Prabhudas Lilladher has given Buy recommendation for Redington (India) with a target price of Rs. 202 in its research report issued on Sep 29, 2021

Prabhudas Lilladher’s research report on Redington (India)

We interacted with Redington management, Mr. Raj Shankar – Vice Chairman and Managing Director & Mr. S. V. Krishnan – Whole Time Director & CFO. Redington is capitalizing on demand led by accelerated digital adoption amidst work from home during pandemic. Though chip shortage is expected to limit industry growth, Redington being largest distributor for top global brands will benefit from larger share of supplies from these brands as reflected in top 5 brands revenue growth of 37% YoY and decline of 3% YoY in other brands as on Q1FY21. With strong growth potential in hybrid and private cloud management, management expects cloud business to grow at strong double digit rate in the medium term. (60% YoY in Q1FY21, 2% of revenues) Management mentioned that steady state working capital is expected to be 30-35 days. We believe that supply shortage and strong demand momentum will reduce receivable days and help sustain lower working capital days in the near term (18 days in Q1FY21). We anticipate EBIT margin profile to improve over longer term as share of Pro-connect and Cloud business (especially managed services component) increases. (EBIT margin at ~2.1% in FY21 vs 1.7-1.8% pre-covid) Brightstar acquisition provides multiple growth levers in Turkey– 1) entry in to mobility business with access to global brands in Turkey, 2) Redington can cross-sell IT devices in Brightstar stores and 3) scale up Brightstar’s mobility business via Redington Arena’s network. Brightstar’s CY20 revenue of USD 342 mn is ~4% of Redington’s FY21 revenue. Our EPS estimates increase by 2.3%/2.2% for FY23/24E led by increase in revenue estimate by 4%/3.6% in FY23/24E because of the acquisition.

Outlook

We continue to value Redington on 12X on Sep-23 EPS of 16.9 to arrive at revised TP of Rs 202 (earlier: 198). Currently, Redington trades at 9x/8x on FY23/24E EPS of Rs 16.1/17.6 respectively with Revenue CAGR of 16.3% and EPS CAGR of 18.4% over FY21-24E. Maintain ‘BUY’.

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