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Analyst Research Report Snapshot


Redington India (REDI) - Qtr. Update - Dated - May 27, 2013




Axis Capital Limited


28 May 2013





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In FY13, Redington India delivered higher than industry growth (14% YoY) in both India and Middle East & Africa (MEA) along with positive cash flows for the second consecutive year. Growth was driven by smart phones/ tablets in India and better profitability in Arena. There was no material change in working capital cycle despite muted performance by India PC business. Management re-iterated Redington will continue to grow higher than the industry. In FY14, we expect growth to be driven by (1) higher growth from Apple products in India, (2) Samsung and Arena in International markets, and (3) new products. However, margin will be muted given sluggish demand environment in India PC business and product mix change in Telecom business. Working capital cycle will be maintained given lower inventory days in Apple products. Domestic operations (revenue: 43%, PBIT: 54%): Non-IT remains growth, margin driver  IT business recorded mid-single digit YoY growth due to muted demand environment, higher base effect (Q4FY12 was exceptionally strong), and spill-over of UID revenue into H1FY14  Non-IT business was steady at ~30% of revenue largely driven by Apple products and improved revenue from RIM due to launch of Blackberry 10 launch in Q4. For FY13, aggregate revenue from Apple and RIM grew by ~15% YoY. We estimate ~17% CAGR in revenue over FY13-15E in smart-phones /tablets International (revenue: 57%, PBIT: 46%): Growth brands drive growth  Redington reported ~24% YoY growth in revenue with PBIT margin of 2.3% in Q4  Redington continues to gain market share led by their focus on growth brands like Lenovo and Asus in the PC segment. In FY14, we expect Nokia-to-Samsung transition to be largely behind us. Redington continues to gain market share within Samsung  Steady profits seen in Arena (adjusting for Q3 being a seasonally strong quarter due to year-end) Maintain BUY with upside of 33% We cut FY14E/FY15E EPS estimates by 5%/8% to factor in muted outlook on India PC business and lower margin assumptions (down ~18 bps each at 2.62%/2.60% vs. earlier estimates). Revised TP stands at Rs 101 (10x FY15E EPS) vs. Rs 110 earlier. At CMP of Rs 76, the stock trades at ~9x FY14 EPS of Rs 8.8 and ~8x FY15E EPS of Rs 10.1 Regards, Priya Rohira (Executive Director – IT & Telecom) Institutional Equity Research Axis Capital Ltd. Tel.: + 91 22 4325 1104 Vishal Desai (AVP – IT) Institutional Equity Research Axis Capital Ltd. Tel.: + 91 22 4325 1119

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