Analyst Research Report Snapshot

Title:

Spark Capital: Redington 2QFY14 result review - Worst is behind; Upgrade to BUY

Price:

$46.00

Provider:

Spark Capital Advisors(India) Private Limited

Date:

12 Nov 2013

Pages:

6

Type:

AcrobatPDF

Companies referenced:

REDI.NS

Available for Immediate Download
Summary:

Redington 2QFY14 result review - Worst is behind; Upgrade to BUY Redington (India) reported better 2QFY14 revenues with better than expected International revenues. Standalone revenues grew 3.8% yoy to Rs. 25.7 bn whereas consolidated revenues grew 14% yoy to Rs. 66.7 bn. Consolidated EBITDA margins notched up to 2.4% by 20 bps due to reduced ad spends in the Apple Smartphone business. India continues to be weak on declining IT business and stalled government projects. Management commentary suggests that India business revenue growth could bottom out in a couple of quarters. Strongly correlated to domestic economic activities, we believe revival would take more time. The board approved Easy Access sale at 1x BV (Rs.2.85bn) to the promoter’s group & the deal is expected to be closed by mid 4QFY14.The sale will help REDI to retire most of its long term debt thereby improving PAT margins from 4QFY14 and increasing BV/share in FY15. Though there hasn’t been significant changes in the demand environment, we believe at CMP most of the bad news is priced in. We upgrade the stock to BUY with an increased TP of Rs.84 arrived by attaching 1.3x to Sept-15 book value. Consolidated revenues grew 14% yoy: Consolidated revenues grew 14% yoy to Rs.66.7 mn led by 20.5% yoy growth in overseas business (Translation gains gave 9% yoy growth for H1).India business came in relatively weak at 5% yoy due to declining PC component business. Management commentary suggests that price hikes of 3-5% would not have a strong impact on the buying behaviour of consumers but more than that could prove detrimental to volumes. Today with stabilizing rupee, we believe the risk of a steep price hike has considerably reduced providing some respite to current tepid revenues. Further with the launch of iPhone 5c and 5s series, we believe revenue growth would get a boost. Sale of Easy Access a positive trigger: We have been maintaining the view that sale of Easy Access would be a key trigger to turn positive on the stock as it would help improving the net worth substantially in FY15E, which has finally come through. The board has approved the sale of Easy Access to the promoters at one time book. We believe Redington would use the cash to retire its loan. We note that their weighted average borrowing cost during 2QFY14 was 9.6%. Upgrade to BUY:. Though there hasn’t been significant changes in the demand environment, we believe at CMP most of the bad news is priced in. With the sale of Easy Access aiding PAT margin improvement and reducing balance sheet size, we turn positive on REDI valuing the stock at 1.3x book (1x book earlier). Upgrade to BUY with TP of Rs.84.

Why buy analyst research?

  • Institutional quality research
  • Available for Immediate Download
  • Detailed company or industry insight
  • Print or save
  • 24 hour customer support
Return to previous page without adding this item to your cart.
Email Customer Support.

About Analyst Research

Analyst research reports are available for immediate download after purchase. You will have unlimited access to the report for 24 hours after purchase, to download, print or save it as many times as you wish. Analyst Research provided by Reuters does not constitute investment advice, and is not endorsed by Reuters Research. This information is protected by copyright and intellectual property laws. More information on Analyst Research.