REDINGTONNSENovember 7, 2022

Redington Limited

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Management on call

Rajiv Srivastava

MANAGING DIRECTOR – REDINGTON LIMITED

S.V. Krishnan

GLOBAL CHIEF FINANCIAL

Key numbers — 40 extracted

25%

other strong quarter of sales and operating margin growth. We closed the quarter with a growth of 25% on revenue, EBITDA grew by 23% and PAT grew by 26%, all strong numbers supported by solid executi

23%

nd operating margin growth. We closed the quarter with a growth of 25% on revenue, EBITDA grew by 23% and PAT grew by 26%, all strong numbers supported by solid execution across businesses and geogra

26%

growth. We closed the quarter with a growth of 25% on revenue, EBITDA grew by 23% and PAT grew by 26%, all strong numbers supported by solid execution across businesses and geographies. And because o

rs,

d with all our operating regions and various business units contributing to growth. All our theaters, India, Middle East and Africa, Turkey and South Asia have seen pretty robust growth and all the

INR 30,000

ducts are high risk, the margins are better. Even when you sell to home, for a product that costs INR 30,000 will provide lower margin than a product that costs INR 60,000. So I think it is driven by a varie

INR 60,000

to home, for a product that costs INR 30,000 will provide lower margin than a product that costs INR 60,000. So I think it is driven by a variety of factors. Our margin regime has stayed very consistent ov

40%

mber on the growth side? So that's my first question. And if you can comment a bit on what led to 40%-odd growth in the RoW Consumer segment? And secondly, I would also like to understand how should

15%

uarter, there was a significant drop in the PC industry across the world, the industry dropped by 15% and our volume business was much better than that. Our volume business was up 24%. The way you th

24%

ry dropped by 15% and our volume business was much better than that. Our volume business was up 24%. The way you think about growth, the way we think about growth for ourself, because we also distr

21%

inable basis, we have mentioned this before, I think on a sustainable basis you should take about 21%, 22% at a weighted average rate. This I would say from a short to medium-term, from medium to lon

22%

e basis, we have mentioned this before, I think on a sustainable basis you should take about 21%, 22% at a weighted average rate. This I would say from a short to medium-term, from medium to long t

100%

of the IT business right now is the enterprise segment and how that has sort of -- I think almost 100% of the incremental revenue is from the IT side on a sequential basis. So just wanted your thought

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Guidance — 20 items

Rajiv Srivastava

opening

“New technologies of the nature of artificial intelligence, technologies around data capture and data analytics and data analysis for various companies, how you manage and utilize your data for insights, those are things which have been really leading the way and the thing that that will be the trend for us as well.”

Rajiv Srivastava

opening

“Most of the GDPs have shown a positive trend, though we have seen a slight softening going forward.”

Rajiv Srivastava

opening

“While there has been a delay in delivery of networking products, which has impacted the execution of large project business, shipping situation of technology products has eased considerably.”

Rajiv Srivastava

opening

“So obviously, there have been some good and some not-so-good financial indicators and we expect because of the geography that we are covering, we expect these to balance out for us.”

Rajiv Srivastava

opening

“As we project ourselves into the future, we do see or anticipate a continuation of a constrained demand environment in certain categories.”

Rajiv Srivastava

opening

“Categories would be access products, which are PCs and printers at home, work-from-home, learn-from-home, like I said earlier, but it will be better, the demand environment will be better, and categories like data centers, clouds, services, accessories and some mobility products will see an upswing.”

Rajiv Srivastava

opening

“We therefore, expect to sustain a reasonable revenue and margins from our recently implemented operating environment improvements that we've created for ourselves, amidst the backdrop of whatever is going on in the world from a geopolitical and financial perspective.”

Rajiv Srivastava

opening

“So we can discuss in detail about all the numbers through the questions that we might have, but this is just a commentary I wanted to paint to you, so that you get a context on what's driving our performance and how we foresee ourselves projection into the future.”

Vivek Ramakrishnan

“So is this the number that you expect to see continuing?”

Rajiv Srivastava

“And some companies will be faster on that curve than others, but that really is the one which is fueling the demand today in the enterprise, MSME, government and public sector markets.”

Risks & concerns — 9 flagged

You're also aware of the financial situation across the world, it is highly volatile and there are obvious headwinds.

— Rajiv Srivastava

We will continue to be extremely watchful and cautious over the next few quarters, because how the world is globally connected completely, but I think these are balancing out for us.

— Rajiv Srivastava

Whenever the products are high risk, the margins are better.

— Rajiv Srivastava

The challenge is in Turkey where there is a significant increase in the interest rate.

— SV Krishnan

So that's where we have a challenge in terms of interest cost.

— SV Krishnan

And the second question is -- I mean, you did allude in your initial remarks that globally there is a huge slowdown in this space.

— Sanjay Parekh

There is a global slowdown, we see that and we mentioned then if you see all the reports of all IT companies across the world today, whether it is HP or it is Microsoft or Dell, whoever you see, everybody is guiding in a certain particular manner.

— Rajiv Srivastava

So you see a global slowdown, but the way we manage our business of trying to expand categories, expand geographies and expand and gain share is the one that has helped us in the last couple of quarters despite a slowdown.

— Rajiv Srivastava

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Q&A — 11 exchanges

This is Vivek Ramakrishnan. My question is on two issues. One, has the working capital cycle normalized? And it seems to be stable at this number. So is this the number that you expect to see continuing? The second question is, do you get a sense that there's still a lot of latent demand, in the sense that you really well laid out the shift from working from home to MSMEs and so on. Do you still feel that there is still latent demand and how do you read the situation?

Rajiv Srivastava

Let me answer both the questions and I can ask Krishnan to add to your working capital question also, but let me take it in reverse order, so that we can just get Krishnan also into this discussion. Look, like I said, demand of work-from-home and learn-from-home has come down, it's not gone away, it's come down, and it will get balanced over the short run through a refresh cycle that is bound to happen very quickly because of the migration of operating system from Windows 10 to Windows 11. So there is that interesting dynamic that is going to play-out that people will love to or try to upgrade

My first question is regarding the sustainability of the growth. I mean, you did give some color on there are few moving parts, which are going up and going down, but we have not really seen this kind of growth for a long time. And so can we expect this 25% kind of a growth sustain, because historically we have typically seen the low to mid-teen kind of a number on the growth side? So that's my first question. And if you can comment a bit on what led to 40%-odd growth in the RoW Consumer segment? And secondly, I would also like to understand how should we see the tax rate going forward. These

Rajiv Srivastava

I think a bit of the answer was there in your question, the sustainability of growth, whether you will sustain 25% or not is something that is hidden in your question that you're saying where there are world markets which are a little uncertain right now. And that's the way we see it. In the last quarter, there was a significant drop in the PC industry across the world, the industry dropped by 15% and our volume business was much better than that. Our volume business was up 24%. The way you think about growth, the way we think about growth for ourself, because we also distributed in our operat

Rajiv, your voice is very muffled. I don't know if it's only for me, but it's very muffled on the call. So this is one. The question is on the -- and if you could just give some color on the enterprise segment, what proportion of the IT business right now is the enterprise segment and how that has sort of -- I think almost 100% of the incremental revenue is from the IT side on a sequential basis. So just wanted your thoughts on how that business is doing and how it will do going forward? The second is, some data points on provision for inventory and provision for receivables, how that has sort

Rajiv Srivastava

All right. There’s been many questions. Thanks so much. Let me start with the first one on how the IT and how the segments split of IT is working out and I'll let Krishnan talk about the provisions, cost of debt, interest rate, okay? Rajiv, your voice is very muffled. I don't know if it's only for me. But very muffled. Okay. Is it any better now for you? Yes, it is very clear now. Okay. All right. No problem. So let me do this. I was using hands-free. My apologies. And in case you guys want me to repeat anything I can do that, but let me give you a certain -- a bit of color on the way the ente

Thank you for the opportunity and congratulations on a great set of number. So one in terms of character of the business, generally what I see is that we have 2% net margins, we've turnaround almost as of now on this first half, almost 12 times…

Management

Yes. Now is it fine?

Management

Okay. So in terms of character of the business, we have 2% net margins, we turn around 12x, 13x. So we make 24%-plus ROE, which is great. But when we see the cash flow right, for a business of the scale at which we are, let's say, we do INR 80,000 crores this year, cash flow also would be very important. And first half, broadly, we've done 800-plus cash profit, but working capital need has been INR 3,000 crores. So what I'm trying to say is when you look at the business and in your presentations you've emphatically say the ROE, ROCs are good, which is very good. But free cash generation as a p

Rajiv Srivastava

SVK, you want to take the first couple of questions and I can… Sure. I will do. Okay. See, Sanjay, I think your point is very valid. I mean, considering the operating profit, the churn that we have in terms of working capital. Obviously, it is a very highly working capital-dependent balance sheet. I'll tell you, any growth rate north of 10%, 12% with the same working capital days in this business results in additional debt. So if the growth rates are more than 10%, 12%, we have to reduce the working capital days to generate the cash flow. That's the model, because it's working capital intensiv

Thank you for opportunity and congrats on the good set of numbers. Just two data points, because most of the questions have been answered. On the Brightstar, if you can provide first half and second quarter revenue number because that won't be a part of the base last year? And second, on the ProConnect profitability, if you can share some inputs on, the growth seems slightly muted, if you can comment on ProConnect and how we think, because given the enterprise is growing, we believe ProConnect will be complementary or beneficiary if the enterprise is firing up. So if you can address this?

Rajiv Srivastava

Yes. Okay, no problem. We can address both those questions of yours. On the first question, on the Brightstar side, Chintan, Brightstar you know we acquired in December last year, so aggregate results of Brightstar from December last year, which is calendar year 2021, we started to aggregate/integrate as well. And this quarter, Brightstar is about INR 750 crores to INR 800 crores, Krishnan, are you can give that number but… Yes. About close to INR 800 crores, Rajiv. And first half about INR 1,500 crores. Yes. So in that range, it is about less than 5% of our overall sort of revenue from that p

I have two questions. The first is if you could provide the revenue number for your cloud business and the cloud-managed services for this quarter?

Rajiv Srivastava

Yes, I can give you the revenue number for cloud business and cloud-managed services for this quarter. Our cloud business in Q2 FY '23 is INR 506 crores and our cloud-managed services INR 21 crores. And I wanted to understand more on the demand outlook and mix in context to cyclicality for the business, like, given that there's been so many changing dynamics in terms of consumer demand versus enterprise demand, and as you said, on work-from-home and learn-from-home. How do you view the business also looking at the supply chain easing in the future, just in terms of cyclicality, say, in the nex

So first of all, I agree with the other callers about the sound quality, and I think it was also an issue in previous calls, and I always thought it was my phone. So if you could, and I'm surprised your conference call moderator did not point it out. My question is just one. I mean I think the business is doing fantastic, happy shareholders. If you look at opportunities, would it -- in addition to what you're already doing, would it be any new geography, a new product line or more through acquisitions?

Rajiv Srivastava

Another great question. We can give you a very sort of direct answer on this. All possibilities are right, right now. I've already answered the question on new geographies, how we think of our growth is taking the existing products to the new geography if we can sign the contracts with the vendors. So that's one very strong thing that how do you get into the geography. -- There are many geos which are opening up now as we speak and we will be focused on thinking about expanding our footprint in those geographies, whether it is Southeast Asia, it is more countries in Africa, it is more countrie

Yes. I have a slightly broader question. If I look at your financials there's not a single year where the company has not grown its revenues. If you look at the financials over the last four to five years, there is not too much significant difference in mix in your customers in the presentation that you mentioned. We've attributed the rise in EBITDA margins because of a premium customer like Apple, then Apple changed its strategy, go-to-market strategy. Despite all of that, the EBITDA margins are 100 basis points higher than what they have been historically over the last seven, eight, nine yea

Rajiv Srivastava

Yes, I can give you some color, I'm sure Krishnan can add to it. I think the point is extremely, extremely rich and valid. I do think that the bottoms of earlier times before COVID, you probably were there at that point in time. I don't think we hit a bottom like that, but obviously, we will hit a number that will be different from what we have today also. So, but the wider -- broader point on this topic for all of us, if there's any sort of recovery is the margins are a function of many other things. Okay. While a business mix in terms of product profiles may have been consistent, but there i

So since Rajiv has left, I think we have had an excellent quarter in Q2 and that continues to be excellent when compared to what the growth that we have had in the previous period. There are certain challenges that are coming in the ecosystem, which we are very watchful and we will make sure that, we do our best like what we have done in the past. And I'm sure things will work out well and the investments that we are making will start giving us traction in the future quarters. Extremely thankful for your continuous support. If there are any questions, which you couldn't ask in this call, maybe

Management

Speaking time

Rajiv Srivastava

Moderator

SV Krishnan

Nitin Padmanabhan

Sanjay Parekh

Nisarg Vakharia

Chintan Sheth

Krish Mehta

Vivek Ramakrishnan

Bhavin Shah

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Opening remarks

Rajiv Srivastava

Thank you so much. Good morning, and I hope you all can hear me clearly. And thanks so much for participating and joining early morning today on our conference call. On this call I've got my Global Chief Financial Officer and my Finance Manager on the call. Global Chief Financial Officer, S.V. Krishnan and Finance and Lead Analyst, it's Deepika on the call. I just wanted to give you a sense on how the quarter went by, what we see in the market as a preamble, and then we can open it up for question and answers from each one of you. Just as a precursor or a statement, I just wanted to reiterate that we are really pleased to report another strong quarter of sales and operating margin growth. We closed the quarter with a growth of 25% on revenue, EBITDA grew by 23% and PAT grew by 26%, all strong numbers supported by solid execution across businesses and geographies. And because of that Redington continues to gain share and secure new opportunities in the markets that could really compete

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