Redington India: Buy :: Business Line

Even as the developed markets grapple with a slowdown, India and many countries in West Asia are witnessing robust demand for IT products. The offtake of other peripherals, as also digital devices such as smartphones and tablets, have risen.

In this light, investors can buy the shares of Redington India, one of the largest distributors of IT and digital lifestyle products in these regions. An expanding product line to include fast moving consumer goods such as mobile phones and entrenched partnership with top brands across product lines have ensured that the company has been able to ride the demand cycle well.

At Rs 70, the stock trades at eight times its likely FY13 per share earnings, which is much lower than its historic valuations. This presents an attractive entry point, especially in the light of its growth rates and prospects.

In the first half of FY-12, Redington's revenues rose by 43.4 per cent over the previous fiscal to Rs 10,638 crore, while net profits grew by 26.5 percent to Rs 123 crore.

STRENGTH IN KEY MARKETS

Redington derives nearly equal proportion of revenues from India and the MEA (Middle-east and Africa) region.

The demand for IT products such as computers, servers and networking devices continues to be quite robust in these regions. The IT products division accounts for around 79 per cent of the company's overall revenues.

In India, the growth has been led by the government, as it strives for efficiency in areas such as e-governance, financial services, power reforms, and in projects such as the delivery of unique identity (UID).

Many companies such as Wipro Infotech, CMC and HCL Infosystems are seeing robust demand for IT enabling of state and central departments towards smoother delivery of services.

This, in turn, means that distributors of IT products, and a leading one at that such as Redington, have seen significant traction.

In West Asia and African operations, there has been limited or insignificant disruption of business as a result of political tensions. This is due to the fact that Redington's major operations are in the UAE, Saudi Arabia and Qatar, among other countries, where there have been no protests or tensions.

Many software companies such as Mahindra Satyam, Wipro and TCS are seeing significant traction in these countries, suggesting that the technology spending there is quite strong. Apart from corporates, Redington also has significant relationships with large retailers both in India and the MEA region. According to a recent report from Gartner, IT spending in India is projected to total $79.8 billion in 2012, a 9.1 per cent increase, and within this, hardware is set to grow at a much faster pace.

WORKING WITH TOP BRANDS

For IT products distribution, though it has tied up with several global players, Redington's top partnership is with HP, which continues to see strong demand in India and in the Asian region. For both server shipments and personal computers, HP has seen strong growth in shipments according to industry reports.

Personal computer shipments, especially of high-margin laptops, continue to be robust for many of Redington's clients such as Lenovo, Toshiba, Samsung and Acer, apart from a couple of Indian names.

For non-IT products, though the troubled Nokia is a key client of Redington, there has been limited slippage in demand for medium to low-end phones from emerging markets such as India. According to a recent report by IDC, the mobile phone and the smartphone markets in India are led by Nokia.

Redington has also tied up with players such as Samsung, Apple and RIM (Blackberry). Blackberry, thanks to packaged deals from operators, has seen robust sales. For Redington, the sales of this phone have grown by 70 percent in the recent quarter.

Also, the company's Apple business (tablets etc.) has grown in excess of 200 per cent. This suggests that diversification is working to the company's advantage. While the going has been good for Redington, pricing pressure due to competition from large players such as Ingram Micro, Tech Data and Synnex could affect margins.