Redington (India) Limited (NSE: REDINGTON) Q1 2026 Earnings Call dated Jul. 30, 2025
Corporate Participants:
Unidentified Speaker
V.S. Hariharan — Global Chief Executive Officer
S.V. Krishnan — Finance Director (Whole-time)
Analysts:
Unidentified Participant
Nitin Padmanabhan — Analyst
Aejas Lakhani — Analyst
Rucha Somaiya — Analyst
Pratik Kothari — Analyst
P Venkatesh — Analyst
Sahil Doshi — Analyst
Sarvesh Gupta — Analyst
Presentation:
operator
SA Sam It Ram Sam SA Sam It Sa Sam SA Sam. Ladies and gentlemen, good day and welcome to the Teddington Limited Q1 and FY26 earnings conference call. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. This conference may contain certain forward looking statements about the company which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of the future performance and involve risks and uncertainties that are difficult to predict. Should you need assistance during the conference call, please signal an operator by pressing Star then zero on your Touchstone phone.
Please note that this conference is being recorded. I now hand the conference over to Mr. B.S. hariharan, Managing Director and Group CEO. Thank you. And over to you sir.
V.S. Hariharan — Global Chief Executive Officer
Thank you. Good afternoon everyone. This is Hariharan. I’m pleased to share with all of you our Q1 26 results. This has been our best Q1 so far from a top line perspective with strong growth in both top and bottom line. Compared to the quarter 1 of 25, our revenues for the quarter grew by 22% and Prof. By 12% year on year. Excluding arena, our subsidiary in Turkey, our revenues for the quarter grew by 24 on revenue and profits by 15% year on year. Outside of the challenges with arena, which I’ll talk in a moment, our subsidiary, the profit performance has been good.
Our overall pat Percentage stood at 1.32% for the quarter excluding Arena. Now let’s get into a little bit of detail on geographies and business units from a geography perspective. The revenue growth was contributed by strong growth in many geographies. India at 24%, UAE at 35%, Kingdom of Saudi Arabia at 32%, rest of Middle east at 18% and Africa was stable. India had an overall very strong performance with profit after tax growing faster than revenues with most business units contributing well. The Cloud Group, the Mobility Group and the Technology Solutions Group coming to business units. The Mobility Solutions Group led with a stellar performance this quarter at 44%.
Growth and demand on the premium segment of the market across India and Middle east was strong. Cloud Solutions continued its momentum as you’ve seen over the last few quarters with 41% top line growth and continued success in the hyperscaler business. And we continue to take advantage of the cloud transition and digital transformation enabled by a. The Technology Solutions Group performed well on top line this quarter at 21%. There were a lot of big deals in India and UAE though margins declined due to a combination of mix of larger deals as well as general margin stress in the TS technology solutions space, the software businesses and security solutions infrastructure software and application software continued their growth momentum.
This is an area we can do a lot more, both increasing the breadth of our offerings and gaining share. Hence we are putting efforts and investments in all the geographies to increase our intensity and focus here. The Endpoint solutions group with PC business was steady at 3%. It’s been flattish for a while. We do see signs that we’ve been talking about for a while on refresh cycles on PCs bought during the COVID period as well as the Windows 10 to 11 upgrades and hope to have and look forward to more growth in the second half and we are seeing signs of that.
We saw good growth from all the top 10 brands in our portfolio and we also see several software brands getting into the top 10 of our business. Now coming to Working capital and OPEX and Gross Margin hygiene factors. Continued efforts on efficient management of working capital resulted in 37 days closing working capital which is 2 days lower than the previous year. Q1 Our overall financing cost excluding of Turkey reduced by 8% due to efficient management of working capital and a superior credit rating AA allowing us for better borrowing rates especially in India. OPEX control continues to be good and grew much slower than the revenue growth at giving us good operating leverage.
Gross margin has been below expectations and it’s a combination of the mix shifting towards mobility for this quarter, the big deals in TSG and also market pressures on the TSG run rate business now coming to arena, our subsidiary. Arena’s performance was impacted due to provisions. We believe these are one time but we are monitoring and watching them closely. Due to the market conditions in Turkey, we see a rise in the number of Concordat cases last quarter. Concordat is a temporary relief given by the courts to companies facing financial difficulty to restructure their debts with creditors.
Few of our partners have filed for Concordat. The situation we have encountered was unexpected and while we have taken provisions, the team is taking all necessary actions to recover outstandings. Though there is a tempering of inflation in Turkey and anticipation of lower lira interest rates, the outlook remains uncertain. Our subsidy arena is recalibrating our approach to the business in Turkey and taking proactive steps to manage the business cautiously. By tightening working capital, managing overdue credit limits closely and reducing our Turkish lira exposure, we are hopeful that we will Recover from the Q1 challenges of arena as we go forward with the new growth trends that we see on Cloud AI digital transformation.
We remain optimistic on the outlook going forward as mentioned in the last quarter as well. Q1 is normally our softest quarter of the year, but we executed well based on the addressable opportunities and retained our share in the market. We also encountered geopolitical tensions both in India and in Middle east, but managed to weather through those. We feel there are opportunities to grow faster in software solutions, subscription models and infrastructure hardware space. With the creation of Software Solutions Group, the focus and investment towards creating additional value add for brands and ecosystems should pave the way for faster growth.
Though this will be a multi year journey, we’ll continue to emphasize and enhance our core hardware business which has been executing well and growing nicely. Before I close, I wanted to share something special this year. Redington was recognized as the most trusted company in the technology distribution sector by War India. This award isn’t just a recognition of our business strength. It’s a reflection of the trust we have built with our partners, our customers and all of you our shareholders. Trust is not built overnight. It comes from showing up year after year with consistency, transparency and purpose.
This award belongs to every Reddingtonian who brings in their best every day and to each of you who believe in our journey. Thank you. We look forward to your questions.
Questions and Answers:
operator
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the Touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use answers while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Nitin Padmanath Nitin from investech. Please proceed.
Nitin Padmanabhan
Yeah, hi, good evening. Thanks for the opportunity. So I think we had a very great quarter from a growth perspective. Just wanted your thoughts on the margin side of things. You did mention three elements which sort of impacted the margin. If you could give some more color there as to why it is so I think anything from a philosophy standpoint, these large deals that we are seeing in which geographies are they and how are the sort of. Are you happy with the kind of requirements on working capital and all of those for those deals? And how should we think of margins overall on a going forward basis? Do you think there’s a different thought process on how you would like to take this on a going forward basis?
S.V. Krishnan
Thank you Nitin. See on the margins, if you see between Q1 of last year to Q1 of this year, there is about 60bps of drop which was about 5.7%. Now it’s about 5.1% giving you a broad split of what is this drop on account of about 10bps relate to the Paynet divestment because this was there as part of our results last year. Second in arena, like what Ari mentioned there had been still the economy as well as the industry is going through stress. There is about some 10bps of drop on account of arena on top of the Paynet.
The balance which is about between 35 to 40bps is primarily on account of TSG business. That’s where the large deals it actually comes into play. We have discussed that before where while either the gross margin could be low or the working capital could be beneficial, we have to make some compromise. These being large deals, we only ensure that our return on capital employed is that requirement is met. So those are taken care. But large deals do come at lower margins. Second, even otherwise there are some stress in terms of margin because of higher competition in the marketplace and also vendors are not in a position to offer higher margin in the TSG space.
So these are the main reasons why in TSG the drop in margin is observed. But otherwise this is a breakup overall in terms of the year on year gross margin drop outlook. If I need to give you in the same form the Paynet is something that is permanent but arena we feel it could get recouped. It will take some time but we are confident we will bring it back. In the case of tsg, that also links to your other point. We think the large deals doesn’t seem to be a one off. It’s going to continue for some time and we need to play this in order to make sure that our revenue growth is in place, our market share and also the vendor share is in place.
So we feel on the large deals, if there are significantly higher large deals we will start tracking it separately and also we will see how it can get shared. But outside of it, the rest of the TSG margins which is an account of the market pressure, we think it is going to take some time. That’s not going to come up that fast. Having said that overall at an operating profit and the PAT level, the point which Hari mentioned, I think we have ensured the service to Q1 that we have had in the past years. We are broadly in line and that had come on account of the OPEX optimization as well as the working capital control which has resulted in lower interest cost.
We think this management of working capital and OPEX is going to help us from a profitability perspective. But this is the guidance on the gross margin.
V.S. Hariharan
Nitin, just to add one more point on a question that you asked. These deals are happening both in India and in uae. We don’t have a practice of calling out specific deals but we see an increased number of deals both for data centers as well as the AI space and clearly we can only see more of these and we want to take our fair share as long as we are able to get our return on capital employed with the lower margins.
S.V. Krishnan
And one another point Nitin, that you asked, do we have sufficient working capital for large deals as we speak now? We think we have see end of end of June our gross debt to equity was 0.36 times. Net debt to equity is about 0.23 times. So do we have enough capital in terms of addressing some of the large deals? Yes, but it all depends on the size of the deals. We think the size of the deals also could go up if there are requirements at an appropriate time. We will come back and the thing talk to the street but right now we are quite okay.
Nitin Padmanabhan
Got it. I just have a follow up if I may. So I think this quarter we also had a reversal of provisions that added some 57 bips on a sequential basis and so which means that the margin drop was actually higher. Now the question is that these deals and it looks like the bigger margin drop obviously is in the overseas segment. So the overseas deals are what have actually dragged the margins more. Now those deals, are they government contracts? Are they private? So in terms of, you know, the working capital deals there, how comfortable are they? Is it longer than our normal averages? I don’t see it in the working capital as of now it seems to be okay.
But broadly how is it if you could just give some thought process and some guardrails that you generally have around it.
V.S. Hariharan
So the deals Nitin, are only private deals. We’re not working in the government. We work with people who might be working with the government but we don’t work directly. But all these deals are private sector deals.
S.V. Krishnan
Second point on the inventory provision reversal. See Nitin, Q4 and Q1 are really pulls apart. So my suggestion, please don’t mix up the reversal of inventory provision which is the inventory provision that we have this quarter. There is a positive inventory provision to the extent of about 5bps which is broadly in line with our long term trend of about 5 to 6bps. So for this quarter inventory provision has not been any different from the long term average. But AR provisions As Hari explained, has spiked and that’s mainly on account of Arena.
Nitin Padmanabhan
Got it. Perfect. Thank you so much and all the best. I’ll get back in the queue for a follow up. Thank you.
S.V. Krishnan
thank you .
operator
Thank you. The next question is from the line of Ijaz lakhani from UNIF AMC. Please proceed.
Aejas Lakhani
Good evening, Hari. Mr. Krishnan, you know the top line and the margin is the good news. The provisions are hard to understand. They seem higher than anything you’ve taken in the past and it came without warning. And that’s something I’d like to know more about. Also the interest costs. We expected that the sale proceeds that you received would have helped you mitigate interest significantly. But your international interest cost seem to have spiked quite a bit. Again, total surprise. Can’t understand. There’s something about cash flow being 1300 crores in the minus. Help us understand that. Also could you tell us if you continue to use factoring and if so, how much for this quarter?
S.V. Krishnan
Okay, so on the first point regarding provision, see in Turkey, seriously the economy is going through lot of stress. There is, there are applications, increased applications that are made by companies for Concordat. Concordat is like debt restructuring. This is pre bankruptcy. Okay, so I’m just going to. I. Mean specify the number of companies that have applied for Concar debt in the last seven years. The average has been between 1500 to 2000 companies last five years every month starting from Jan 504, February 365, March 414, April 444, May 508, June 541. So consistently you can see about 500 companies applying for Concordat in Turkey every month visa vis about 1500-2000 companies a year. So I mean I’m just giving you a perspective how the economy is moving and we are part of the ecosystem. So what we had seen in our business, there are some customers who have applied for concordant in the current quarter.
So all this, maybe we could have given you a perspective last time, but all these are happening as we speak now. Also it’s something that we are keeping ourselves abreast and we are also putting some actions. So this call for some actions at our end we felt after review of all our pending ARS and what has got delayed, there is a need for creating an extra provision. So we had accordingly done about eight plus million dollars of provision in arena which we think is one time and we should be able to manage as we speak now the rest of the ars that need to get collected.
But is this a surprise? It’s a Surprise even for us. But since the market is tough we need to take a considered view. We think we have taken a proactive view in terms of identifying this case and have dealt with in the books. Second is the interest cost. Interest cost per se in the balance sheet has gone up by 14% and that’s only the interest. So if you consider the factoring and interest together. For your other question, do we do factoring? Yes, the quantum has come down but I mean we still do factoring overall for Last year factoring plus interest together it was at 148 crores which is now in the current quarter is down to 122 crore.
So has that come down? It has come down. It has come down by 18%. But is this what we expected? No, we thought it will come down even further for the reasons that you had explained within this if you take only arena arenas last year factoring plus interest was 90 crores which is down to 69 crores. So even in arena there is a drop of factoring an interest cost in the current quarter year on year. But I’ll tell you there were a couple of factors which has resulted in this not being even more significant. This was the expectation.
So the first point is the payment money. It came in US dollar and US dollar rates are about 10 to about 11 12%. We had to pay off the loan which was costing us at 1011 12%. But on the other hand there has been a corresponding increase in working capital. I’ll explain why all those. But majority of those increases have happened in the Turkish Lira business and the Turkish Lira loans were costing us 50%. So the Delta you can see while Bennett money has come which was only taking care of one fifth of our interest cost reduction.
But on the other hand we have to take loans at a higher cost. Why did this increase happen? There were three factors. One, the delay that we are talking about, the concordant related or the general market delays. Because there are some sluggishness in terms of the overall liquidity situation in the market itself. Because of this there has been a working capital blockage that had happened which a part of it we have dealt with and we think the balance will come. It will take some time but it will definitely come. Second, until the PayNet money came we had some challenge in terms of cash flow there and because we were not able to get sufficient bank loads, etc.
So we were delaying some of our vendor payments. That pressure we had been waiting for the paynet transaction to get completed. So that got Paid out. Third, we also thought now it has given us a headroom to increase the business. Because please understand in this business if we remain on the sideline, vendors will push us out. We also need to play the market share game. While we are not going to compromise on any fundamentals, this is something that we need to consider in a balanced way. So there has also been some buildup on account of inventory.
So all this have resulted in extra working capital and extra debt and also extra interest cost. While I did say interest on an year on year basis had come down but it could have come down even more faster had we not increased our working capital. But this is where we are third on the negative cash flow. I think we had discussed that in the past with our profitability metrics and a 40% dividend payout. And if you are able to retain our working capital base, our growth can be in the range of 10 to 12% when our growth is in the range of 22 to 24%.
And as Hari has mentioned, the three big markets which are India, UAE and KSA, all these three constitutes close to 80% of our business. Our growth rates are north of 20% in USA and K and the KSE plus north of 30%. When we are growing at that pace, definitely there will be capital requirement. We will not have seen free cash flow which is what we have seen the case in Q1. But we think it is more to do with the growth and we are quite comfortable with that. Sorry, I am not sure I have answered.
It was a long answer. If there are further quizzes, I mean please tell me. Sir.
Aejas Lakhani
Yeah. On the subject of the provision, on earlier occasions you’ve clarified that you have an insurance. I’m not sure if that’s limited to India business or also covers your global business. Could you help us understand if this is covered by insurance?
S.V. Krishnan
Okay. My answer at that point in time would have been for other markets. For example in India and in MEA our AR is majorly covered. But that’s not the case in every other markets. For example in Turkey, in Africa, in few other countries, insurance either you don’t get insurance or you get far less insurance. So in this case is there an insurance? There is an insurance but the coverage has been quite small.
Aejas Lakhani
Okay. Given what you told us about the need to if you operate in Turkey, you need to be a serious player. To retain market share is important. But then given the risks and the costs and the factoring costs and the interest costs and the never ending provision costs, it’s been several quarters of this, when will you evaluate whether you need to be in Turkey? You have many markets in which you’re doing well. Why would you destroy all the good work by continuing to break your head on a market that doesn’t reward you?
V.S. Hariharan
Fair question. And we’ve spoken about this before. It is challenging to get into a market, but again, not very easy. But we can exit market easily. So as we speak, we are recalibrating our strategy in Turkey. So over the next few months we are going to see what is the best way for us to do business and continue in Turkey. So it is being done. So there is a strategy discussion that is happening with our subsidiary as well as with the board. We will keep you updated as we progress on this. But it is a fair question.
Aejas Lakhani
For us as shareholders. You must understand that maybe we are less, we are able to be a little more dispassionate because there is some distance between the business and us. But when you have recurring troubles in a market and you are actually increasing exposure, putting good money that you receive from the sale of your subsidiary into increasing business, that’s resulting in increasing provisions, it’s very, very frustrating, sir. And it’s disappointing that management has to be told this by a shareholder.
V.S. Hariharan
No, we definitely take your point and I don’t think we feel the same frustration. Believe me, we are as objective and dispassionate because we want to be owe this to the shareholders and we are working for you. So clearly we understand as much on this and as frustrated because we were seeing light at the end of the tunnel and we were expecting a good profit turnaround with the Paynet divestment and using that money to focus on the cleaner business. That was clearly our strategy going into this year. But we are also equally frustrated and we want to make sure that you understand that we are clear that we want to do good business and make sure that we have a good return on investment.
So we are very clear about that.
S.V. Krishnan
So just one add on point. I think it’s important to understand the facts here. I don’t want you to think we have allocated more capital just to increase our business. Maybe I had not conveyed that correctly. A part of the money is struck because of delay in collections, which is a regular part of the business. There is no increased allocation, but there is some money that is struck and which we had seen in other places also in the past. So that is not something. This is a business risk and that’s a conscious risk that we need to take and move on.
So that’s an environmental situation that we are faced with and we are confident we will handle it in the best possible manner. Second, I had also said there had been a lot of delays to the vendors in terms of payment. Those are obligations, it’s not an increased allocation. At some stage we had to end up in paying. We were holding on, we were stretching it and that once we got the money that had to get the thing paid. The third one where I said we have increased the, I mean we were trying to buy more to make sure that our market share is maintained.
Maybe that’s where there can be a judgmental view. But I just thought I need to make it clear and if I still need to give you roughly, I mean the proportion, it could be 1/3, 1/3, 1/3. So we are only talking about 1/3 where there is a judgment involved.
Aejas Lakhani
Notice beyond a point. We don’t have enough understanding and visibility of the day to day you are dealing with or the issues that you deal with. We respect what you’re going through but it’s important in the spirit of the award that Hari talked about in his opening remarks. Shareholder trust is also contingent upon a realistic assessment of exit, not just entering businesses. And it’s been a long wait. There’s been fantastic progress in India and in your Middle east businesses. Your Saudi and UAE are doing terrific P and L and growth. But for some reason you all have taken unnecessary time to resolve something that should have been done sometime.
That’s our view. May I agree? Not agree, but that’s our view and I think we thought we should share it.
V.S. Hariharan
No, we don’t disagree with it Sarat. So we will definitely give it our best in terms of viewing our long term strategy in Turkey. We are also not running away from being objective and dispassionate about it. You can be rest assured.
Aejas Lakhani
Thank you sir. I have one follow up. Sir, you mentioned that 500 companies continue to come in the debt bankruptcy. So what gives you the comfort that the one time 8 million provisioning may not repeat in the subsequent quarter? And could you just call out that the, the credit insurance that you have, how much do you expect to collect out of that 8 million from this credit insurance?
S.V. Krishnan
Okay, our insurance provision is net of whatever we expect to collect from the credit insurance agent. AJS for your first question, how comfortable we are as we speak now? It’s an assessment that we need to take in our assessment, I think this is good enough. But as you know these are evolving situations. You need to have trust on us and we also have trust on the team. But we are at it. That’s what I can tell you. So, I mean, this is something it’s not the first time that we have seen at all. We have seen it in various places in various times.
Each situation is different. But somehow in our assessment, an8.8 million is good enough to handle this case.
Aejas Lakhani
No. Good answer. Could you please call out the specific factoring cost for the quarter?
S.V. Krishnan
It’s about 45 crores. Sorry, sorry. It’s about 31 crores. This service. 68 crores in Q1 last year.
Aejas Lakhani
Thank you.
S.V. Krishnan
Thank you.
operator
Thank you. Before we take the next question, we would like to remind participants that you may press Star and one to ask a question. The next question is from the line of Rucha Samayya from Old Bridge. Please proceed.
Rucha Somaiya
Thanks for the opportunity and congratulations on set of numbers. I just had one question. In terms of data center or. You mentioned that you are getting, you know, demand from data centers. But specifically that I wanted to ask is every. Every hardware that goes into data centers. So does that act as a demand center for reduting products? Specifically and in cover that would be. Thanks.
S.V. Krishnan
Your question is not very clear. Can you repeat please?
Rucha Somaiya
My question was the hardware demand that goes into data center, does that act as a demand center for.
V.S. Hariharan
Sorry, your question is, does the data center products add demand to the Reddington products?
operator
Yeah. Yes.
V.S. Hariharan
So it does. Because typically what goes into a. Data centers are server storage, they can be GPUs, non GPUs, intel based. And we work with a variety of brands, both international and local to fulfill these. So definitely the IT products that go into a data center is something that we work with and been working with for a long time.
Rucha Somaiya
All right. Sure. Thank you.
operator
Participants who wish to ask a question may please press Star and one at this time. The next question is from the line of Pratik Kothari from Unique pms. Please proceed.
Pratik Kothari
Yes. Hi, good afternoon, sir. Two questions on psg. One is, you made a comment on the increased competition. So is this some geography specific? You also made a comment that vendors not keen to pay higher. So if you can just highlight a bit more on that.
S.V. Krishnan
See, there is. First of all, this is not. I mean in one market. This is something that we had seen across markets. So this. This is more an industry issue than a market issue. There is increased competition because of higher growth in this phase. Overall, the growth potential is high. There is an increased competition and vendors also have restricted margins. So all said and done, if there are less margins that we can get in the marketplace we always go back to the vendor crib with him and then get whatever that we can get from them. If they have a restricted margin, they have only so much to share, which is what I meant.
Hence the overall margin that’s available in the business as we speak now is constrained, is limited.
V.S. Hariharan
Let me add another perspective here. There are a few things happening in the technology solutions environment. One, there is the growth of cloud where the data centers for the cloud is being put up by a variety of players. The on prem products are being played both by Global players like HP Enterprise, Dell, Lenovo, etc. And then there are local players that are evolving which are working on both GPU as well as non GPU servers. So the intensity of competition is going up for both cloud data centers on prem with a variety of different players jumping into the mix.
So as a result the global players are pressured in terms of margins and in terms of pricing to compete. And obviously they’re trying to either play the game by going direct or by trying to work with distribution and channel partners with lower margins. And clearly the demand is outstripping and the growth year on year is fantastic. If you add data centers and on prem servers that are being consumed and with all the cloud, all kinds of cloud but the competitiveness has significantly increased.
Pratik Kothari
Fair enough. Certain this large deals which we called out, we said the margins are lower but so are working capital. So the overall ROC still gets match meant there.
S.V. Krishnan
I won’t say ROCE will get merged the thing met if that’s the case. It’s an easy choice that we need to make. There could be some compromise, but we have some threshold ROCE which we don’t want to breach unless it is too important or strategic that we keep in mind. But see these are not transactions which will come at regular commercials. That’s what’s wrong.
Pratik Kothari
Correct. And you called out this 60 basis points different gross margins. And so out of this it seems only arena is something which can kind of mean reward based on what your actions that you guys take. Restore seems to be permanent. We I mean paynet obviously but even say the large deals in th you’re the competition?
S.V. Krishnan
Yes and no. See the large deals. That’s why I said if there are big big deals which significantly impacts the numbers we need to track it separately and call it out. Even outside of it we think as the things settle down the market operating price could go up and we should be able to recoup back our profitability in the TSG segment. Having said that, the software services and the cloud Part of the business. We are very positive there. The margins are better. We think the higher growth in that segment is going to help us to bridge this drop in margins.
V.S. Hariharan
So just to add to that, the software solutions piece of the business is about roughly 15% of our business and it’s growing at 25% right now and this quarter grew at 24% as well. So that part of the business delivers a gross margin close to 6%. So that should help us counterbalance the dips elsewhere.
Pratik Kothari
Exof arena, any guidance that you would like to give for the year or next, what does normalize look like, be it at a gross margin. Pat, whatever.
S.V. Krishnan
Our objective we have set out, I mean set out clearly and have also called it out, we would want to maintain our operating profit between 2.3 to 2.5% and PAT above 1.3%. That is something that we are still focused. We are hopeful. We don’t see any challenge there.
Pratik Kothari
Thank you and all the way, sir.
operator
Thank you. The next question is from the line of P. Venkatesh from corporate database India Private Limited. Please proceed.
P Venkatesh
Hello. Hello.
operator
Yes, sir.
P Venkatesh
Yeah, I just wanted to understand. So if you have seen this number you can mention about company filing for. So we could have called out this risk much earlier as far as offices in Turkey are concerned. Any thoughts on that? And secondly, the kind of provision that you have taken out there, what is the extent of impulsives that are under kind of doubtful. Can you follow up that figure also? Thank you.
S.V. Krishnan
Okay. Venkatesh, these are evolving situations. If we have had so much of clarity, definitely we would have highlighted the upfront. We had to take a view as we were closing our books. So we think, I mean there is no delay and these are at an appropriate time. But if there are anything more definitely we will come back to you at the right time. Second, very specific to arena in our view about $20 million is a delay collection out of which we had provided for about 8 million. And we think we should be able to collect the balance as we stand now.
P Venkatesh
Thank you.
operator
Thank you. The next question is from the line of Ijas Lakhani from Unifi Ancient. Please proceed.
Aejas Lakhani
Yeah, present a follow up. I’m still trying to understand the call out of the ability to maintain that EBITDA aspirational margin of 2.3%. Given how the first quarter performance has been, what gives you the confidence that in the remaining nine months, given the dynamic situation in Turkey, we will have to cover up more than the 2.3 so that the blended number reaches 2.3. So what gives you that confidence?
S.V. Krishnan
Okay, see this issue in Turkey is we think is one off. So. So we don’t, we don’t see all this. We have to make an assessment at this point in time. Second in the earnings deck you would have seen one slide where we had given for a longer period. How have been our Q1 operating profit and PAT percentage? Because I see a confusion. That’s why some of the concerns are coming up. There is a comparison between Q4 or there is a comparison with a full year number visible, Q1 which cannot be the case. Our Q1 has always been the lowest quarter in terms of revenue, lowest quarter in terms of of profitability.
So you can see in the slide the trend in terms of operating profit. I am removing the three years of COVID period because those are exceptional. We don’t want to reckon. So the operating profit average pre and post is about 2.06% and we are at 2.09% better than that. The PAT percentage is 1.16%. I mean 3 and post and we are at about 1.32%. So have we done better like what Hari said? Definitely we are. Maybe if the AR issue in arena has not happened it would have very clearly come off. See, look at it this way.
I just. Our AR Provision is about 0.39% this quarter. Normally it’s about 10 bits. Let’s assume it is 10 bits. We are now talking about a 29 which is close to 0.3% dip in profitability only on account of AR which at the PAT level would be about, say about 2223 bips. 2223 bips. Impact is built in, in the number that you are seeing. So I don’t think you need to be worried. We are definitely nothing not worried. We are confident in terms of what we have said.
Aejas Lakhani
Understood. My next question is for Hari sir. So you have mentioned that you have now created a software solution group. So firstly I wanted to understand that the HyperScaler, the Pure SaaS, the software as a service as well as security is a part that encompasses this software solution group. Is that understanding correct?
V.S. Hariharan
Absolutely right. Those are the three groupings. So security, software and even within SaaS, infrastructure SaaS and application SaaS and cloud was separately. Hyperscaler piece was separately in CSC. But now all three of them will be together in software solutions group and you will start seeing some of those in the coming quarters.
Aejas Lakhani
Answer. Given that this is the highest growing piece for us, could you specifically give some color on what are the gross margins and EBITDA margins that we have in this specific vertical?
V.S. Hariharan
As I said earlier, so we are tracking between 5.5 and 6 and closer to 6 on the gross margins on these categories. Obviously we have a lot of work to do. I think we focused very well in the last four, five years on the hiker scale up piece going beyond just resale, going into consumption of workloads and professional services around it. And you get to appropriate, when you do professional services, even higher gross margin even though it’s a smaller percentage of the business. So as we focus and double down on security and SaaS, there is an opportunity to maintain those kind of gross margins.
But there’s potential to add services around. There’s also potential to bring in more brands and get more share so there is more growth and more gross margin that can be appropriated. We are building a plan. It’s not going to happen overnight. It’s a multi year journey. We started the journey, we are making investments there. So the gross margins you can expect in that business is between 5.7 and 6 kind of gross margins.
Aejas Lakhani
Understood. And in the start you mentioned that the TSG run rate business is seeing some sort of a challenge. So when you’re calling out the run rate business, what does it really encompass?
V.S. Hariharan
So the run rate business is really channel business that we work closely with global vendors and these are deals that we work closely with them which they strike the deals and we fulfill them. And it’s an ongoing channel business with their pra TFB partners that Hewlett, Packer Enterprise, Dell and these kinds of brands and Lenovo, these kinds of brands have and we work closely with them to fulfill the deals that they work with customers and with us.
Aejas Lakhani
Understood. And so finally, what is the blended interest cost that we are paying on, on consolidated?
S.V. Krishnan
When you say blended interest cost, you Want absolute amount.
Aejas Lakhani
The percentage. Like Is it 7.58?
S.V. Krishnan
No, no, no. That varies by market. It’s too difficult. I mean 1, 1 percentage arena we discussed. Right, right. So in the rest of the markets, maybe I should say it varies between six to seven and a half percent.
Aejas Lakhani
Understood, sir. Thank you sir, thanks so much.
operator
Thank you. The next question is from the line of Sahil Doshi from Thinkwise. Please proceed.
Sahil Doshi
Yeah, hi sir, thank you for the opportunity. My question pertains to that, you know, this quarter we’ve seen a positive delta in terms of the MSG shares. But consequently we haven’t seen a similar follow through in working capital in terms of benefit coming through. So could you talk A little on this. And also could you quantify the impact of the increased MSG share on the gross margin?
S.V. Krishnan
Okay, see benefit of mobility growth definitely seen in working capital outside of mobility. There is an increase in. That’s something that we see in the marketplace. It’s just not in the case of Reddington, even with other competition, the credit days in the market are more. But however, if you see end of June last year we were at about 39 days of working capital closing and now we are at about 37. So there is a drop of the two days. And this is primarily on account of the mix which is higher contribution from MSG because of the mix change.
The advantage, sorry, the disadvantage that we have had in terms of the mobility is offset by the esg. In esg, our growth has been slower, which is what is is taken over by msg. Both broadly has got neutralized and hence that impact in the gross margin is not visible. But even if I need to put a figure, there could be about 5 to 6 bips of impact on account of both.
Sahil Doshi
Okay, understood sir, appreciate. And the question other question pertains to these large deals. Could you keep quantify many. What do you define large deal as? And is there any factoring on account of these again in this quarter? And second is if we just see a long term trend, the 5% adjusted gross margin which we’ve seen, this is the lowest ever we have reported in any quarter. So structurally, are we looking at growth at the cost of margins? Is this how we should think about or have the terms of trade in the entire channel changed? And this is.
This should be the new normal.
S.V. Krishnan
Okay, so the definition of the large deal, it is too difficult to define because the size of the businesses are going up. I’m just putting it in a very broad level. One and a half two years back, anything more than 100 crores could be a large deal. And last year we had handled certain deals which are more than 200 crores. I’m talking about each transaction. Now if we look at the businesses that are coming, there are some business which are multiple times bigger than this. So it’s too difficult to put a very specific amount if it’s quite substantial.
And it is to one customer, one vendor, I mean we think it need to be called out as a large deal.
Sahil Doshi
Okay. And related to the factoring and the other question on the growth over mergers.
S.V. Krishnan
Sorry, which one.
Sahil Doshi
Is there any factoring on account of these large deals which you had done and if you can quantify that.
S.V. Krishnan
No, not in this quarter. But in the past for some of the large transactions if we think we need to do receivable factoring, we had done. But not in this quarter.
Sahil Doshi
Sure sir.
Aejas Lakhani
And my other question.
S.V. Krishnan
Some of this difficult Sahil to guide. I’ll tell you this is the challenge in the back to back business. The deals come, we need to take a decision at this point, at that point in time, what to take, what not to take. And each one is a different animal by itself. We are supposed to structure it in that form so it cannot get guided in a very simple form. But wherever we think there are possibilities, we hedge it in the form of a back to back payment terms or if it calls for more credit and there are possibilities for us to factor it with the bank, we do that.
V.S. Hariharan
And the additional. The other question you had was is this a new normal and are we compromising gross margin for growth? See it’s a matter of relevance and market share. For the run rate business we will maximize and have our share. And the big deal business if we don’t, if we play in that incrementally, yes you will get additional growth and yes your gross margin percentages will deteriorate as long as they make sense of a return on capital employed. We have a threshold as what Krishnan said, it makes sense to us. So we have to play that game.
If you don’t want to participate in the big deal because it’s pulling down our gross margin percentage, we may become less relevant in that category.
S.V. Krishnan
See one another point I want to make a mention here. See this is the market which is very attractive and which is pretty large even for the global leaders. And they are all present in that market. So you have to ensure as a leader, we are the leader in India. As a leader it’s important that I mean you need to play the game in line with what a global player will do. If the same transaction can be picked up by them and if we are not able to do then that advantage goes. So we are very conscious about the risk.
We are conscious about the working capital that we deploy and the returns that we need to make. But these are, I mean the choices that we need to keep making as we move forward. To Sahil.
Sahil Doshi
Sure sir. Thank you. Appreciate the candid responses. Just final one on arena, if you can just quantify or you can just call out what’s the situation currently and how should we think about profitability and capital infusion Further here on?
S.V. Krishnan
No capital infusion, we haven’t invested, maybe haven’t put any capital, we haven’t made any commitment in arena post our acquisition way back in 2010. So there are no capital investments that are planned. Having said that, in arena economy industry is still going through stress. We have confidence on our people in terms of how they manage. And that’s something wherever required, we are pitching him. I mean we are pitching him, we are helping them. So we would be very cautious. We think situation will become better. As Hari said, we are also looking strategically in terms of what we can do at the right point in time.
We will share with you what’s our thought process and what’s our plan. But as we speak now, we are trying to do our best in the given situation.
Sahil Doshi
Thank you so much.
operator
Thank you. The next question is from the line of Sarvesh Gupta from Maximil Capital. Please proceed.
Sarvesh Gupta
Good evening sir. Just one confusion that I had. In the beginning you had called out the 60 basis point decrease in gross margin. And out of that 20 basis point was attributable to arena and Paynet and remaining to the TSG large deal business. But then later in the call you mentioned around 30 basis point of AR provisioning. So. So I got confused that how much is the one time thing and how much is because of the one time AR provisioning and how much is repeatable. So can you please clarify that.
S.V. Krishnan
See, AR provisioning is part of opex. It is not a part of margin. Both are independent. Have the margins dropped? The margins have dropped. We have discussed about it. But at the same time we had brought in operate OPEX control. Which is why our OPEX increase even though revenue growth was 22%, opex growth was 6%. Even though gross margin growth was 14%, opex growth was 6%. And interest, we have had a degrowth by considering interest and factoring together these have enabled the profitability to be strong. If your question is if these gross margin drop had not happened, if the AR provision had not happened, would the profitability growth would have been more.
The answer is yes.
Sarvesh Gupta
So your opex growth of 6% which was anyways a good sort of number would have been even lower had it had this 30 basis point of AR provisioning had not been done this quarter.
S.V. Krishnan
Oh, sorry. In OpEx I have not included AR without AR. The OpEx, the regular OpEx is 6%. If we consider AR, our OpEx growth was 13%.
Sarvesh Gupta
Okay, so this 13% would have been 6% but for this 30 basis point of AR provisioning that we have done this quarter.
S.V. Krishnan
Yes.
Sarvesh Gupta
Okay.
S.V. Krishnan
Sorry one, one second. One. One second. Yeah. If you add up, if you add up AR including AR, the growth is 19%, not 13%. Sorry.
Sarvesh Gupta
So Opex plus AR yoyo y is 19% only Opex is 6%. Hello.
S.V. Krishnan
Sorry, one minute, one minute. We are just taking the figures. Just give us one minute. Yeah, it’s 19%.
Sarvesh Gupta
Understood. So OpEx plus AR yoyo y is 19% only OpEx excluding AR is 6%.
S.V. Krishnan
Correct.
Sarvesh Gupta
Okay. And secondly, on this TSG large deal, so I understood the strategic thing that since we are the market leader, we have to play sometimes. And also, you know, these could be something that is more involved going forward as well. Having said that, I could not, you know, just. If I look at the working capital days, somehow it did not seem intuitive that we got the benefit of the lower working capital days because of these larger deals. So the days reduction was small. And the free cash flow was also sort of negative for the quarter because of that.
So how do I. I mean, did we get. What kind of benefit did we get on the working capital because of these large deals?
S.V. Krishnan
Not significant this quarter. It wasn’t significant this time.
Sarvesh Gupta
But let’s say on a normal basis, are those significant? Like because we take a hit on our margins?
S.V. Krishnan
It depends on each deal. That’s why I said normally there could be a compromise either on the margin or on the working capital capital, but sometime, I mean, that may not be significantly felt. But working capital deduction wasn’t quite significant. It was only two days overall.
Sarvesh Gupta
Okay. Finally, on the Turkish business, so on our parent balance sheet, what is the net carrying value of the investments that we have done for Arena?
S.V. Krishnan
It is currently at about $30 million.
Sarvesh Gupta
3 0.
S.V. Krishnan
30.
Sarvesh Gupta
Okay. Okay, understood, sir. And congratulations for steady numbers and all the best for the coming quarters.
S.V. Krishnan
Just on that question, I think it’s important also for me to tell you arena is a listed company and Arena’s market cap, I don’t know. Today it ranges between 85 to 90 million dollars. So for your question, what’s our current investment in the books? About $30 million. But if I need to calculate what is the market value of that is 50% of this amount, which could be between 40 to 45 million. That can give you some comfort.
Sarvesh Gupta
Well understood, sir. Thank you.
operator
Thank you. Due to time constraints, that was the last question. I now hand the conference over to the management for the closing comments. Over to you, sir.
V.S. Hariharan
Thank you so much for all the questions. I know because of the gross margin declines as well as the challenges we’ve had in arena, our subsidiary, there were a lot of questions. We feel very strong the way we’ve executed the quarter in all the geographies outside of Arena. We are confident as we go forward in Q2 we do see the NPIs in mobility as well as the technology solutions and the software solutions. Build business building out decent quarter for us and look forward to sharing that with you in three months.
S.V. Krishnan
Thank you.
operator
Thank you on behalf of Redington Limited that concludes this conference. Thank you for joining us and you may now disconnect your lines.