Redington Limited Q2 FY24 Earnings Conference Call Insights

Key highlights from Redington Limited (REDINGTON) Q2 FY24 Earnings Concall

• Business Outlook
  • Most regions continue to show growth opportunities.
  • Cloud and technical solutions offer good growth potential.
  • Mobility momentum remains strong with new product launches.
  • Fine-tuning investments for best ROI.
  • Digitalization, B2B platform and emerging solutions are key focus areas.
• Q2 Financial Performance
  • Record high revenue and gross margin for a quarter.
  • Q-o-Q revenue up 5%, gross margin up 10%, PAT up 22%.
  • ROE at 17.4%, ROCE at 21.6%.
  • Y-o-Y revenue up 17%, gross margin up 12%.
  • Y-o-Y PAT declined 22% due to investments.
• Working Capital Management
  • Focusing on driving profitable growth and efficient capital management.
  • Prudently managed its working capital in 2Q, reducing days to 35-40, although this may not be a consistent trend due to seasonal influences.
• Demand Environment & Outlook
  • Demand continues to be strong in India, UAE, Saudi Arabia across categories like technical solutions, cloud, and mobility.
  • Endpoint solutions seeing muted demand due to lower enterprise PC purchases globally.
  • New mobility products seeing good acceptance and demand, fulfilling whatever limited supply received.
  • Does not expect significant demand slowdown despite potential over ordering during COVID.
  • Enterprise demand continues to be strong driven by cloud transformation.
  • Consumer demand expected to rebound with reach of computing to rural areas.
  • New growth areas like wearables, gaming to drive consumer demand.
• Margins and Costs
  • Expect EBITDA margins of 2.4-2.5% range through focus on profitable growth and mix management.
  • Factoring costs at 86 crores this quarter, predominantly in Turkey due to limited financing options.
  • Aim to maintain opex as a percent of revenues through cost control measures.
• Business Strategy
  • Key focus areas are cloud, technical solutions, emerging solutions like gaming and wearables.
  • Digitalization investments will continue but will be fine-tuned.
  • Android mobility solutions seen as a growth avenue.
  • Initially focusing on getting best returns from current businesses and investments.
  • Priority on stabilizing stressed geographies like Africa, overseas
  • After stabilizing core, will look at driving new growth adjacencies leveraging distribution capabilities.
• Impact of Market Changes
  • Some evolution happening like direct to retail but no major structural impact.
  • Overall pie for distributors not seen shrinking despite consolidation.
  • No direct impact yet from geopolitical risks, but monitoring Israel-Gaza situation for indirect effects.
• Turkey Business
  • Seeing good growth similar to other regions operationally.
  • Profitability percentages lower than other regions due to economic challenges.
  • Continues to be a worry; risk management critical.
• Investment Streamlining
  • Slowing investment pace in some areas like digital platforms to ensure adequate returns.
  • Categorizing investments into fundamental “need to have” vs discretionary “nice to have”.
  • Investments mainly focused on India business and some global functions.
• ProConnect Business Performance
  • Performance was mediocre this quarter with flat growth and neutral profitability.
  • Outlook for next 2 quarters looks positive.
  • Expected to return to high growth and profitability model.
• Africa and RoW Business Performance
  • Africa business is around $1 billion revenue on an annualized basis.
  • Key countries are Nigeria, Kenya, and South Africa in that order.
  • Gross margins improved but EBITDA declined in RoW regions.
  • Decline mainly due to high factoring costs, especially in Turkey where costs are 50-55% currently. Forex losses and increased provisions also contributed to the decline.