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.