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1
SYNOPSIS
Redington India Ltd has incorporated in 1961, commenced the operations in 1993 distributing information technology products.
Redington (India) has collaborated with Research in Motion (RIM) to establish a national retail distribution channels for their BlackBerry handsets.
During the quarter ended, the robust growth of Net Profit is increased by 33.94% to Rs.1020.90 million.
Net Sales and PAT of the company are expected to grow at a CAGR of 15% and 20% over 2011 to 2014E respectively.
Redington (India) Ltd has recommended a dividend of Rs. 0.40 per Equity share of Rs. 2/- each (i.e., 20%) for the financial year ended March 31, 2012.
Redington (India) Ltd has considered and approved the allotment of 1, 86,500 equity shares of Rs. 2/- each at a premium of Rs. 24/- per share under Employee Stock Option Plan, 2008’.
Years Net sales (Rs.mn)
EBITDA (Rs.mn)
Net Profit (Rs.mn) EPS P/E
FY 12 211929.90 6334.00 2927.40 7.35 10.50
FY 13E 243719.39 7372.68 3509.88 8.81 8.75
FY 14E 268091.32 8231.80 4051.16 10.16 7.59
Stock Data:
Sector: Hardware Industry (IT)
Face Value Rs. 2.00
52 wk. High/Low (Rs.) 102.00/65.05
Volume (2 wk. Avg.) 71000
BSE Code 532805
Market Cap (Rs in mn) 30728.20
Share Holding Pattern
1 Year Comparative Graph
BSE SENSEX Redington India Ltd
C.M.P: Rs. 77.10 Target Price: Rs. 87.00 Date: June 30th 2012 BUY
Redington India Ltd
Result Update: Q4 FY 12
2
Peer Group Comparison
Name of the company CMP(Rs.) Market Cap. (Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)
Redington India 77.10 30728.20 7.35 10.50 2.32 55.00
Modern India 29.00 1088.70 0.08 362.50 2.29 20.00
Sakuma Exports 15.40 253.00 4.30 3.58 0.39 10.00
Surana Corp 68.20 1490.80 30.97 2.20 0.49 18.00
Investment Highlights
Q4 FY12 Results Update
Redington India Ltd has reported net profit of Rs 1020.90 million for the quarter
ended on March.31, 2012 as against 762.20 million in the same quarter last year,
an increase of 33.94%. It has reported net sales of Rs 55151.60 million for the
quarter ended on March.31, 2012 as against Rs 52067.40 million in the same
quarter last year, a rise of 5.92%. Total income grew by 6.00% to Rs 55279.10
million from Rs.52149.60 million in the same quarter last year. During the quarter,
it reported earnings of Rs 2.56 a share.
Quarterly Results - Consolidated (Rs in mn)
As At Mar-12 Mar-11 %change
Net sales 55151.60 52067.40 5.92
PAT 1020.90 762.20 33.94
Basic EPS 2.56 1.92 33.20
3
Break up of Expenditure
Recommended Dividend
Redington (India) Ltd has recommended a dividend of Rs. 0.40 per Equity share of
Rs. 2/- each (i.e., 20%) for the financial year ended March 31, 2012.
Allotment of Equity Share
Redington (India) Ltd has considered and approved the allotment of 1, 86,500
equity shares of Rs. 2/- each at a premium of Rs. 24/- per share under Employee
Stock Option Plan, 2008’.
Acquiring a Property
Purchase of property by M/s. Easyacces Financial Services a wholly owned
subsidiary of the Company has purchased a building "STERLING TECHNOPOLIS"
admeasuring 2, 30,000 sq. ft. located at Old Mahabalipuram Road, Chennai. The
new property purchased by the subsidiary Company is let out on lease and could
be utilized to meet the Company's plans to house the employees of the Redington
group under a single roof in the long run.
4
Company Profile
Redington established in 1993 is today positioned as one of the leading Supply Chain
service provider in IT, Telecom, Consumer Electronics & Home Appliances Industries.
With its corporate office in Chennai, it has 49 Branch offices, 48 warehouses and 46
service centers across India. A team comprising of over 1100 highly skilled and
committed professionals helps the Company deliver its products and services to every
corner of the country. The team is supported by a robust IT & Communication
infrastructure connecting 115 physical locations of the company and a state of the art
ERP and e-commerce back bone. Redington has built its business on very strong
ethical and commercial fundamentals which has not only helped it to consistently
exceed the industry growth rate, but has also enabled to firmly establish it as the
"partner of choice" with most of its vendors and business partners. A compounded
annual growth rate of more than 50% over the past 15 years. underlining the very
strong foundation and prudent practices on which the company's business practices
have been built.
Infrastructure
The company has continuously invested in Office, Warehousing and IT infrastructure
in order to ensure the highly scalable operation essential for delivering accelerated
revenue growth year on year. A judicious selection of locations and optimal sizing of
Offices and Warehouses, supported by an appropriate mode of network connectivity,
has provided the Company the right balance between optimizing current running costs
and the future growth requirements. All Branch Sales Offices, Warehouses, as well as
Service Centers are connected through a Wide Area Network that enables real-time,
online transaction processing and provides a seamless, continuous update on
Purchase, Sales, Stocks and Credit details. The network has in-built 100%
redundancy, including a Disaster Recovery Centre and a scalable architecture that
would continuously address business requirements necessitated by the accelerating
growth of the organization. Warehouse locations are decided by the requirement of
space and delivery TATs committed to customers as per best industry standards.
Service Center locations emphasize convenience and ease of approach for customers
requiring support for all the products serviced by Redington.
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Business relationship
The company still continues to enjoy excellent business relationship with its suppliers
like Acer, APC, Apple, Canon, Cisco, Computer Associates, EMC, Epson, Gigabyte,
HCL Infosystems, Hewlett Packard, Blackberry, LG, Luminous, Hitachi, IBM, Intel,
Kodak, Lenovo, Linksys, Microsoft, Nokia, Samsung, Seagate, Systemax, TVS
Electronics, Viewsonic, Western Digital, Whirlpool, Wipro, 3COM etc.
Company’s subsidiaries
The company operates subsidiaries namely
� Redington (India) Investments,
� Cadensworth (India),
Qatar and Easyaccess Financial Services, India
Products
� Components
� Digital lifestyle
� Enterprises
� Networking, storage and power
� Peripherals and Consumer PC
� Software Solutions
� Systems
Services
� Services Offered
� Warranty Support and post
warranty Support
� Infrastructure Management
Services
� Spare parts Warehousing
� Forward and Reserve
Logistics
� CRM and SCM Software
Development and Support
� Professional Services
� Repairs and Refurbishments
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� Core Business Units
� IT Services
� Contact Center and Call
Center Services
� 3PL for spares
� Smart and mobile phone
support
� High Level Repairs and
refurbishment
� Spare parts, Upgrades and
packs Distribution
� Enterprise services
Redington (India) Limited has informed the Exchange that M/s. Fortinet Inc, a
worldwide provider of network security appliances and a market leader in unified
threat management (UTM), has appointed the Company as a distributor for
distribution of complete range of their products and subscription services which
provide broad, integrated and high-performance protection against dynamic
security threats while simplifying the IT security infrastructure. This tie-up would
enable the Company to improve its strategic expansion in the Security Solution
business.
7
Financial Results
12 Months Ended Profit & Loss Account (Consolidated)
Value(Rs.in.mn) FY11 FY12 FY13E FY14E
Description 12m 12m 12m 12m
Net Sales 174677.40 211929.90 243719.39 268091.32
Other Income 103.40 290.30 304.82 323.10
Total Income 174780.80 212220.20 244024.20 268414.43
Expenditure -170064.30 -205886.20 -236651.52 -260182.63
Operating Profit 4716.50 6334.00 7372.68 8231.80
Interest -960.90 -1520.40 -1672.44 -1772.79
Gross profit 3755.60 4813.60 5700.24 6459.01
Depreciation -245.60 -310.30 -353.74 -378.50
Profit Before Tax 3510.00 4503.30 5346.50 6080.51
Tax -862.30 -1112.90 -1327.53 -1489.72
Profit After Tax 2647.70 3390.40 4018.96 4590.78
Minority Interest -387.70 -462.80 -509.08 -539.62
Net Profit 2260.00 2927.40 3509.88 4051.16
Equity capital 792.70 797.10 797.10 797.10
Reserves 11103.30 12427.70 16446.66 21037.44
Face value 2.00 2.00 2.00 2.00
EPS 5.70 7.35 8.81 10.16
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Quarterly Ended Profit & Loss Account (Consolidated)
Value(Rs.in.mn) 30-Sep-11 31-Dec-11 31-Mar-12 30-Jun-12E
Description 3m 3m 3m 3m
Net sales 54357.10 57378.80 55151.60 60115.24
Other income 15.60 9.50 127.50 89.25
Total Income 54372.70 57388.30 55279.10 60204.49
Expenditure -52987.10 -55838.50 -53268.80 -58492.13
Operating profit 1385.60 1549.80 2010.30 1712.36
Interest -355.50 -377.80 -454.20 -467.83
Gross profit 1030.10 1172.00 1556.10 1244.54
Depreciation -80.70 -77.10 -81.70 -89.87
Profit Before Tax 949.40 1094.90 1474.40 1154.67
Tax -266.60 -256.20 -334.50 -294.44
Profit After Tax 682.80 838.70 1139.90 860.23
Minority Interest -70 -160.40 -119.30 -125.27
Share of Profit & Loss of Asso -0.10 -0.20 0.30 0.00
Net Profit 612.70 678.10 1020.90 734.96
Equity capital 796.50 796.90 797.10 797.10
Face value 2.00 2.00 2.00 2.00
EPS 1.54 1.70 2.56 1.84
9
Key Ratios
Particulars FY11 FY12 FY13E FY14E
No. of Shares(in mn) 396.35 398.55 398.55 398.55
EBITDA Margin (%) 2.70% 2.99% 3.03% 3.07%
PBT Margin (%) 2.01% 2.12% 2.19% 2.27%
PAT Margin (%) 1.52% 1.60% 1.65% 1.71%
P/E Ratio (x) 13.52 10.50 8.75 7.59
ROE (%) 22.26% 25.64% 23.31% 21.03%
ROCE (%) 29.11% 35.66% 33.71% 30.98%
Debt Equity Ratio 0.43 0.41 0.33 0.27
EV/EBITDA (x) 6.48 4.85 4.17 3.73
Book Value (Rs.) 30.01 33.18 43.27 54.78
P/BV 2.57 2.32 1.78 1.41
Charts:
NetSales & PAT
10
P/E Ratio (x)
Debt Equity Ratio
11
EV/EBITDA (x)
P/BV
12
Outlook and Conclusion
At the current market price of Rs.77.10, the stock is trading at 8.75 x FY13E
and 7.59 x FY14E respectively.
Earning per share (EPS) of the company for the earnings for FY13E and FY14E
is seen at Rs.8.81 and Rs.10.16 respectively.
Net Sales and PAT of the company are expected to grow at a CAGR of 15% and
20% over 2011 to 2014E respectively.
On the basis of EV/EBITDA, the stock trades at 3.03 x for FY13E and 3.07 x for
FY14E.
Price to Book Value of the stock is expected to be at 1.78 x and 1.41 x
respectively for FY13E and FY14E.
We expect that the company will keep its growth story in the coming quarters
also. We recommend ‘BUY’ in this particular scrip with a target price of
Rs.87.00 for Medium to Long term investment.
Industry Overview
IT/ITeS industry has been one of the key driving forces fuelling India's economic
growth. As a proportion of national gross domestic product (GDP), IT/ITeS sector's
contribution has risen from 1.2 per cent in 1997-98 to an estimated 7.5 per cent in
2011-12.
Information Technology (IT) has evolved as a major contributor to India's GDP and
plays a vital role in driving growth of the economy in terms of employment, export
promotion, revenue generation and standards of living. The Indian IT-BPO sector is
estimated to aggregate revenues of US$ 88.1 billion in 2010-2011, with the IT software
and services sector (excluding hardware) accounting for US$ 76.2 billion of revenues.
The sector includes IT services, engineering design and R&D services, ITES (IT-enabled
services) or BPO and hardware.
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Market Size
As per NASSCOM estimates, IT/ITeS sector (excluding hardware) revenues are
estimated at US$ 87.6 billion in FY 2011-12. The IT/ITeS industry is expected to grow
by 19 per cent during FY 2012-13.
In 2011, the IT and ITeS industry had the market size of US$ 76 billion, according to
an industry report from NASSCOM and Aranca Research. Additionally, the market size
of the industry is expected to rise to US$ 225 billion by 2020 considering India's
competitive position, growing demand for exports, Government policy support, and
increasing global footprint.
In segments of the IT & ITeS sector, IT services accounted for the largest share of the
overall market size, with revenues of US$ 46 billion during FY2011, BPO had the
market size of US$ 17.3 billion, engineering design and product development
accounted for US$ 12.9 billion, and hardware had the lowest size of US$ 11.8 billion
in FY2011. In FY2011, total exports from the IT sector stood at US$ 59 billion and the
industry grew at a CAGR of 16.4 per cent during the five-year period of FY2007-2011
despite the global economic recession in 2008 and 2009. Exports from the IT sector
were the major contributor to the overall exports and accounted for over 57 per cent of
the total exports during FY2011. According to a study by management advisory firm
Zinnov, adoption of IT services in the Indian SME segment is growing at 15 per cent
and is expected to reach US$ 15 billion by 2015.
Growth Drivers
� Strong competitive position with high market share
� Huge talent pool
� Well established delivery centers across the world
� Cost and tax advantages
� Encouraging Government policies
� Strong growth in export demand from new verticals and the non-traditional
sectors such as public sector, media and utilities
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� According to Nasscom, domestic revenue from IT and BPO services is expected
to rise to US$ 50 billion by 2020 from US$ 15.7billion in 2011
� Use of new and emerging technologies such as cloud computing
� Increased IT adoption in key sectors such as Telecom, Manufacturing and BFSI
� SEZs will drive growth in the Indian IT sector as more of SEZs are now being set
up in Tier II cities and about 43 new tier II/III cities are emerging as IT delivery
locations
Recent trends/Investments
More recently, online retailing, cloud computing and e-commerce are the major driving
forces behind the rapidly increasing growth in the IT industry. Online shopping has
increased with the emergence of internet retailing and e-commerce.
� India's IT-BPO revenues are also driven by a rapid increase in rural BPO units,
which accounted for more than US$ 10 million in the total sector revenues.
According to NASSCOM, employee base in the rural areas is expected to
increase by over 10 times by 2013-14, compared to 5000 in 2009-10
� The IT/ITeS industries have added 7.96 lakh jobs in the Indian economy during
the one year period ending September 2011, according to the Economic Survey
2011-12
� Increasing internet penetration and affordability for personal computers has led
to a rapid increase in the number of Internet users in the country to reach more
than 121 million, out of which 17 million are online shoppers, according to the
Internet and Mobile Association of India (IAMAI). The number of Internet users
in India is further projected to triple by 2015
� According to a customer poll conducted by Booz and Co, India is the most
preferred destination for engineering off shoring, which are encouraging foreign
companies to offshore complete product responsibility to Indian ITeS companies
� Not only are new players looking at setting up shop in the state of Hyderabad,
existing IT/ITeS players are continuing with their hiring spree in the state.
Large companies such as Infosys, TCS, Genpact, Deloitte, Facebook, Bank of
America, Thomson Reuters, Amazon, Google, Cognizant & Franklin Templeton
15
among others are all growing their presence in the state. According to Andhra
Pradesh Government's estimates, the total IT/ITeS sector hiring for 2012-13
could be of the order of around 50,000 professionals
� Quicker, the internet and mobile based classified company, has announced that
its parent received investment of US$ 32 million from a group of private equity
investors. Warburg Pincus has led this round of fund raising, fifth and the
largest for Quicker, with participation from existing investors such as Matrix
Partners India, Newest Venture Partners and ebay Inc.
� According to IAMAI, online sales of branded apparel almost doubled in volume
to 4.99 million pieces during April 2012, as against 2.54 million in the same
month a year ago. Also, E-ticketing continued to grow with irctc.com recording
5.56 million bookings in April, 2012, as compared to 2.26 million bookings in
April 2011
Government Support/Initiatives
According to industry experts, the Government of India is expected to increase its
spending on the e-governance projects, which would contribute towards growth in the
IT & ITeS sector. The Government has launched a project to provide high quality
broadband access to village Panchayats through National Optical fiber network by
2014. The project would benefit small and medium enterprises (SMEs) in the country.
In the twelfth Five Year Plan (2012-17), the Department of Information Technology
proposes to strengthen and extend the existing core infrastructure projects to provide
more horizontal connectivity, build redundancy connectivity, undertaken energy
audits of State Data Centers (SDCs) etc. The core infrastructure including fiber optic
based connectivity will be leveraged and additional 150,000 Common Service Centers
(CSCs) will be setup to create the right Governance and service delivery ecosystem at
the Panchayats. The high penetration of mobiles will be leveraged to deliver both
informational as well as transactional Government services on mobile phones.
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Road Ahead
IT/ITeS sector has also created tremendous entrepreneurial and job opportunities,
generating direct and indirect employment of nearly 2.8 million and around 8.9 million
respectively. Estimates reflect the growth to be more than 14 million (directly and
indirectly) by 2015 and around 30 million by 2030.
______________ ____ _________________________ Disclaimer:
This document prepared by our research analysts does not constitute an offer or solicitation
for the purchase or sale of any financial instrument or as an official confirmation of any
transaction. The information contained herein is from publicly available data or other
sources believed to be reliable but do not represent that it is accurate or complete and it
should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s
affiliates shall not be in any way responsible for any loss or damage that may arise to any
person from any inadvertent error in the information contained in this report. This document
is provide for assistance only and is not intended to be and must not alone be taken as the
basis for an investment decision.
17
Firstcall India Equity Research: Email – info@firstcallindia.com
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