Redington India

The domestic hardware and software industry is set to witness expansion in segments that are led by the Government's increased spending on information and communications technology (ICT) over the next two to three years.



Viewed in this light, along with strong presence in the growing Middle-Eastern and Africa (MEA) region, Redington India, an IT software and hardware distributor, may offer an investment opportunity as it emerges a strong play on technology spending in these geographies.

Investors with a two-year horizon may consider buying the stock. At Rs 79, the share trades at 13 times its likely per share earnings in FY12. The company does not have any strict comparables in the listed space and is available at reasonable valuations when seen against historic valuations. Despite the slowdown in IT spending in 2008 and part of 2009, Redington has managed to tap the right markets to clock growth.

In FY10, revenues for the company grew 8.6 per cent to Rs 13,757.7 crore, while net profits expanded by 15.5 per cent to Rs 184.3 crore. In the first half of this fiscal, Redington saw revenues rise by 16.5 per cent to Rs 7,414.7 crore, while net profits increased by 24.2 per cent to Rs 97.1 crore, suggesting that the revival is well underway as far as IT spends of clients of growth markets are concerned.

Redington is the distributor for a range of IT products such as personal computers, laptops, servers, networking products and packaged software, which accounts for over 80 per cent of revenues. The company also distributes digital cameras, smart-phones, printers and gaming consoles.

According to a recent report from Gartner, IT hardware spending in India is set to grow at 20.4 per cent annually to $16.2 billion by 2014. Recent data from IDC indicate that domestic computer shipments are growing at a fast pace with the high-margin notebooks outpacing the growth in desktops over the past year.

Segments aided by the state increasing its drive on egovernance besides other divisions such as banking, education and retail can also be expected to drive growth. Redington, with tie-ups with most of the leading hardware brands around the world, is well placed to benefit from the expanding market.

The MEA market too is a fast growing one, as evidenced by the entry of several international mobile operators into Africa and Indian IT firms' heightened focus on the Middle-East. There have also been strategic moves on the inorganic front in high-growth geographies, with Redington picking up a 49.4 per cent stake in Arena, a Turkey-based distributor of IT products. Pricing pressure from large peers such as Ingram Micro is a key risk to this recommendation