strengths
- IDC 2006 estimates for demand for IT products outlines that PC shipments (units) in 2005-10 are expected to show a CAGR of 23%. Revenue from the datacom and peripherals markets is expected to grow at 20% and 19%, respectively, in 2005-2010. Packaged software revenue is expected to grow at a 21% CAGR in the same period. India’s domestic IT market is projected to be the fastest growing market in the Asia-Pacific region over the period 2005 – 2010 with a CAGR of 17.5% to Rs 74,657 crore.
- Redington has relationship with over 30 vendors, and with many for more than 10 years. Over the years, the company has serviced vendors including HP, Microsoft, Intel, IBM, Samsung, Canon, Cisco, and Acer. Its ability to provide a host of services such as logistics, after-sales support, and demand generation has helped in building such a diverse vendor base.
Weaknesses
- Redington had negative cash flows of Rs 124.38 crore from operating activities in FY 2005 and Rs 137.70 crore in FY 2006 mainly due to higher debtors and inventory.
- As a result of intense price competition in the IT products industry, Redington has a very low operating profit margin of 1.9% and a lower net operating profit margin of around 1%. The company expects them to continue to be low in the future. Increased competition arising from industry consolidation and low demand for certain IT products may hinder its ability to maintain or improve margin. Low gross margin magnifies the impact of variations in revenue, operating costs and bad debts on operating results.
Valuation
Between FY 2002 to FY 2006, consolidated sales registered a CAGR of 49.1% and net profit a CAGR of 63.4%. The consolidated FY 2006 EPS on the post-equity works out to Rs 9.2. At the price band of Rs 95 - 113, PE is 10.3 – 12.2. The first-half annualised consolidated EPS stands at Rs 10.2, and PE 9.3 – 11.1. The nearest comparable company, HCL Infosystems, is trading at consolidated TTM PE of 9.4.