REDINGTON (INDIA) : CONNECTING THE DIGITAL DOTS
The company’s rich product portfolio consists of diversified brands and diversified product categories under the same brand. Its footprint in multiple markets ensures diversification as well as continuous improvement. As such, it is on a clear path towards big-time growth
Redington (India) has been instrumental in incubating and shaping India’s technology distribution business through its various stages of evolution over the years. The company has transited from a volume distributor of IT products to a leading value-added distributor in the country. Currently, apart from distributing computing devices meant for consumers, it also provides customised solutions from the world’s leading technology vendors through its VAR and SI partners to help corporates address their business challenges and deliver outcomes that lead to enhancement of productivity and better experience for their individual customers.
Redington (India) collaborates with leading global technology innovators to help bring these technology solutions for businesses across India. The company has on board a team of certified experts who work with system integrators and value-added resellers countrywide. Also, Redington (India) is a leading supply chain solutions’ provider for global brands of IT hardware and peripherals. The distribution ecosystem for IT products has played a crucial role in taking the technology and its products within easy accessibility of all classes of the Indian consumer. Commencing with an operation of three branches and 25 dealers in 1994, Redington (India) today reaches out to its channel partners through 81 sales locations and 147 warehouses.
It distributes the best and the most famous brands in the country coupled with a suite of value-added services to meet the different needs of brands. On the other hand, telecom distribution is a specialised division of Redington (India) for omnichannel distribution of smart phones and wearable devices across all urban and major markets in India. The incredible journey of the company has seen it emerge from one brand, one product category and one market into a USD 7.7 billion distribution and supply chain solutions provider to over 235+ international brands in IT and mobility spaces, serving 37 emerging markets.
Sector Review
As regards the global information communication and technology (ICT) scenario, the global ICT spend expanded by 5 per cent to reach USD 4.91 trillion in 2019. Meanwhile, the traditional ICT spend which is USD 4.15 trillion grew by 4 per cent, a whopping 17 per cent growth in spend in new technologies (USD 0.77 trillion) that pushed overall growth. The ICT spend for 2020 was predicted to be flat due to the impact of the pandemic. Four sectors, namely, cloud, mobile, social and big data or analytics are predicted to contribute the maximum in spending on technology for the next five years.
New technologies such as Internet of Things, artificial intelligence, robotics, augmented and virtual reality, blockchain and next-generation cyber security will also participate in driving significant growth. In the Indian spending scenario, International Data Corporation forecasts that spending on ICT in India will grow over 10 per cent in 2021 to USD 91 billion and touch USD 111 billion by 2024, driven by new technologies, cloud and mobility. Various initiatives by the Indian government such as the recent production-led incentives (PLI), infrastructure modernisation to remove bottlenecks in the supply chain, emphasis on self-reliance, Make in India and others to make enterprises competitive will lead to further technology-led investment in the march towards digital transformation.
The Indian economy is predicted to attain a trillion dollar of economic value of digital economy by 2025. India’s digital economy has the potential to contribute 18–23 per cent of the overall economic activity by 2025, with more than half the potential coming from scaling up new and emerging digital ecosystems
Going forward, the banking and telecommunications sectors are predicted to be the biggest contributors, accounting for 14 per cent of the overall ICT spend. Overall growth in this sector is expected to be around 7-8 per cent, mainly due to increased ICT investments in redesigned customer experience (CX), business continuity and cyber security. Spends in the telecom industry are pegged to grow around 9 per cent as India stands firmly to be a hub for innovation and operators. Moreover, the shift to a work from home culture is now triggered investments in new-age technologies and this will act as a booster to the ICT industry.
Financial Overview
The financial performance by the company shows that on a consolidated quarterly basis the net sales and other operating income increased to Rs 15,503.94 crore in Q4FY21 as compared to Rs 12,666.66 crore in Q4FY20, clocking gains of 22.4 per cent. The operating profit stood at Rs 451.53 crore in Q4FY21 as against an operating profit Rs 254.40 crore in Q4FY20, registering attractive increase of 77.49 per cent. Q4FY21 recorded a net profit of Rs 303.42 crore as compared to net profit of Rs 126.70 crore in the same quarter in the previous year, gaining significantly. On an annual basis, its net sales and operating income rose by 10.65 per cent from Rs 51,465.17 crore in FY20 to Rs 56,945.86 crore in FY21.
The operating profit rose by 34.32 per cent in FY21 as compared to FY20. The net profit jumped 47.33 per cent in FY21 at Rs 786.61 crore as compared to Rs 533.92 crore in FY20. Going through the breakup of performance segment-wise in the fourth quarter of FY21, on a global basis the revenue grew by 23 per cent, EBITDA grew by 77 per cent and PAT grew by 154 per cent. The company reported a strong positive free cash flow generation of Rs 5,989 million for Q4FY21 and Rs 33,600 million for FY21. Return on capital employed (ROCE) for the quarter stood at 70.8 per cent and return on equity (ROE) stood at 25.7 per cent. The gross debt to equity ratio was recorded at 0.08 times and there is net cash and bank balance of Rs 30,480 million.
The company has declared 60 per cent of global profits as dividend, including 20 per cent special dividend, on account of such a superior performance. On a domestic basis, revenue grew by 45 per cent, EBITDA grew by 142 per cent and PAT grew by 935 per cent. The overseas’ revenue in the fourth quarter of FY21 grew by 10 per cent, EBITDA grew by 51 per cent and PAT grew by 70 per cent. Strong growth was witnessed in IT, consumer, and IT enterprise and mobility segment. The company generated positive free cash flow of Rs 1,024 million for the quarter. Strong ROCE and ROE performance with ROCE at 56.3 per cent and ROE at 34.2 per cent was posted in the fourth quarter of FY21.
Risks and Threats
Operating in the field of technology distribution across several countries and geographies, Redington (India) divides its primary risks to fall under three broad categories, namely, inventory risk, receivable risk and currency risk. The company deploys adequate mitigation measures and management oversight to safeguard stakeholders’ value at all times. On the other hand, enterprise risks are classified into three broad categories: business risk, financial risk and operational risk. A robust model is being developed by the company to harden its core philosophy of ‘de-risking the continuum’ that long formed the bedrock of Redington (India)’s business. The company’s diversified market presence, comprehensive product portfolio consisting of three layers of core businesses, emerging businesses and adjacencies and extensive vendor contracts assist the business in de-risking itself in areas of geographical risks, product and technology obsolescence, overdependence on a particular vendor and product or solution segment, to a huge extent.
Conclusion
The company’s rich product portfolio consists of diversified brands and diversified product categories under the same brand. Its footprint in multiple markets ensures diversification as well as continuous improvement. The company ensures that it stays relevant in the ever-changing technological environment via its seamless partnerships and dynamic business model. The stepping of the company into new lines of business will lead to incremental growth as well as diversification of risk. Since the listing of the company, it has achieved Rs 500 billion milestone mark in revenues. Besides, the company has achieved 27.5 per cent value creation in return of rupee capital and 33.2 per cent value creation in return on dollar capital. This indicates the company’s consistent focus on capital efficiency.
Redington (India) has portrayed 14 per cent CAGR for shareholders in terms of EPS and 16 per cent CAGR for shareholders in terms of book value per share. The company has maintained an average dividend payout ratio of 27 per cent of profits earned. The Indian economy is predicted to attain a trillion dollar of economic value of digital economy by 2025. India’s digital economy has the potential to contribute 18–23 per cent of the overall economic activity by 2025, with more than half the potential coming from scaling up new and emerging digital ecosystems. Hence, considering strong demand for security, collaboration, mobility and cloud, Redington (India) is rightly poised to grab untapped opportunities in the ICT sector. We therefore recommend BUY.