Redington India Ltd (Rs 226)
(BSE Code- 532805 NSE Code- REDINGTON)
(P/E- 10, FY09 Revenues - Rs 12,668 cr, Market Cap - Rs 1,760 cr)
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% over the three years to Rs 10,883 cr. in 2007-08, while net profits grew at a CAGR of 47.5% to Rs 136 cr.. For the year ended March 2009, net sales grew 16.4% to Rs 12,668 cr., whereas net profit grew 17% to Rs 159.6 cr. The EPS on a equity of Rs 77.87 cr.(Promoters'stake-44%) stood at Rs 20.5 and the dividend declared was 40%. 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% to 1.25% 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. Redington generates 53% 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% to Rs 96,558 cr. by 2012, while the packaged software segment is set to grow at a rate of 20.9% to Rs 21,129 cr., 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% of the current revenues and may serve as a good diversification strategy over the long run. 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.
For the Q1 ended June Dec. 2009, Redington has reported net profit of Rs 37.35 cr.(up 10%) on net sales of Rs 2,922 cr (flat) on consolidated basis. At current valuations, the stock trades at 11 times its FY 2009 earnings (Rs 20.5) and 9.4 times its estimated FY 2010 earnings (Rs 24). Redington's strong positioning in the domestic IT market and the absence of listed peers make the stock attractive. Accumulate on declines for decent returns in the medium-long term.
(BSE Code- 532805 NSE Code- REDINGTON)
(P/E- 10, FY09 Revenues - Rs 12,668 cr, Market Cap - Rs 1,760 cr)
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% over the three years to Rs 10,883 cr. in 2007-08, while net profits grew at a CAGR of 47.5% to Rs 136 cr.. For the year ended March 2009, net sales grew 16.4% to Rs 12,668 cr., whereas net profit grew 17% to Rs 159.6 cr. The EPS on a equity of Rs 77.87 cr.(Promoters'stake-44%) stood at Rs 20.5 and the dividend declared was 40%. 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% to 1.25% 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. Redington generates 53% 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% to Rs 96,558 cr. by 2012, while the packaged software segment is set to grow at a rate of 20.9% to Rs 21,129 cr., 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% of the current revenues and may serve as a good diversification strategy over the long run. 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.
For the Q1 ended June Dec. 2009, Redington has reported net profit of Rs 37.35 cr.(up 10%) on net sales of Rs 2,922 cr (flat) on consolidated basis. At current valuations, the stock trades at 11 times its FY 2009 earnings (Rs 20.5) and 9.4 times its estimated FY 2010 earnings (Rs 24). Redington's strong positioning in the domestic IT market and the absence of listed peers make the stock attractive. Accumulate on declines for decent returns in the medium-long term.
Source: Internet (Valuenotes By Sanjay Chhabria)
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