Redington (In­dia) Ltd

Money Times - - News -

(BSE Code: 532805) (CMP: Rs.93.45) (FV: Re.2) (TGT: Rs.125+)

In­cor­po­rated in 1961, Chen­nai based Redington (In­dia) Ltd, to­gether with its sub­sidiaries, pro­vides sup­ply chain so­lu­tions for in­for­ma­tion tech­nol­ogy (IT), con­sumer and life­style prod­ucts. It dis­trib­utes IT hard­ware and soft­ware prod­ucts and con­sumer and life­style prod­ucts such as dig­i­tal life­style, smart com­mu­ni­ca­tions, tele­com, con­sumer elec­tron­ics and dig­i­tal print­ing. It also pro­vides hard­ware sup­port ser­vices in­clud­ing war­ranty and post-war­ranty ser­vices through a net­work of 77 owned hard­ware sup­port ser­vice cen­tres and 266 fran­chise ser­vice cen­ters. It’s hard­ware and sup­port ser­vices in­clude so­lu­tion de­sign and con­sult­ing, tech­ni­cal helpdesk, field en­gi­neer­ing sup­port, parts ware­hous­ing, for­ward and re­verse lo­gis­tics, im­ports and re-ex­ports and as­set re­cov­ery. In ad­di­tion, it of­fers lo­gis­tics ser­vices, which range from im­port, ware­hous­ing and stock move­ment across ge­ogra­phies to pack­ing/repack­ing, or­der pro­cess­ing and de­liv­ery within its op­er­at­ing ar­eas. Fur­ther, its ware­hous­ing and lo­gis­tics ser­vices in­clude third­party lo­gis­tics such as for­ward and re­verse lo­gis­tics and IT en­able­ment as well as op­er­a­tion of au­to­mated dis­tri­bu­tion cen­ters. It op­er­ates in In­dia, South Asia, the Mid­dle-East, Africa and Turkey.

The man­age­ment ac­knowl­edged the busi­ness chal­lenges given the acute de­pre­ci­a­tion of the Turkey Lira (TRY). How­ever, it ex­pects the im­pact to be min­i­mal in the medium-to-long term as: i) 82% of Turkey-based Arena’s re­ceiv­ables are in USD; ii) 52% of these are se­cured/ in­sured; and iii) given the low lever­age, Arena is well placed to sail through the chal­lenges sans ex­ter­nal sup­port due to the fol­low­ing rea­sons: a) Arena has gen­er­ated pos­i­tive free cash

flows even in years of sharp cur­rency de­pre­ci­a­tion; b) pro­vi­sions for in­ven­tory and doubt­ful re­ceiv­ables have re­mained in a nar­row range de­spite the con­sis­tent cur­rency de­pre­ci­a­tion; c) work­ing cap­i­tal days have risen steadily largely due to steady in­crease in re­ceiv­ables days, lead­ing to a fall in ROCE (this trend has re­versed in H1CY18); d) ROE has been im­pacted by high tax rate; e) debt has been low with com­fort­able debt:eq­uity ra­tio (0.28x as on H1CY18); and f) rev­enue growth and mar­gin have been im­pacted by TRY’s de­val­u­a­tion.

As per me­dia re­ports, Ap­ple is ra­tio­nal­is­ing the num­ber of dis­trib­u­tors. While In­gram Mi­cro and Redington will be re­tained, Bright­star, Rashi Pe­riph­er­als and HCL In­fos­ys­tems are ex­pected to be phased out by March 2019. We ex­pect this move to boost Redington’s mar­gin, growth and re­turn ra­tios.

We be­lieve that the cor­rec­tion in its share price since the Turk­ish cri­sis broke out is over­done given its mea­ger con­tri­bu­tion to rev­enue. Also, USD be­ing the func­tional cur­rency pro­vides a nat­u­ral hedge. Its val­u­a­tions look at­trac­tive at 7.8x FY19E EPS based on its growth prospects and re­turns pro­file.

Tech­ni­cal Out­look: The stock looks good on the daily chart for medium-term in­vest­ment. It is mak­ing a higher high and higher low on the daily chart. The re­cent cor­rec­tion in its share price pro­vides an op­por­tu­nity to en­ter. The stock trades be­low all im­por­tant mov­ing av­er­ages like the 200 DMA level on the daily chart. Start ac­cu­mu­lat­ing at this level of Rs.93.45 and on dips to Rs.82 for medium-to-long term in­vest­ment and a pos­si­ble price tar­get of Rs.125+ in the next 12 months.

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