Redington (India) Limited (NSE: REDINGTON) Q3 2026 Earnings Call dated Feb. 05, 2026
Corporate Participants:
V.S. Hariharan — Managing Director and Group Chief Executive Office
S.V. Krishnan — Finance Director and Group Chief Fxecutive Officer
Analysts:
Unidentified Participant
Nitin Padmanabhan’ — Analyst
Vinay Menon — Analyst
Aejas Lakhani — Analyst
Tarang Agrawal — Analyst
Shrinarayan Mishra — Analyst
Sahil Doshi — Analyst
Samay Sabnis — Analyst
Madhur Rathi — Analyst
Presentation:
operator
Ladies and Gentlemen, good day and welcome to Redington Limited Q3FY26 earnings conference call. This conference may contain forward looking statements about the company which are based on the beliefs, opinion and expectations of the company as on the date of this call. The statements are not guarantees of future performance and involves risks and uncertainties gratificate to protect. 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. Should you need assistance during this 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. VS Hariharan, Managing Director and Group CEO. Thank you. And over to you sir.
V.S. Hariharan — Managing Director and Group Chief Executive Office
Thank you. A very good morning everyone. It’s a pleasure to be here and I’m delighted to share with you Our results for 2026. This has been our best so far both from a and a profit perspective. We recorded nearly 31,000 crores to precise 30,959 and a quarterly profit of 436 crores. Our revenues grew at 16% and profit after tax grew at 9%. Overall PAT percentage was at 1.41% for the group and excluding Arena PAT was at 1.56%. It is a continuing story of profitable growth with growth coming in strongly across business segments and across geographies.
From a geography perspective, the revenue growth was contributed by many of them. India continues to be very strong at 25%. UAE was strong at 19 GCCL. This is a cluster of countries outside of UAE and KSA including Levant countries grew at 29% and Africa grew strongly at 14%. Within India, while we had growth across, we did see a strong uptick in the upcountry driven by our focus and initiatives in the upcountry, the cloud and IT infra investments in the Middle east by the governments and corporates is proving to be a good opportunity. Our focus efforts in Africa on Software Solutions Group is yielding results.
Now moving on to performance by business units that I can provide a color on the growth and what’s driving the growth. Most of the business units contributed well. Mobility continues to be a good shining star for us at 15% year on year contributing to 35% of the top line driven by strong demand in the premium segment, impact of the NPI from the previous quarter and strong execution in the direct to retail segment in India. On the Endpoint Solutions Group the PCs we saw some really nice growth this quarter at 21% year on year contributing to 32% of the top line.
The PC demand was strong, partially driven by the component shortage and the price increases. However, if you dive into the details, the AI PC penetration In India commercial PC segment was on the rise with 28% of the revenues coming from AI. In the consumer segment, gaming continues to do well and desktop PCs saw a surge as brands gained share from the white label due to the component shortage. Now coming to the Technology Solutions group, while we saw a decline at 7%, it is largely driven by timing of large deals executions across quarters. There’s clearly a lot more data center business and deals with with the emergence of new cloud and sovereign cloud players in the market, we have an opportunity to participate in this growth and have closed several deals in this quarter.
Few have got recognized in Q3 and we continue to see some of them driving the growth in the upcoming quarters. With the recent announcements in the budget on tax holiday for data center investments from foreign companies, this area definitely holds great promise for us. We are building a strategy to start focusing on the data center space and looking at a variety of approaches from power system solutions, cooling system solutions, various services into the data center and also matching demand for colocation et cetera for the mid market. Coming to our Software Solutions group which has been our for the last several quarters and a couple of years our focus has really helped ssge.
For us, Software solutions encompasses the golden trinity, the cloud hyperscaler business, the software business and the cybersecurity business and professional services. Of course not forgetting that SSD grew 40% this quarter contributing to now 18% of the top line. If you remember when we talked about the year gone by it was 15 and then the last two quarters of 16 and now 18. So clearly the focus and the market both exist. Double digit growth was recorded across all the subsegments within sse. It also delivered higher than average profit after tax. Within the cloud subsegment. We’re working closely with the hyperscalers and taking advantages of of the enterprise transition to cloud and digital transformation. The cybersecurity and software business. We are increasing the breadth of our offering and the brand offerings that we have and we’re also increasing the intensity of our go to market. We’re also rolling out this quarter an enhanced version of the digital platform that we have what we call as cloud quops with more features and analytics for customer lifecycle management. We’re also investing more in technical pre sales and solutioning teams, also investing in the Reddington Academy to create more certified professionals within the company and of course within our channel partners.
Our professional services business, though small, continues to grow very well and delivers value add for the cloud retail business. Coming to AI we talked a little bit about it. Now it’s becoming real. We started to create several targeted initiatives to make this practical and real for us and for our partners and customers. We are creating a capability center in Chennai. It started with an AI competent team to work on internal and external use cases and program concepts. We’re also creating an AI go to market team both in India and Middle east to work on these customer use cases.
We are in the middle of developing an AI Agentic catalog which will go live soon. Working with our IS3 is going to be a good starting point to fast start to deploy AI agents with customers. We’ll hear more about this in the next few quarters and what we plan to achieve and what are the outcomes. Let’s move on to operations. It’s again been a great story. Very efficient management of working capital has led to the overall lowering of working capital in the age of 28 days. Despite the investments we are making in the growth areas like Software Solutions and others, OPEX Control continues to be good at 9%, going slower than revenue growth giving us operating leverage.
Our digital platform for hardware continues to evolve very well and reaching more partners. More than a quarter of our business in India this quarter went through the digital platform. Our back office and logistics business are beginning to deploy AI agents which are resulting in productivity improvements and cost savings. Now coming to arena which we have again covered in every one of our calls. Separately, our subsidiary continues to wait through the economic challenges in the country, but it’s getting better. While inflation has been coming down to 31% and policy rates to 37%, the situation continues to be challenging.
In order to reduce interest costs in the ARENA operation as we spoke in the past and to minimize local currency exposure, arena has divested from their Vodafone contract. As informed last quarter, this has been executed well. However there are still impacts on this transaction in the current quarter. The overall loss in arena for the quarter was 22 crores for us over the last few quarters. Arena has been taking a series of actions as we have discussed, but I want to just bring your attention. Starting from Paynet divestment, tightening of OPEX and Working capital, managing AR more closely, understanding the market in terms of on product cases, divesting from local currency business, all heading to improve the health of the business.
The trajectory is definitely showing and going in the right direction and we remain very hopeful. Arena will get to healthy levels as we approach 2027. To summarize, I’ll just say a few comments. A defining feature of Reddington’s market perception is trust, which we are really proud of. Earlier this year we won the most trusted distributor award from VAR India in July. Our key stakeholders in the system, the brands, the partners, the customers, bankers, and you the shareholders, have told us that they have very high confidence and trust in our company. We would like to thank every one of you for believing in us through our journey.
As we transform the company from being a distributor to an orchestrator in the new world order defined by cloud, software and AI, we will be shifting to an unlock next approach to a sharper feature facing outlook. This is not a mere narrative, but a bolder approach to unlock growth opportunities, to unlock more efficiency, to unlock access to more opportunities, continue to unlock trust and continue to unlock impact. All this while maintaining your trust and confidence. We want to enable progress across markets, across businesses by bringing right technology, partnerships and expertise together and to help our customers from their intent to transform to impact faster.
Thank you very much. We look forward to your questions. Thank you.
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 their touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets 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 Padmanabhan from Investec. Please go ahead. Sorry to interrupt. Sanathan, you’re not audible. Can you please come closer to the mic?
Nitin Padmanabhan’
I am right on the mic.
Is it better?
operator
Yeah, it’s. It’s clear now. Thank you. Please continue.
Nitin Padmanabhan’
Yeah, so I had a couple of questions. So one is to start with this government mandating appointing a reseller from a data center perspective for global guys who are selling in India. Does that sort of open up a. Large opportunity for us or. That’s not a given in terms of an assured opportunity. So that was the first one and. Then I had a few others.
V.S. Hariharan
Okay, thanks Nitin for the question. It’s early days but we think it is definitely an opportunity. We are reaching out to the hyperscalers to explore the direct business that goes into corporate and we are getting ourselves prepared. If moving that business is beneficial financially for them and we can take over that business will definitely be very key. It’s early Days business.
Nitin Padmanabhan’
Got it. And your thoughts on this chip shortage and how that’s sort of impacting business at the moment? Are you seeing people sort of sort of preponding their buying decisions because prices are on the rise? And are you seeing a situation wherein, you know, it’s flying off the shelves, inventory days are falling. Right. You’re seeing better working capital conversion on these and thereby better margins or how are you basically seeing and how you see this evolve?
V.S. Hariharan
Okay, thanks Ms. Zimin for this question. It’s an interesting one and this will evolve as we go along. Clearly a couple of things have happened. One, there is definitely the second tier channel. The retailer partners that work with us have picked up inventory. We’ve still yet to see a big uptick in demand for the end customers, but we believe that will happen because there are more price rises coming up. So that’s one. And there’s clearly a lot of work as we work with the brands in terms of juggling the type of models, the type of SKUs to sell, the inventory management, all of that.
But. And we are seeing, like I mentioned, desktop, suddenly there was an upsurge and we’re seeing higher priced PCs also getting a bit more traction. But has it resulted in more margins? No. Has it resulted in slightly better weeks of supply for us? Yes. Not enough, but slightly better? Yes. In the EAC side of the house, if I look at how it will pan out, clearly prices will be on the side. We have yet to see the demand being picked up because the pricing will somewhat sober out the demand also. We think. So we just have to wait for a few more quarters to play this out.
That’s the short answer. The demand from the customer demand has to be there to the channel partners have picked it up, but the sell through, we have to work through this quarter and see how that pans out.
S.V. Krishnan
It is also only to put a number or a guidance to this. But if your question is also related to why working capital is down to 28 days, is this because of that? Very clearly the answer is yes, yes, yes.
Nitin Padmanabhan’
Got that. And then just a couple of quick ones. Quick ones. So one is I think mobility grew 15% year on year, but when I look at the top vendor there, the growth has been amazing. It’s growing 27%. So what’s been the drag in that business? Otherwise you would have seen a far better growth. The second bit is on just a bookkeeping question on factoring costs. And finally any one off impacts on profitability for arena that’s driving the 22 crore loss there.
S.V. Krishnan
Okay so on the mobility front this. Time. The performance of Apple compared to Android is better. Second in arena we exited from the correct from the connect business which is a mobility business. So that has offset the growth of the mobility in other places. Second, the factoring cost you wanted. Just give me a second. Okay, so I’m telling you the factoring in arena for this quarter it is 18 crores last year. Q3 it is 6 crores. So it has dropped by 60% if you take the interest costs. Arena’s interest cost for the current quarter is 43 crores. This 38 crores last year. So net net overall 60 crores in the current year this, that is 73 crores.
Last year a 17% drop. Third, your question on arena performance. See we have been as Hari detailed, we have been taking lot of steps to correct and you would have seen in Q1 we have had a loss of 9.5 million. In Q2 it came down to 8.5 million. In the current quarter it had come down further to 4.9 million. Our expectation is in Q4 this will further come down but as we speak now looks like there will be some loss. So very clearly the loss situation is coming down and a part of this loss this quarter, last quarter and some in the next quarter will be towards the exits that we are doing in the connect business as well as in the Turkish lira business.
But some of the key points which may be interesting to you to understand is the closing working capital which was last quarter end at 179 million is down to 129 million. 50 million drop. Closing debt has come down from 126 million to 94 million. Interest cost is all inclusive including for our internal purpose we consider credit card commission, rediscounting charges, all are part of finance. Cost is down from 13.8 million to 7.5 million. So you can see across the board there is an improvement. But still we are in a loss situation. I think next year we might move towards a breakeven.
That’s the thought process. But all the efforts are on to make sure this turnaround is in place. We have cut down the business and we are being very, very picky. But having said that we have to do some, I mean some threshold business to be in the reckoning when there is competition in that market and to.
V.S. Hariharan
Add the SSG part of the business, especially hyperscaler, becoming a little bit more interesting in the market. So we’re trying to step up that area to counter whatever declining revenues You’ve had to get more profitability and that looks promising.
Nitin Padmanabhan’
So this is very helpful. Thank you so much and all the best.
S.V. Krishnan
Thank you.
operator
Thank you. The next question is from the line of Vinay Menon from Munak Capital. Please go ahead.
Vinay Menon
Hi sir. Thank you for the opportunity and congratulations on great execution. Few questions from my side, sir. Like you mentioned, there were large deals. In TSG and I think that was. A bit of a drag on margins as well. So how could we look at this going ahead? Because as you as Harisha mentioned that. We are going to be looking at more data center deals also. So should we see this as a trend continuing for the next few quarters?
S.V. Krishnan
See first of all, large deals that got executed in the current quarter wasn’t substantial. But having said that, as, as Hari said, we have lot of orders in the pipeline. So you will see this moving up as we move forward. I just want to recollect the earlier calls that we have had. Vinay, Karen, we said irrespective of the gross margin or the working capital deployment, our focus will mainly be on rotate. We will protect our RO pay. I’m sure you can very clearly see for the quarter the RO K stands at 22.1%. So that’s something which is very critical for us.
Yeah, in terms of percentage margin it would be lower than the normal. But that’s the nature of the beast.
V.S. Hariharan
And as we spoke earlier, our focus is to make sure that our OPEX and structure is supporting the run rate business. And the deals come as a kind of a cream on the cake or topping on the cake. So in that we just manage focused on rose and the incremental. The incremental approach on this.
Vinay Menon
Thank you. And there was a small goodwill impairment you’ve taken this quarter and can you just throw some more color on that?
S.V. Krishnan
This is in proconnect. This is out of an acquisition we did about seven years back. And we thought it may be important to have a clear review and take because this depends on few of the contracts. Each of these contracts keep coming up for renewal or RFQ every two to three years. So we made some assessment, we took some probability and we thought we need to take an impairment. And that’s about 9.2 crores in the current quarter. And that’s completely one off.
Vinay Menon
Okay. Okay. And one last thing from my hand that you know SSC continues to show that 40% plus growth. So can you just give me like a few things which is working for us and since we are like one of the largest players in India and for this. So anything which is really working and what could be the momentum going ahead. Thank you.
V.S. Hariharan
Yeah. So there are many things that are working for us right now. Let me go piece by piece. So the hyperscaler business, we have a real great partnership with the key players, AWS and Microsoft in terms of how they look at the business and what we need to do in terms of managing the KPI. So we have clear plans laid out and we have working on achieving those KPIs which are leading indicators leading to the revenues, et cetera. And that requires a lot of operational work and the joint business plans. So that’s clearly, I would say, great focus and that’s where we enjoy a good share in both India and Middle east markets.
When it comes to the software business. We have a few brands which we do an extremely focused and good job and we have, in some cases we have, I don’t want to name brands, but there is a brand where we have 60 odd people in the team focus exactly on how the brand goes to market and maximizing customer connect and outcome based selling. So we do what is called outcome based selling. When it comes to security, we’re clearly broadening our portfolio and as we focused on ssd we clearly realized that we didn’t have the complete breadth of portfolio.
And also we are strengthening our solution architect teams and we are making some organizational changes to bring them and align them in a way that we can maximize what the brand wants to achieve in the market. So it’s all about doing these little things. But going forward, clearly the investment in capability is going to help. We are investing in professional services capability, we are investing in the cloud, platform automation, even simple things like renewals. When a product and a subscription is coming up for renewal, we need to start looking at it three, four months before the renewal cycle and how we focus on it to make sure the churn doesn’t happen.
So there are a variety of things that happen and we’re just stepping up the game in terms of this sheer focus in all of these areas.
Vinay Menon
Thank you so much. I’ll get back in the meeting.
operator
Thank you. The next question is our line of ages. Lakhani from Unifi amc, please go ahead.
Aejas Lakhani
Yeah. Hi team. Congrats on a good sense team. First question is that could you speak a little bit about the slightly weakish gross margins? I understand the seasonality with regards to mobility, but is there anything else to call out here?
S.V. Krishnan
Okay. See overall gross margin is down in this day about 47bps on a year. On year basis out of this, about 38 bips is an account of arena alone. And the balance it is on account of drop in PSD. In fact, in few other businesses like SSD etc. The gross margins have gone up which offset this drop. So let’s talk about these two in arena. Like I had said, we are taking right steps since the local currency business has a very high interest component. If I just need to take you through on some quick math.
Even if you take 60 days of working capital in a 40, 45% interest rate, that’s about 6 to 7% of interest cost as a percentage of revenue. This needs to get recovered in the form of higher gross margin. So some of these businesses have higher gross margin but still we are not making money because of high interest rates. That’s the situation. Those are the things that we have now taken the decision to exist which has resulted in the overall margins coming down. But we think it’s a correct decision and what we have is something which is robust and sustainable.
Second, on the tsg, yes, the margins in TSG like we discussed in earlier calls are coming down and we are trying to correct it. This is mainly market with, mainly to do with the ecosystem. But whatever we could do to make sure that our profitability is protected, we are doing it.
Aejas Lakhani
Understood. So thanks for that sir. On just a follow up. So sir, you know in Turkey, sir, you had called out that last year, same time the total factoring cost was 71 crores of which Turkey was 36. And then you had some one off incrementally higher factoring costs for this quarter. Sir, you mentioned the ARENA factoring cost at 18 crores. What is the overall factoring cost? Sir.
S.V. Krishnan
Overall factoring cost for the current quarter is 33 crores which are the 71 crores for last year.
Aejas Lakhani
Understood. Sir, could you speak a little bit about the concord cases that are there in Turkey. How are they trending? You know the provisions that you had created? Are you seeing any reversal opportunities there?
S.V. Krishnan
No reversal opportunity. We should feel lucky that there has been no additional provision stages. I’m being very open. Out of 20 million as we discussed, about 8 million we had provided and the balance 12 million. It’s going to take time. We are in the process of collecting. There is some slow movement that’s happening as we speak now. That doesn’t seem to be a concern.
Aejas Lakhani
Understood. And sir, incrementally as we enter fourth quarter and first quarter, the factoring cost to arena, given that the LIRA business continues to decline and you are exiting that. How should we think of the incremental factoring and interest cost in that geography?
S.V. Krishnan
Okay, see US dollar, that interest rate will continue the Turkey, I mean the TL interest rate, interest cost will come down. It will not become zero because there will be some business which is happening in Turkish lira. So we need to borrow, whether it is a normal bank borrowing, whether it’s a factoring that is more to do with the availability of funds and the sources. So overall I would think this TL interest cost will come down and overall the Turkey finance cost will come down. As we move forward.
Aejas Lakhani
Understood, sir. So the other thing is that, you know, you’ve not called out the labor cost impact in the notes to accounts. We read that it was not material. But has there been any one off expenses in the employee cost on account of this?
S.V. Krishnan
Because of the labor code, there is no significant impact. But there are certain assumption changes in the actuarial valuation that has resulted in some incremental one off cost. And this is to the extent of about 1314 crore.
Aejas Lakhani
Understood. So incrementally going into next year, our employee cost on a quarterly run rate, of course depending upon the payouts, etc. Will remain in that broad range of. You know, 380, 390 crores ballpark there plus the increment cycle. Is that broadly correct?
S.V. Krishnan
We think so. I mean in terms of working capital, we are, we are quite at it. Interest rate, we only see that coming down across the board. So we don’t expect any major movement.
Aejas Lakhani
Okay, and could you just also speak about the fact that, you know, you’ve called out that we’re probably at the cusp of a refresh cycle. But given that chip shortages are getting more acute, there is, you know, a price hike which is imminent. Hari sir even mentioned that, you know, this could of course have some impact on volumes incrementally. Does that set up a situation where the refresh cycle is getting delayed and volumes could be a little bit under pressure in the next year?
V.S. Hariharan
Yeah, I think it is very possible. We still are seeing the cycle on the 10 to 11 that active anymore. People are delaying those refresh cycles. But given the price increases, I think it’s highly possible that volumes could be under pressure while ASPs go up and margins will remain similar. But volumes could be under pressure because it looks like the industry is going to take 12 to 18 months to recover from the whole. Increasing the manufacturing of components and ramps for meeting the requirements.
Aejas Lakhani
Understood. And just finally, could you call out your growth outlook for each of the geographies and any headwinds you see in specific markets. Thank you.
V.S. Hariharan
Okay, so I mean I started business units so clearly ESG, the Endpoint Solutions Group and VCs, while the short term looks rosy, there will be some headwinds in terms of quantity, availability, how do we do, supply, demand matching, et cetera and that will be across and on the mobility side, India continues to be strong. I think the premium segment in India and the direct to retail, all of that, we continue to see some good traction and we continue to see that going forward. Whereas I think we cleaned some of that in Middle East, Africa and we could see mobility slow down a little bit in the next few quarters and not be as rosy as what we’ve seen in the last 2, 3/4.
Then when it comes to PSG, we definitely are seeing some correction on the on prem to cloud migration. So if you look at our TSC business this quarter we declined 7% but that’s partly linearity. But for the year YPD is a 5% growth and we are increasing our focus there both on gross margin and top line growth. However, there are limited opportunities. The bigger ones there is data center deals. We definitely will continue to look at what data center deals can count for us from a real estate perspective and continue to participate there. So I see a bit of the growth may not be double digit but high single digit SSG will continue to be the 40% plus growth in all markets and we’ll see that across India, Middle East, Africa, Turkey and Southeast Asia.
So that’s how we see it. So SSD across mobility continue in India ESG we will maximize based on availability and PhD will be what we do today in run rate and data center focus. India will continue to be India less headwind and Middle East KSA and uae. UAE very good, strong momentum. Saudi Arabia has actually reprioritized and you might have heard even on the Vision 2030 they have delayed some of the participation of the big international event, et cetera. So clearly we are seeing there a little bit of a challenge. But we continue to go but not as hot as we’ve gone in the previous year.
Gone by. But the year before that Africa continues to be promising especially for SSE and csp. We’re just getting started so we’ll see where we go on that. But that’s where we are.
Unidentified Participant
Thank you. Hari, good morning, this is Sharath. Good morning Mr. Krishnan. I’d like clarification on one aspect that we discussed earlier. In fact I think the previous call where Mr. Krishnan you guided us saying there could be, given the high growth rate, there could be a need for. An increase in working capital. On the other hand, we’re seeing quite a significant improvement and a significant reduction in working capital. In fact, this is probably one of the lowest levels of interesting cost that I think we’ve seen in a long time. Could you help us understand these improvements in working capital? Are they sustainable?
S.V. Krishnan
Okay, so is this the lowest outside of COVID This is the lowest both in terms of working capital base as well as in terms of interest cost. Just to tell you, interest cost for nine months outside of arena is 22bps of revenue which is one of the lowest that we had seen. I can only tell you the intensity at which the working capital is getting defined across the board is very high. Having said that, the market reality is not that easy. Some advantage we get on account of higher growth in the mobility business. But having said that there is a risk cost increase in working capital.
We keep telling you that the normal range will be between 35 to 40 days. I think, I mean on a steady state basis that’s the range that we all need to look for. Second, with the data center type of business, which requires some time high working capital deployment. Second, the growth in SSB and the growth in PSG which calls for higher working capital. We also need to watch out for the mix as there is a high growth, there is a possibility for higher capital and we today have enough legroom for capturing additional growth. And that’s a comfortable situation to be in.
But is there an upside risk that trade risk? Is there?
Unidentified Participant
Okay. No good. All the best.
operator
Thank you. The next question is on the line of Tarang from Old Bridge. Please go ahead.
Tarang Agrawal
Hi, good morning. Just a couple of questions. So you know, firstly on gross margin, you know, perplexed slightly because if I see on a year on year basis. Hello. Hello.
S.V. Krishnan
I think we lost you for a few seconds. Can you start from the beginning Dalal please?
Tarang Agrawal
Yes, yes. So on gross margin, just perplexed a little bit because if I see on a year on year basis your TSG business has degrown. And secondly, there seem to be some pricing tailwinds when it comes to the ESG business which has grown by about 21% which is higher than the consolidated average. So one would have presumed that all these factors would have resulted in higher gross margins and especially because composition the mix is improved in favor of businesses which are generally accretive. So I’m just curious as to why is this come across So I understand The Paynet argument.
Sorry, the arena argument that you called out. But is there some dissonance in my understanding?
S.V. Krishnan
No. Okay. See esv, can that result in higher gross margin? Marginally, Very marginally. Like it was answered for the previous question. The price increase that’s happening hasn’t resulted in any extra margin for us in this segment or in this quarter at least in psg.
Tarang Agrawal
Sorry, I’m sorry, It hasn’t resulted in increasing gross questions. Is it?
S.V. Krishnan
Yes, but your voice is not very clear, Mr. Khan. But we have understood. Not a problem. So PSG, very clearly there is a drop and the drop is on account of the drop in the margin that’s happening in the business and also on account of the inventory provisions that we need to take. So both these, it is more a market environment, but we are trying to address in the best possible manner that we can, there is excess competition in this space. Even the brands are compressed in terms of margins. So we see not much legroom in terms of increasing the gross margin unilaterally.
That’s where we are.
Tarang Agrawal
Got it, Got it. And one would presume then the margin compression in the TSG business has been quite palpable. For the simple reason that despite the reduction or despite a superior mix, we’ve seen a overall dilution to some extent.
S.V. Krishnan
The answer is yes.
V.S. Hariharan
Okay. The second question is, you know, great work on networking capital days. You know, just curious how much of those days reduction was on account of, you know, your distribution business coming off. In other words, were the working capital days of the distribution business that you have hyped off was inherently more than row average.
S.V. Krishnan
Did you say coming off? Are you talking about the arena work?
Tarang Agrawal
Yes. So the Vodafone distribution transaction that you’ve called off. Right. I’m sure that would have also had an implication on your working capital day. So I’m just curious how much of it is on account of operational synergies, how much of it is on account of some working capital intensive businesses, you clearing yourselves out of those businesses?
S.V. Krishnan
Okay, let me answer it this way. I don’t have a very sharp answer. See, in arena, our debt levels used to be in the range of 130, 140 million last quarter. Now for the quarter end we are dropped sub 100 maybe on an average we can take for the current quarter, we would be at about 110 million or so. So there is a 30 million drop. Drop. Say that it happened in the case of arena, for whatever reasons, that’s about 300 crores. But having said that, I’M just making the comparison between last December and the current December.
Our net debt is down by thousand crores, 1000 crores absolute value and going by just the calculation of 300 crores for arena, the rest of the business, even though had grown by 22%, the net debt has come down, I mean the net debt has come down by 700 crore. So I’m just giving you a rough calculation. So to answer you, is the rest of the business working capital debt levels have come down? Answer is yes, it’s just not on account of.
Tarang Agrawal
Got it sir. Given you know, the potential intensity of working capital increasing in the business and given how certain parts of the business, you know, you’re seeing tailwinds, whereas in some parts of the business you’re seeing some element of cross margin compression. How confident are you to be able to maintain this 21 to 23% clip on return going forward and continuing to grow your business?
S.V. Krishnan
Our internal, I mean that’s a threshold which we would not want to breach is 16% for sure. Our expectation we should range between 18 to 20% rosary for this quarter at 22.1%. I don’t want you to consider this as sustainable, could become sustainable in few years once the SSD scales. But right now I think you should be, you should be looking at between 18 to 20% and I think we are fairly confident to maintain that.
Tarang Agrawal
Got it. And so last question on the SSG business because in Harisar’s opening comments he did call out incremental investments on the OPEX front. So just trying to understand on the SSG business is the absolute EBITDA growth of the business higher than the revenue growth there? Just trying to understand the element of operating leverage that could play out in that business.
V.S. Hariharan
Yeah, I’ll give some general comments to begin with and then Christian, you can jump in exactly the numbers. See clearly there are two areas we need to invest in. People and technology. And some of it we have done over the last couple of years and we’re going to intensify that going forward because we believe we will get above average profitability both at the EBITDA level and the bank level. And so we are working towards that. But as Krishan mentioned, we need to get paid and the opportunity is large. And the way we are going, if you consider the 40% growth on top line which is available across all the subsegments of the business, then we can actually realize the investment in the return investment over the three year period.
S.V. Krishnan
It may not give operating leverage in the short term. Definitely medium to long term. It will give operating leverage as we speak. Now, we are not spending enough, but that’s going to come in. So maybe for some time the leverage will not be visible. The OPEX could be more than what we would normally see.
Tarang Agrawal
Okay. Okay. This is helpful, sir. Thank you.
S.V. Krishnan
Thank you.
operator
Thank you. Ladies and gentlemen. To ensure management can answer all questions, please limit your questions to two per participant. The next question is from the line of Sri Narayan from Bharara BNB Paribas emc. Please go ahead.
Shrinarayan Mishra
Good morning. Thank you for the opportunity. My first question is on CISA. So DISA revenues posted 24% growth but only 1 to 2% EBITDA and PAT growth. While rest of the world EBITDA and PAT growth was in line with revenue growth. So can you explain the divergence between two business verticals?
S.V. Krishnan
Okay, so within cisa India distribution had done fairly well. But as we discussed in Proconnect, we have had a one time charge on account of the goodwill impairment for about 9.2 million. And all plus in SSA which is Singapore and South Asia. We also had some AR position that’s coming in on account of some collectible, I mean collectibility issue in Bangladesh. That’s again a one off. These have resulted in SSA profitability being lower.
Shrinarayan Mishra
Okay, sorry.
S.V. Krishnan
Sorry, sorry. Want to correct The Pro Connect one. 9.2 crores, not million. Sorry.
Shrinarayan Mishra
Yes, yes. So all, all this is done now or do we expect Q4 also to be similar?
S.V. Krishnan
Done. No, no, done. Q4 will, will come back clearly in both the.
Shrinarayan Mishra
Okay, okay. And regarding this impairment. So is this related to, I mean specific geography and you know, why we could not able to identify this when we impaired Turkey business earlier. So you know, what was the trigger for this impairment?
S.V. Krishnan
Impairment just happens on a continuous basis. It gets done periodically. It also gets done whenever we see some events happening. So when we see that the specific customers keep going in for RFQs every one or two years, we are bidding for it, we are getting it. We also feel there is a good chance we will get it this time. But it’s a view that you need to take and there is a probability that it’s attached into this. So it is a view that we have to take along with auditors on some of this.
Shrinarayan Mishra
Okay, so are there any geographies which are in your watch list as of now with respect to impairment that you see, you know, there might be some risk in next 2, 3 quarters?
S.V. Krishnan
Okay. See, Turkey has always been a volatile market. We discussed enough about Turkey. What we are doing, how are we correcting, etc. So if there are any untoward situations, that’s another aspect that we need to keep in mind.
Shrinarayan Mishra
Okay.
S.V. Krishnan
Other than that, nothing.
Shrinarayan Mishra
Okay, thank you. Thank you sir.
operator
Thank you. The next question is from the line of Sahil Doshi from Thinkwise Management. Please go ahead.
Sahil Doshi
Hi, good morning sir and thank you for the opportunity. Hope I’m audible.
S.V. Krishnan
Yes, yes, yes.
Sahil Doshi
So just checking again on the Cesar related to the Bangladesh impact. Could you quantify that? And secondly, just wanted to understand. The gross margins which we’ve reported in CISA are one of the lowest if I see from the COVID times at 4.33. So there’s almost a 41 bips compression here on a Y o Y basis. So could you just help understand this a little better than what’s really playing out here?
S.V. Krishnan
Okay, so Bangladesh, that AR charge is about $1.4 million Pisa gross margin. See, even in the past if you make a comparison in terms of gross margins, India gross margins were on the lower side. The overseas gross margins used to be. On the higher side. However, from a pad perspective, India would still be at a higher percentage because of low opex. The operating leverage in the India business is quite high. So this is one of the things that we see in terms of overall gross margin. As the India pie keeps going up, the gross margin percentage weighted average will come down. May not be significantly, but it will come down because India gross margin is on the lower side. So this is one general aspect cycle. Second, the MSP business as Thari mentioned, both Android and non Android has been growing quite attractively and this is one aspect.
This is also from a margin perspective but Rosa is maintained because Rosa is quite stronger as far as MSB is concerned. And this gives us advantage in the form of working capital while in MSB and TSB working capital is higher. That gets majorly funded by the growth in MSB business and the working capital advantage we get out of it.
Sahil Doshi
I really appreciate that. But structurally is there a margin pressure playing out in CSA in particular? Because you know, the decline is pretty concerning in terms of if I see the patch margin as well, it’s almost 30 basis point decline in the CSA business. So I and the mix of MSG actually on a Y o Y basis is pretty constant. So if you had to see it in that, what other factor do you believe is really impacting?
V.S. Hariharan
I don’t think there’s a structural issue. We did talk about psc, there is a margin compression but in terms of msc, ESG and ssc, we see stable margins there. The mix of the businesses is what is contributing to the gross margin decline as we see it. But in the PSP business specifically there is a margin.
S.V. Krishnan
The OPEX percentage in the India distribution business is 1.3%. Very fine. Okay, so the, I mean the profitability is protected, margins are lower and the pat percentage for this quarter is 1.43%. Very similar to what we, what we see at the global level.
Sahil Doshi
Understood sir. Appreciate that sir. Secondly, just want to check if we see the, you know, we, we give the top revenue contributor the top five and if I see Dell in particular for the last two quarters, you know there’s been significant decline. Is this on account of the entire supply chain issue or is there any other loss of business or geography or. Something of that sort?
V.S. Hariharan
You’re talking about brand. Now look, clearly I mentioned this in the opening comments and later as well we do see a movement from on Prem to Cloud clearly and that’s one of the things that’s driving the lower growth on, on our technology solutions group and why the hyperscalers are picking up some of that growth. And also the data center piece that’s kind of driving that. We continue to be a very strong player as well. We continue to enjoy a good share but just the fact that more people are moving from on premise to cloud is driving some of that.
Sahil Doshi
Sure. And just lastly on Turkey, on Arena, I just wanted to check in. You know we had called out that as we get out of the distribution business there could be certain one time cost related to that. So is there anything on account of that in this quarter and how do we think about arena from Q4 onwards? What should be a steady state business in terms of revenue and incrementally thereafter?
S.V. Krishnan
See whenever you exit any business there will obviously be some leftover cost and exit costs. This is quite normal, I’m sure you acknowledge that. And we are in the process of exiting some part of cost we have taken this time, this quarter, some part we expect will come in even next quarter by March or April I think we should be fully through. On Dinam you will see more of the steady state business which is the core IT business.
Sahil Doshi
Value wise that will be $400 million.
S.V. Krishnan
Okay, see from a point to point if you take the answer is yes, for last year they were little over a billion dollars. This year we expect that to be about half of that. But in between there are, there are actually many things. That’s a long story. But yeah, you can take about 50% drop in the revenue.
Sahil Doshi
Understood. Okay. Thank you so much and best wishes to the closer. Thank you.
S.V. Krishnan
Thank you.
operator
Thank you. The next question is in the line of Samay Sabnees from Hilliard Capital. Please go ahead.
Samay Sabnis
Good morning. Thanks for the opportunity. I just have one question from my side. So I see there was a heavy capex of 112 crores in Q3. So could you just share some color where this was deplet.
S.V. Krishnan
Maybe cap it?
Samay Sabnis
Yeah,
S.V. Krishnan
okay. I will. I will come back. I. I’ll come back. Give us some time.
Samay Sabnis
I get back in the day.
operator
Thank you. The next question is from the line of Madhurati from Counter Cyclical Investments. Please go ahead.
Madhur Rathi
Thank you for the opportunity. Sir, we had mentioned we were expecting the TSG deal segment to pick up in H2 of FY26. But I think because of margin pressure and if you could just help us understand how do we see this segment scaling up because you have mentioned that there are clear headwinds that we see either on the shortage side or on the margin pressure side.
V.S. Hariharan
So as we mentioned earlier also the TST deals Definitely you’re right. Q3 and Q4 we have a seasonality uptick in the second half and we did mention that we have closed some very nice deals where we have not got all the recognition in Q3 but going forward in Q4 and Q1 the timings have moved off so you will see that happening. We also will start sharing when we are ready. In terms of what are the sizes of the deals in every quarter, the large deals. But clearly you see that uptick happening. But from the linearity we lost a lot but we will continue to.
We are continuing to work on the deals and you will see that growth.
S.V. Krishnan
For your earlier question on fixed assets it is quite spread. There are some investments that we are doing in Proconnect both in India as well as in Middle East. These are in the form of investment in warehouses etc. Second is as Kari mentioned in his opening remarks, we are also in the process of setting up certain aicoes and a part of that cost will be in fixed assets. It is a 60 crore increase. Net assets from 591 crores to 653 crores on a year on year basis.
Madhur Rathi
Sir, I wanted to understand regarding the ESG segment and what is the additional price hike do we expect from our discussions with the OEM and the current. What we understand is that there has been a 20 price hike. So is this passed on to the consumer level currently or this is currently on the distribution level and sooner or later, and when do we expect this to be passed on to the consumer level? Because you mentioned that most of the demand currently is coming from our channel partners and the sub distributors.
V.S. Hariharan
Yeah, the price rises clearly will be passed on to the consumer and I think there was a window of opportunity and time where we still the OEMs are sitting on older stock which got moved out because there was a window for people to take advantage of. But as we Already see in Q3, prices have increased and there is a new set of price increases in the coming quarter as well. And all of these will be passed on to the customer. The only thing, as Krishan said earlier, we are not seeing any advantage on additional gross margins for us.
But the price is all the part.
Madhur Rathi
So I was trying to understand have the prices been passed on to the consumers currently or it’s yet to reflect maybe because of some date where these prices would increase going forward?
V.S. Hariharan
Yeah, some of it is already passed on to the customer very clearly in Q3 already. And there will be a mix of old inventory and new inventory. So the channels will be sitting on both of them. But all the new inventory that’s going in in Q3 and upcoming quarters, the price increases are definitely in. The new inventory is all going to the customer.
Madhur Rathi
Got it. So just a final question from my end sir. On the software business side we do close to 6% gross margins. So how much of that would actually flow to our EBITDA or the PAT margins? And sir, my assumption was this business is a working capital negative business. But you mentioned that. So if you would just help us help me if I’m wrong on that front. And what kind of working capital deals do we require for those business?
S.V. Krishnan
See you are right. The gross margin is high. Even the PAP percentage compared to the other business business verticals it’s higher. But working capital being negative, there is some wrong motion. It is not negative. What is not there in this space is inventory. But having said that, if you look at our AR base expectation is high. So in a way this AR base increase also compensates for inventory not being there. Having said that, because of higher margins and higher growth, our HOSTA is quite attractive.
Madhur Rathi
Got it sir. Thank you so much in all the best.
S.V. Krishnan
Thank you.
operator
Thank you ladies and gentlemen. That was the last question for the day. I now hand the conference over to the management for the closing comments.
V.S. Hariharan
Thank you so much for all your great questions. We are, we hope that we were able to answer most of them satisfactorily and we look forward to talking to you again in a few months and look forward to this quarter. And thanks again for listening to us.
S.V. Krishnan
Thank you.
operator
On behalf of Redington Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.