India Economy, PNB, Redington India, JSW Steel, HUL, Havells, BHEL, ICICI, Raymond, IDFC, GAIL, LT, Mcleod Russel

India Economy, PNB, Redington India, JSW Steel, HUL, Havells, BHEL, ICICI

Redington India

Redington India

Redington India

Redington India

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.

Redington India

Redington India

Redington India

Redington India

Redington India

Redington India

Redington India

Redington India

Redington India

Redington

Redington India

Investors with a two-year horizon may buy the shares of Redington India, an IT hardware and software distributor.

The company has potential for scaling up its sales in high growth markets of India, West Asia and Europe, even in a slowing global economy. Given the sharp rise in markets, investors may consider buying the stocks in a phased manner to capitalise on declines linked to broader markets. At Rs 230, the stock trades at 10 times its likely 2009-10 per share earnings.

In the recent March quarter, Redington’s revenues grew by 7.7 per cent over the same period in 2008, while net profits grew by 18.3 per cent over the same period.

Improving trends in IT hardware shipments, diversification from sales of electronic goods, and expanding after-sales services offer scope for revenue growth, while helping margin expansion. After two successive quarters of decline in hardware shipments around the world, sales growth is just starting to revive in the March quarter, especially in India, West Asian and African regions.

According to a recent IDC report, personal computer shipments in India have increased by 7 per cent sequentially in the recent March quarter. Further, hardware and software sales are likely to be to the tune of Rs 63,703 crore (7.1 per cent growth over 2008) and Rs 11,300 crore (17.4 per cent growth) in 2009.

This is expected to be led by Government spending on IT enablement, especially in schools and colleges, e-governance projects, and banking sectors. With the new Government in place, a continuity of policies is expected in these areas.

IDC pegs the Middle-East and African IT markets to be worth $80 billion by 2012, up from $51 billion in 2008. Other research agencies such as TPI also point out the increasing average contract values in the West Asian region.

Redington with a near 50-50 revenue split between India and the EMEA region, given its partnership with all global majors in the IT hardware and packaged software space, appears well placed to capture a substantial share of the pie.

The company has also diversified into selling non-IT products such as cameras, consumer-durables, and mobile-phones. Redington has tied up with Nokia to distribute the latter’s mobile phones in Africa. Given the relatively under-penetrated African market and the interest shown by several operators such as Bharti Airtel, Vodafone and several Chinese operators in having a larger footprint there, this partnership could be quite fruitful to the company.

Redington also has also started a chain of after-sales service and repair centres to capture revenues from services as well.

Competition from well-entrenched distributors such as Ingram Micro and the resulting pricing pressure is a key risk to this recommendation. Given the capital intensive nature of business, interest costs have increased by 35.8 per cent for the company in 2008-09, but due to margin expansion, the interest cover has been stable.

India Cements, BGR Energy, Jagran Prakashan, ENIL, Thermax, Redington India

India Cements, BGR Energy, Jagran Prakashan, ENIL, Thermax, Redington India

IIP, Redington India

IIP, Redington India

Redington India

Investors willing to bet on the strong domestic and Middle-East’s IT (hardware and software) adoption story can consider buying the shares of Redington India, a hardware, software products and digital products distributor. At Rs 192, the stock trades at 10 times its likely 2008-09 earnings.

In the absence of listed peers and its strong positioning in the domestic IT market, the stock is attractive at these levels. The stock has come down from 27 times its historic earnings in January this year to the current levels.

Redington is the distributor for a range of IT products such as personal computers, laptops, servers, networking products and packaged software. It has vendor relationships with all the major names in this segment such as HP, HCL Infosystems, Acer, IBM, Intel and Cisco. This segment contributes over 85 per cent of its revenues.

The company has also started distributing products such as mobile handsets of Nokia, Microsoft X-Box, Apple iPods, Mac and consumer electronic products.

Redington’s revenues have grown at a compounded annual rate of 39 percent over the three years to Rs 10,883 crore in 2007-08, while net profits grew at a CAGR of 47.5 per cent to Rs 136 crore. The business is reliant on volumes and offers wafer-thin margins.

Though they remain narrow, Redington’s net profit margins have improved (from 0.69 per cent to 1.25 percent in the last five years) due to the reselling of better margin products such as networking products, lifestyle gadgets and contributions from improved after-sales and post-warranty service.
IT Products drive growth

Redington generates 53 per cent of its revenues domestically, and the rest from South East Asia, West Asia and Africa. The company’s customer base is now at 14,458 corporate clients, spread across as many as 44 brands and caters to a wide range of sectors.

Players such as HP and HCL Infosystems, and Wipro that dominate the domestic PC market, have continued to have strong relationship with Redington, thus assuring it of sustained volume growth.

According to a recent IDC report, the domestic IT hardware market is set to grow at an annual rate of 14.6 per cent to Rs 96,558 crore by 2012, while the packaged software segment is set to grow at a rate of 20.9 per cent to Rs 21,129 crore, representing a huge opportunity for players such as Redington. Increased Governmental spending on IT-enablement across the country is another important growth driver for the company.

The prospects are especially good for the better margin laptops, which have outpaced desktops in terms of sales growth in India and West Asia. The growth prospects for West Asia and the African region are equally impressive for IT hardware and software.

Redington, with its relationship with all the big names in the IT business, would be well placed to tap this opportunity.

In addition to hardware, the company has begun to resell packaged software as well and has tied up with players such as Adobe to distribute their products in India. This could usher in better margins, as does the expansion into networking and data storage products.

The company has also diversified into distribution of non-IT products such as mobile handsets of Nokia in Africa and other digital and consumer electronic products across India and West Asia. This segment contributes less than 10 per cent of the current revenues and may serve as a good diversification strategy over the long run.
Services business and other ventures

Redington has also added to its offerings, high-end repair, warranty and post-warranty services. These are aimed at capturing annuity-based revenues, in addition to hardware sales. This apart, Redington has leveraged on its existing distribution network to venture into third-party logistics and has acquired spaces in Chennai, Delhi and Kolkata and Dubai.

This division already has a few clients and hopes to target manufacturing companies for transporting their goods to retailers/other distributors. The company has already automated its distribution centres and additional clients may help the company optimise costs by better utilisation of space.

Both these ventures are at a nascent stage and do have the potential to scale up in the future.

Earlier this year, the company also started its NBFC operations to finance its channel partners. The division has already disbursed around Rs 477 crore and has reported profits for 2007-08. Given the long association with channel partners, Redington would be well aware of the credit quality of its borrowers, reducing the risk of default.
Risks

Competition from other bulk distributors such as Ingram Micro and Synnex Corporation is a threat. The company’s interest costs are going up. But the interest coverage has improved in 2007-08 compared to the previous fiscal (2.5 times compared to 2 times).

But in the light of the high interest rate scenario, maintaining effective working capital management could be a challenge.

KPIT Cummins, Redington; Results Preview: Capital Goods, Cement, Logistics, NBFC

KPIT Cummins, Redington; Results Preview: Capital Goods, Cement, Logistics, NBFC

Redington India, HT Media, Voltas

Redington India, HT Media, Voltas

FirstSource, Redington India

FirstSource, Redington India

HT Media, Redington, PVR, Pre Budget

HT Media, Redington, PVR, Pre Budget

Weekly Update, Redington, HCL Tech

Weekly Update, Redington, HCL Tech

Redington (India): Invest at cut-off

Investors can consider subscribing to the initial public offering (IPO) of Redington (India) being made in the price band of Rs 95 to Rs 113 per share.

This IPO, however, will be appropriate only for investors with a high risk appetite, aiming to broad-base their IT portfolio and with a medium-term investment horizon.

In the announced price band, the price-earnings multiple works out to 9-11 times the consolidated annualised first-half per share earnings on an expanded equity base. While we recommend investment at cut-off, our comfort and potential for capital appreciation will be greater if the final offer price is fixed at the lower end of the price band.

The company, which is an established distributor of IT products and peripherals in India, West Asia and Africa, recently expanded its portfolio to include mobile handsets and accessories in Nigeria and parts of India.

It also offers supply chain management solutions and support services. In India, its distribution reach is extensive, with 35 sales offices and 53 warehouses servicing relationships with over 30 vendors; many of these tie-ups are for more than 10 years.

Over the past three and half years, the company has grown its channel network from 6,359 to 10,474 partners across different regions.

With long-standing vendor relationships and superior logistic capabilities, Redington can scale-up revenues sharply in a buoyant demand environment for IT products. It recently also forayed into distribution of digital presses, consumer durables and gaming consoles.

Despite this, the company will remain a predominantly ``high-volume, low-margin'' player in the IT distribution space. Using its experience in the West Asia and African markets, it may be able to make a dent into other low-penetrated IT markets such as Central Europe and CIS in the medium term. As one of the few key national distributors (Ingram Micro being the one ahead of Redington in revenue terms), it has created sufficient entry barriers in this line of business.

On the flip side, however, the company remains exposed to the risks of low gross margins, which may get magnified with limited visibility of demand. If competition fuelled by consolidation (of the Ingram Micro-Tech Pacific genre) intensifies, the scope for improvement in margins will be limited.

Since Redington also depends to a large extent on a limited set of vendors for generating its revenues, any deterioration in relationship with any vendor can affect business volumes and, in turn, the financial performance.

The company also generated negative operating cash flows of Rs 134 crore and Rs 154 crore in 2004-05 and 2005-06 on account of higher receivables and inventory. Finally, Redington remains exposed to the risk of technological obsolescence on inventory carried on hand at any point in time.

Demand push

Going by demand projections from IDC India — the IT research outfit — the demand for IT products (comprising systems such as PCs /notebooks, peripherals, components, networking products and packaged software) is likely to be robust.

The IDC projections are that the domestic IT products market is likely to grow at a compounded growth rate of 17.5 per cent between 2005 and 2010, with systems, peripherals and networking products expected to grow at 15-20 per cent.

With a compounded annual growth in revenues of 49 per cent (at Rs 6,790 crore for 2005-06) and post-tax earnings by 63 per cent (at Rs 71.9 crore), Redington has displayed its ability to manage a five-fold growth in revenues, with a sharp step-up in post-tax earnings in the past two years.

Domestic revenues accounted for 54 per cent of the total in 2005-06 and international incomes the rest.

However, by virtue of being a high-volume business with intense competition, its operating and net profit margin have been locked between 1.8-2 per cent and 1.1-1.3 per cent respectively over the past four years.

The competition is likely to intensify further in the coming years as Ingram Micro, which was weighed down by its integration with Tech Pacific so far, is likely to get more aggressive. And the impact of this competition will be watched closely for its impact on operating margins.

Offer details: Redington is making this offer to set up four automatic redistribution centres in India, and 68 service and repair centres, as also to make investments in its wholly-owned subsidiaries.

This IPO is expected to raise Rs 149.5 crore. Enam Financial is the book running lead manager. The offer opens on January 22 and closes on January 25.

Redington India

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.