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Redington India Limited started off in 1993 as a distributor for HP printers, and has since massively scaled up into the distribution of other PC components, partnering with 250 global brands along the way, and operating in 37 emerging markets. They’ve become a leading distributor of IT and mobility products and a provider of supply chain management solutions and support services in India, Middle East, Turkey and Africa. It occupies top spot in most of the market.
Redington has 3 Automated Distribution Centers, in Kolkata, Chennai, and Dubai. It derives 60% of its revenue from overseas markets and is expected to heavily benefit from a rise in digital sales.
Distribution is low-margin business with high working capital requirements, which act as a barrier to entry in the industry.
Redington enjoys an excellent balance sheet, with a net cash position of Rupees 2,850 as ofin March 2021. It also has good risk management policies shown by stable margins over last 10 years.
However, it is vulnerable to geopolitical and forex risks as large chunk of its revenue is derived from abroad, with low margin which can be eaten away very quickly. The company also heavily relies on its Top 5 vendors.
The company has ridden the digital wave very well during COVID, with a net profit growth of 72% in second quarter on fiscal year 2022.
So, what is our view on company valuation?
Redington trades at an EV to EBITDA ratio of approximately 5 times and a Price to Earnings ratio of 11 times%, with a 10% growth expected at revenue and net profit level over the next few years. Company has strong balance sheet, high CFO to EBITDA ratio and ROE, Redington has dividend yield of 2.7%. So, the current valuation seems to be reasonable.
Overall, the company looks interesting for investment from a long term perspective and should be explored further by investors.
As for the risks to the investment analysis, Redington could face a major impact on financial should a key brand like Apple change distributors, especially when margins are already wafer thin. Moreover the long term mean PE multiple of the company is 9.5x. Any reversion to this mean will lead to short term underperformance.
So would you invest in Redington India Limited? Let us know in the comment section below. Be sure to like the video if you learned something from our analysis.
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