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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.
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