Redington Ltd:Annual Report 2023-24 Analysis

Redington Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History #

Redington Ltd. was established in 1993 in Chennai, India. It was founded by R. Srinivasan, initially focusing on the distribution of IT hardware products.

Headquarters Location and Global Presence #

The company’s headquarters is located in Chennai, India. Redington has a significant global presence with operations spanning across 37 markets, including India, South Asia, the Middle East, Turkey, Africa, and CIS countries.

Company Vision and Mission #

• Vision: To be the leading technology solutions provider, enabling partners and customers to thrive in the digital era.
• Mission: To empower businesses with seamless access to cutting-edge technology, delivered through a trusted and efficient distribution network.

Key Milestones in Their Growth Journey #

• 1993: Established in Chennai, India.
• Early 2000s: Expanded into other IT hardware products and broadened its geographical reach.
• 2007: Listed on the Indian stock exchanges (BSE and NSE).
• Expansion into Middle East and Africa: Grew its presence through strategic acquisitions and partnerships.
• Shift towards Cloud and Digital Solutions: Increased focus on cloud services, cybersecurity, and other digital offerings.
• Continued Global Expansion: Continued expansion into new markets and strengthening partnerships with leading technology vendors.

Stock Exchange Listing Details and Market Capitalization #

Redington Ltd. is listed on both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) in India. As of late 2023, its market capitalization is in the range of ₹15,000 - ₹20,000 Crore (approx. $1.8 - $2.4 Billion USD).

Recent Financial Performance Highlights #

• Reports consistent revenue growth year-on-year.
• Focus on improving profitability through efficient operations and strategic partnerships.
• Shift towards higher-margin digital solutions and services.
• Strong cash flow management.

Management Team and Leadership Structure #

• Rajesh Goenka - Chief Executive Officer.
• Board of Directors with independent directors and experienced industry professionals.

Any Notable Awards or Recognitions #

• Recognized as a leading distributor by major technology vendors.
• Listed among top companies by reputable business publications.

Their Products #

Complete Product Portfolio with Categories #

Redington’s product portfolio is categorized as follows:

• IT Hardware: Servers, Desktops, Laptops, Peripherals, Networking Products.
• Software: Operating Systems, Productivity Software, Security Software, Cloud Solutions.
• Cloud Solutions: IaaS, PaaS, SaaS solutions from leading cloud providers.
• Security Solutions: Cybersecurity software and hardware.
• Consumer Electronics: Smartphones, Accessories, Smart Home Devices.
• Digital Transformation Solutions: Digital workplace, big data and analytics, IoT, AI solutions.

Key Technological Innovations or Patents #

Redington primarily focuses on distributing products from leading technology vendors and doesn’t have its own patents. However, it facilitates the adoption of innovative technologies through its distribution network.

Quality Certifications and Standards #

As a distributor, Redington ensures that the products it distributes meet relevant industry quality standards and certifications, which are primarily the responsibility of the original manufacturers. Redington is ISO 9001 certified for quality management.

Any Unique Selling Propositions or Technological Advantages #

• Extensive Distribution Network: Pan-India and global reach, enabling vendors to reach a wider audience.
• Strong Vendor Relationships: Established partnerships with leading technology brands.
• Value-Added Services: Pre-sales, post-sales support, logistics, financing, and marketing services.
• Focus on Emerging Technologies: Proactive adoption and distribution of new technologies such as cloud and cybersecurity solutions.

Primary Customers #

Target Industries and Sectors #

Redington serves a diverse range of industries and sectors, including:

• IT/ITES: Technology companies, BPOs, Software development firms.
• BFSI: Banks, Financial Institutions, Insurance companies.
• Education: Schools, Colleges, Universities.
• Healthcare: Hospitals, Clinics, Pharmaceutical companies.
• Manufacturing: Factories, Industrial units.
• Retail: Retail chains, E-commerce businesses.
• Government: Government departments, Public sector undertakings.

Geographic Markets (Domestic vs. International) #

• Domestic: Strong presence across India, with a wide network of channel partners.
• International: Significant presence in South Asia, the Middle East, Turkey, Africa, and CIS countries.

Distribution Network and Sales Channels #

Redington operates through a multi-channel distribution network, including:

• Channel Partners: Resellers, System Integrators, Value-Added Resellers (VARs).
• Retailers: Consumer electronics stores, IT retail outlets.
• Online Channels: E-commerce platforms, Direct sales.

Major Competitors #

Direct Competitors in India and Globally #

• Ingram Micro: A global technology distributor.
• Tech Data (now TD Synnex): Another major global distributor.
• Arrow Electronics: A global provider of products, services, and solutions to industrial and commercial users of electronic components and enterprise computing solutions.
• Local Distributors: Region-specific distributors in various markets.

Comparative Market Share Analysis #

Market share data in the distribution industry can fluctuate and is often proprietary. However, Redington is considered one of the leading distributors in India and a significant player in its other international markets.

Competitive Advantages and Disadvantages #

• Advantages: Strong local presence in India and other emerging markets, established vendor relationships, value-added services.
• Disadvantages: Intense competition from global players with greater scale, reliance on vendor products for innovation.

How They Differentiate from Competitors #

• Focus on Emerging Markets: Deeper understanding of the nuances of emerging markets.
• Value-Added Services: Comprehensive suite of services to support channel partners and customers.
• Strategic Acquisitions: Growing through strategic acquisitions of companies and distribution rights for popular vendor technologies.

Future Outlook #

Expansion Plans or Growth Strategy #

• Expanding into new geographic markets.
• Strengthening partnerships with leading technology vendors.
• Investing in digital transformation solutions.
• Enhancing its e-commerce capabilities.

Sustainability Initiatives or ESG Commitments #

• Focus on reducing its carbon footprint.
• Promoting ethical business practices.
• Supporting community development initiatives.

Industry Trends Affecting Their Business #

• Growth of Cloud Computing: Increasing demand for cloud solutions.
• Rising Cybersecurity Threats: Growing need for cybersecurity solutions.
• Digital Transformation: Businesses embracing digital technologies.
• E-commerce Growth: Shift towards online sales channels.

Long-Term Vision and Strategic Goals #

Redington’s long-term vision is to be the leading technology solutions provider, enabling partners and customers to thrive in the digital era. The company is focused on driving growth through strategic partnerships, investments in digital transformation, and expanding its global presence.

Financial Performance Overview #

3-Year Trend Analysis of Key Financial Metrics #

• Consolidated revenue grew by 12.7% in FY24, with a 3-year CAGR of 14%.
• Consolidated net profit decreased by 12.5% in FY24.
• Earnings Per Share (EPS) on a consolidated basis decreased to ₹15.59 in FY24 from ₹17.82 in FY23.
• Standalone revenue grew by 16.7% in FY24, with a 5-year CAGR of 17.2%.
• Standalone Profit Before Tax (PBT) grew by 8.2% in FY24.
• Standalone Profit After Tax (PAT) grew by 8.0% in FY24.
• Return on Average Capital Employed (ROCE) (Net of cash) decreased to 22.5% in FY24 from 29.2% in FY23.
• Return on Average Equity (ROE) decreased to 17.0% in FY24 from 20.9% in FY23.
• Operating profit margin and Net profit margin QoQ improvement reported.

Business Segment Performance #

• SISA (Singapore, India & South Asia): Revenue growth of 14.7% in FY24. Gross margin dropped to 5.2% from 5.7% in the previous financial year.
• ROW (Rest of the World): Revenue growth of 10.9% in FY24. Gross margin dropped to 6.6% from 6.7% in the previous financial year.
• Mobility segment: Grew by 23%
• Cloud segment: Grew by 36%.
• Enterprise segment: Grew by 11%.
• Consumer segment: Grew By 4%.
• Services Business: Moderate growth of 12%.
• India and KSA: Strong growth of 18% and 26% respectively in FY24.

Major Strategic Initiatives and Their Progress #

• Focus Brand Strategy: ‘Invest, Harvest, and Re-assess’ framework is actively used to manage brand profitability, with strategic resource allocation for brands with strong growth prospects.
• Logistic Services: Expansion of the logistics network is ongoing to enhance delivery capabilities and complement brand and partner needs.
• Back Office Transformation: Investments in automation and digitization are underway to reduce errors and enhance efficiency.
• Business Model Evolution: Promoting subscription and consumption-based technology models, integrated with professional services.
• Growth Geographies: Localization approach to adapt offerings to the unique needs of different regions, including India, KSA, UAE, and South East Asia.
• Future Leaders Program: Ongoing initiatives for nurturing innovation and collaboration, with a co-creation approach for developing emerging talents.
• Route to Market Transformation: Segmented approach and digital platforms.
• IT Governance and Digital Transformation: Data and analytics are being leveraged to drive efficiency and inform decision-making.

Risk Landscape Changes #

• Geopolitical Risks: Ongoing conflicts (Russia-Ukraine, Israel-Hamas) are monitored, impacting some markets.
• Forex and Interest Rate Risks: Currency volatility and non-availability of US dollars in certain African countries.
• Regulatory Changes: Introduction of Corporate Tax in UAE is being factored into financial planning.
• Credit Risk: Enhanced scrutiny of the magnitude and probability of default loss in receivables is being implemented.

ESG Initiatives and Metrics #

• Sustainability Strategy: Focused on building resilient businesses, driving efficiencies, conducting business responsibly, and redefining value chain engagement.
• Renewable Energy: 27% reduction in emissions per rupee intensity. 299 KW rooftop solar facility installed in Jebel Ali, UAE.
• Circular Economy: Registered under Extended Producer Responsibility in India, recycling about 100 MT of E-Waste per year.
• MSCI Rating: Certified ‘A’ for Business Operations.
• Diversity and Inclusion: 29% women representation on the Board; DEI policies and training introduced for employees.
• ESG Goals (2030 Targets): Plan on achieving Net Zero by 2050, with focus on reducing attrition rate, increasing women workforce, and improving training hours.

Management Outlook #

• Cautious Optimism: Despite external factors like war, currency volatility, and regulatory changes, management is cautiously optimistic about FY25.
• Continued Growth: Strategic growth initiatives, investments in digital transformation, and operational capabilities are expected to sustain the growth trajectory.
• Focus Areas: Maintaining leadership in emerging geographies, enhancing cloud capabilities, expanding into new verticals, and leveraging digital platforms.
• AI adoption: Management acknowledges the opportunity in technology refresh cycles over next 3 years.

Detailed Analysis #

Financial Position Analysis #

Balance Sheet Analysis #

3-Year Comparative Analysis (Consolidated) #

(INR Crores)

(INR Crores)

Significant Changes in Major Line Items (>10% YoY) #

• Non-Current Assets: Increased from INR 1,341.86 Crores to INR 1,465.24 crores. (+9.19%)
• Total Equity: Total Equity Increased from 7,098.89 crores to 7,763.08 (+9.36)
• Revenue From Operations : Increased from 79,376.78 crores to 89,345.71 (+12.6%)
• Cost of Good Sold Increased from 74,217.36 Crores to 84,280.53 (+13.56)
• Finance costs: Increased from 440.53 crores to 586.44 crores. (+33.12%)
• Profit Before Tax: Decreased from 1,975.51 Crores to 1,542.90 Crores (-21.9%)

Working Capital Trends #

• Trend: Working capital decreased slightly from INR 6,946.33 Crores to INR 6,649.71 Crores.

Asset Quality Metrics #

• Inventory Write-Down: The Group recorded an inventory write-down of INR 86.22 Crores in FY 2023-24, compared to an inventory write-back of INR 165 Crores in the previous year.
• Allowance for Impairment of Trade Receivables: Details of the allowance are provided, showing an increase, indicating a conservative approach to managing credit risk.

Debt Structure and Maturity Profile #

• Borrowings (Current): INR 2,739.37 Crores as of March 31, 2024 (up from INR 3,349.99 Crores). Includes secured loans from banks, unsecured loans from banks, and unsecured commercial paper.
• Borrowings (Non-Current): INR 81.51 Crores as of March 31, 2024 (up from INR 43.84 Crores).

Off-Balance Sheet Items #

• Bank Guarantees: INR 1,145.80 Crores as of March 31, 2024 (up from INR 978.08 Crores).
• Claims not acknowledged as debts: INR 82.54 Crores as of March 31, 2024 (down from INR 83.98 Crores).
• Disputed Tax Demands: INR 531.74 Crores as of March 31, 2024 (up from INR 454.95 Crores).

Redington Limited: Financial Performance Analysis (FY24) #

Revenue Breakdown and Growth #

• Consolidated Revenue Growth: FY24 revenue grew by 12.7% Y-o-Y (10.8% at constant currency).
• SISA (Singapore, India & South Asia): FY24 revenue increased by 14.7%.
• ROW (Rest of the World): FY24 revenue increased by 10.9% (7.5% at constant currency).
• Segment Performance (FY24):
  • Mobility: Grew by 23%.
  • Cloud: Grew by 36%.
  • Enterprise: Grew by 11%.
  • Consumer segment grew by 4%.
  • Services Grew by 12%

Cost Structure Analysis #

• Employee Costs: FY24 employee costs as percentage of revenue was 1.4%, decreasing from 1.5% in FY23.
• Other Expenses (Consolidated): Increased by 30.3% in FY24 (26.5% at constant exchange rate). Major drivers include:
  • Factoring & Bank charges: Increased by 96% Y-o-Y, largely due to non-recourse receivable factoring, particularly in Turkey.
  • Investment Initiatives: Increased by 23% Y-o-Y for automation and digitization.
  • Sales Promotion Expenses: Increased by 85%, though it’s majorly compensated by vendors.
  • Miscellaneous Expenses: Grew 102% due to new fintech initative.
• Standalone other expenses: Increased by 7.9%.

Margin Analysis #

• Consolidated Gross Margin: 5.9% of revenue in FY24, down from 6.11% in FY23.
• SISA Segment Gross Margin: Decreased to 5.2% in FY24 from 5.5%.
• ROW Segment Gross Margin: Decreased to 6.6% in FY24 from 6.7%.
• EBITDA Margin (Consolidated): De-grew 5.3% (6.7% at constant exchange rate).
• Standalone Gross Margin: Remained Constant at 4.2%.
• Standalone EBITDA Margin: Increased by 19.8%.
• Consolidated Net Profit Margin: Decreased from 1.75% in FY23 to 1.36% in FY24, as PAT de-grew by 12.5%.

Operating Leverage #

• Standalone: Overheads (Employee benefit + other expenses) increased at a lower rate (8.34%) compared to the 16.7% revenue growth, indicating positive operating leverage.
• Consolidated: Overheads increased by 21.2% exceeding the 12.7% revenue growth, indicating negative leverage.

Non-Recurring Items #

• Standalone: Dividend income from subsidiaries and gain on sale of Automated Distribution Center (ADC) are considered one-time income.
• VSV(Vivad Se Vishwas scheme one off tax payment and gain on sale of Ensure.

EPS Analysis #

• Consolidated Basic EPS: Decreased to ₹15.59 in FY24 from ₹17.82 in FY23.
• Standalone Basic EPS: Increased slightly to ₹13.83 from ₹13.72, due to growth in profits, including dividend income and gain on the sale of ADC.
• Stand Alone Diluted EPS: Increased slightly from 13.72 to 13.83.

Quarterly Trends #

• Standalone Profit before tax improved quarter over quarter from 1.17% in quarter 1, to 1.36% in quarter 2 and to 1.45% in quarter 3 and remained at 1.45% in quarter 4.

Cash Management: Redington Limited Financial Analysis #

Cash Flow and Liquidity Analysis #

Detailed OCF, ICF, FCF Components (Consolidated) #

• OCF (FY24): ₹ 1079.4 Crores. Driven by profit generation and a 2-day reduction in working capital days.
• ICF (FY24): ₹ 145.2 Crores. Primarily from interest from deposits (₹ 83.9 Crores) and maturity of deposits in the ROW segment (₹ 83.2 Crores).
• FCF (FY24): ₹ 163.6 Crores (post-dividend payout).
• FCF (FY23): FCF was positive. Numerical Data not provided.

Working Capital Management Efficiency (Consolidated) #

• Working Capital Days (FY24): 42 days, an increase from 36 days in FY23.
• Working Capital Days (FY23): 36 days, significantly reduced during the COVID period.
• SISA Segment: Working capital reduction of 1 day in FY24.
• ROW Segment: Normalisation of working capital.

Dividend and Share Buyback Trends #

• Dividend (FY24): ₹ 6.2 per share (310% of face value) recommended, resulting in a payout of ~ ₹ 484.7 Crores, subject to shareholder approval.
• Dividend Payout Ratio (FY24): Historical average is about 42%, as inferred from the 5-year summary.
• Share Buyback: No share buyback is mentioned during FY24.

Debt Service Coverage #

• Interest Coverage Ratio (FY24): 5.1 times, down from 7.7 times in FY23.
• Interest Coverage Ratio (FY23): 7.7 times.
• Interest Coverage Ratio, Standalone (FY24): 5.7 times during the financial year 2023-24.
• Interest Coverage Ratio, Standalone (FY23): 11.1 times during the financial year 2022-23.
• The decrease is attributable to higher finance costs and de-growth in EBITDA.

Liquidity Position and Cash Conversion Cycle #

• Cash and Cash Equivalents: Increased from FY23 to FY24.
• Net Debt: ₹ 1,186 Crores as of March 2024, almost the same as March 2023 (₹ 1,177 Crores).
• Cash Conversion Cycle: Not directly provided, but the increase in working capital days suggests a lengthening of the cycle.

Free Cash Flow Yield Trends #

• Free Cash Flow Yield is not directly provided, but given the positive FCF of ₹ 163.6 Crores and a market value stated by the Chairman as “nearly 2 Billion” FCF yield is positive.

Financial Analysis of Redington Limited #

Profitability Ratios (3-Year Trends) #

• ROE has shown a declining trend over the three years.
• Both EBITDA and Net Profit Margins have declined, indicating reduced profitability.

Liquidity Metrics #

• The current ratio slightly decreased, suggesting a small reduction in the ability to cover short-term liabilities with short-term assets.

Efficiency Ratios #

• Inventory turnover is reducing indicating inventories are not being converted efficiently.
• Receivables turnover is slowing, suggesting less efficient collection of receivables.

Leverage Metrics #

• Debt/Equity ratio has slightly improved.
• Interest coverage ratio declined significantly, indicating reduced ability to cover interest expenses with operating profits, possibly due to the large increases in interest costs noted.

Working Capital Ratios #

• Working Capital days have increased, indicating a less efficient use of working capital.

Redington Limited Business Segments Analysis - FY24 #

Segment Performance Analysis #

Revenue and Profitability Metrics with Growth Rates (Consolidated) #

SISA (Singapore, India & South Asia) #

• FY24 Revenue: ₹42,328.16 Crores (14.7% growth Y-o-Y).
• FY24 EBITDA: ₹1,159.29 Crores.
• Gross Margin FY24: 5.2% (decline from previous year’s 5.7%).

ROW (Rest of the World) #

• FY24 Revenue: ₹47,017.55 Crores (10.9% growth Y-o-Y, 7.5% at constant exchange rate).
• FY24 EBITDA: ₹981.73 Crores.
• Gross Margin FY24: 6.6% (decline from previous year’s 6.7%).

Market Share and Competitive Position #

• Redington is among the top 10 IT distribution companies globally.
• Holds a strong leadership position in the markets it operates in (India, Middle East, Africa, Turkey, South Asia).

Key Products/Services Performance (Consolidated) #

• Mobility Solutions: Strong growth of 23% Y-o-Y, driven by favorable market conditions.
• Cloud Solutions: Significant growth of 36% Y-o-Y. Approximately $1 Billion (10%) of business comes from cloud services transacted through subscription models.
• Enterprise Solutions: Grew by 11%.
• Consumer Segment: Growth by 4% Y-o-Y, decreased demand.
• Services Business: Registered moderate 12% growth.

Geographic Distribution and Market Penetration #

• SISA: Contributed 47% of consolidated revenue.
  • India: 18% growth in FY24.
• ROW: Contributed 53% of consolidated revenue.
  • Kingdom of Saudi Arabia (KSA): 26% growth in FY24.
• Turkey (Arena): Experienced a significant increase in interest and factoring costs (66% increase) due to hyper-inflationary conditions.

CAPEX and ROIC #

• ROCE (Consolidated, Net): 22.5% in FY24.
• ROE (Consolidated): 17.0% in FY24.
• Standalone capex: 1.28% Investment toward Energy Efficient Air conditioning.

Operational Efficiency Metrics (Consolidated) #

• Debtor Turnover Ratio: Not directly stated, but working capital days increased to 42 days in FY24 (from 36 days in FY23), suggesting a slight decrease in efficiency.
• Receivables Provision as % of Revenue: 0.07% (lower than the 10-year average of 0.10%).
• Inventory Provision as % of Revenue: -0.10% (vs. a 10-year average of 0.05%), indicating net write-backs.
• Employee cost as % of Consolidated Revenue: 1.4%
• SISA’s Overhead Cost as % of revenue: 1.37%

Growth Initiatives and Challenges #

Growth Initiatives #

• Focus on building a sustainable profitable core business.
• Driving new business growth areas (cloud, AI solutions, green energy).
• Creation of unique routes to market.
• Leveraging best practices across geographies.
• Expansion into South Africa and venturing into Green Energy solutions in East Africa.
• Significant investment in the cloud business, including digital platform (Cloud Quarks).
• Exploring opportunities in e-recycling and circular economy.
• Focus in the solar segment.

Challenges #

• Geo-political risks, forex volatility, and interest rate increases in certain markets.
• Currency depreciation and dollar non-availability in some African countries.
• Increased competition in the normalisation of supply constraints.
• Increased interest costs due to higher interest rates and normalization of working capital.
• Increased Factoring & Bank charges.
• Corporate Tax introduced in the UAE.

Risk Framework #

Segment-Wise Financial Analysis - FY2023-24 #

1. Strategic Risks #

• Severity: High
• Likelihood: Medium
• Trend: Increasing
• Mitigation Strategies: Investments in new business growth areas, such as cloud services (Redington’s CloudQuarks platform, cloud solutions group) and AI solutions. Re-investments of profits for growth. Focus on building customer awareness and appreciation of technology solutions.
• Control Effectiveness: Partially Effective
• Potential Financial Impact: Revenue growth is susceptible to market fluctuations. Increased focus on customer engagement models.

2. Operational Risks #

• Severity: Medium
• Likelihood: High
• Trend: Stable
• Mitigation Strategies: In-country local operations, strategic reinvestment of profits based on geography, focus on return on capital employed in each geography, warehouse management systems, and transport management systems.
• Control Effectiveness: Partially Effective
• Potential Financial Impact: Inventory provisioning, and potential write-offs. Operational inefficiencies in diverse markets can increase costs.

3. Financial Risks #

• Severity: Medium to High
• Likelihood: High
• Trend: Increased volatility
• Mitigation Strategies: Prudent credit risk assumption and efficient logistics. Non-recourse receivable factoring to mitigate receivable risk.
• Control Effectiveness: Partially effective
• Potential Financial Impact: Consolidated profit before tax (PBT) decreased. Interest cover ratio decreased.

4. Compliance/Regulatory Risks #

• Severity: Medium
• Likelihood: Medium
• Trend: Stable
• Mitigation Strategies: Compliance with applicable laws.
• Control Effectiveness: Effective
• Potential Financial Impact: Increased tax liabilities.

5. Emerging Risks #

• Severity: High
• Likelihood: High
• Trend: Increasing
• Mitigation Strategies: Adapt and learn how to take solutions through the partner ecosystem and reduce technology friction.
• Control Effectiveness: Currently not applicable but the company is in the preparation stage.
• Potential Financial Impact: Revenue, customer engagement, and technology investment will need to rapidly adapt.

Strategic Analysis of Redington Limited #

Long-Term Strategic Goals and Progress #

• Redington aims for Net Zero emissions by 2050, with intermediate milestones set through Science Based Targets, demonstrating a long-term commitment to sustainability.
• Expansion into growth geographies (India, KSA, UAE, South East Asia) is a key long-term goal, with a localized approach tailored to each region’s specific needs. Progress is evidenced by 18% and 26% growth in India and KSA, respectively, in FY24.
• Evolution towards subscription and consumption-based technology models is a strategic goal. The $1 Billion revenue from cloud-related services (~10% of total) shows progress, alongside digital platform investments (Cloud Quarks).

Competitive Advantages and Market Positioning #

• Redington has a strong leadership position in emerging markets, focusing on geographies with high IT consumption growth projections.
• A diversified portfolio spanning consumer and enterprise businesses provides resilience and adaptability to market changes. The company is showing strength and gaining a competitive advantage, as opposed to the global peers who faced both top-line and bottom-line declines.
• Extensive network of 50,000+ channel partners and 181 warehouses gives it reach.
• Strategic and Purposeful profit reinvestment.
• MSCI rating of ‘A’

Innovation Initiatives and R&D Effectiveness #

• Digital transformation is a key strategic priority, with investments in platforms like CloudQuarks (cloud services onboarding) and Track My Cloud, and a B2B e-commerce portal.
• Back-office transformation through investments in RPA and AI-powered tools is driving operational efficiency.
• Diversification into new verticals (professional displays, surveillance, unified communications) and Green Energy solutions (East Africa) indicates a focus on innovation.

M&A Strategy and Execution #

• Acquisition of Brightstar Turkey in FY23, expanded Redington’s (through subsidiary Arena) reach beyond IT to smartphones, positioning it as an integrated technology distributor.
• Exclusive partnership with Vodafone Turkey and expansion into South Africa demonstrates a proactive M&A and partnership approach.
• Sale of Citrus Consulting Services FZ-LLC and Arena’s sale of its Fintech payment business (Paynet), show some amount of portfolio optimization.

Management’s Track Record in Execution #

• FY24 revenue growth of 13% (Y-o-Y) and sequential profit improvement, despite global industry de-growth, suggests strong execution.
• Since the 2007 IPO, 15% CAGR in revenue and 16% CAGR in profit after tax are the main highlights.
• Consistent QoQ profitability improvement in FY24 and maintenance of working capital days within target range indicate operational discipline.
• Successful integration of acquisitions (like Brightstar Turkey) and expansion into new markets (South Africa) showcase effective execution.

Capital Allocation Strategy #

• Profits are strategically reinvested for growth, with a focus on maintaining sustainable growth.
• The company has paid dividends over the past five years with an average payout ratio of 42%.
• Investments are made in digital transformation and new business growth areas, reflecting a forward-looking capital allocation strategy.

Organizational Changes and Their Impact #

• Restructuring of ProConnect’s organizational structure to expand operations to Northern and Western India indicates a focus on geographic expansion and potentially improved market penetration.
• Streamlining of back-office operations across regions (through Redserv) demonstrates a focus on efficiency and cost optimization.

ESG Analysis: Redington Limited #

Environmental Metrics and Targets #

• Renewable energy adoption in owned operations increased by 7X year-over-year.
• Emissions per rupee intensity reduced by 17% in FY24.
• A 299 KW rooftop solar facility was installed in Jebel Ali, UAE, enabling 100% renewable energy adoption for operations in that location.
• A 35,000-liter capacity Sewage Treatment Plant was installed in the Chennai Corporate Office, with 50% of annual water consumption from reuse after treatment.
• Energy efficiency for customers from digital printers sold during FY24 is 27%.
• Targets to achieve Net Zero by 2050.
• Target of Zero Waste to Landfill certification for 100% of owned facilities.
• Target of using 30% of packaging material from recycled/renewable sources across product lines.
• Target 100% Renewable Energy Consumption.

Social Responsibility Programs #

• Over 70% of global distribution partners are Small & Medium Enterprises (SMEs).
• Redington Foundation drives CSR initiatives in education, employability skills training, healthcare, and environmental sustainability.
• Project AWAKE in Kalvarayan and Jawadhu hills impacted 4,027 people directly and 29,300 indirectly through water conservation and solar light installations.
• The VIZAG project in Visakhapatnam trained 50 people in eco-friendly livelihoods and established a skill-building center.
• Skill to Employ, a flagship initiative, provided vocational training and employment opportunities, including Supply Chain Management, solar power, IT, and ITeS to 1725 people.
• The WASH program provided access to sanitation facilities to 10,271 students.
• HP WoW digital buses enabled digital literacy programs, impacting 1,406 students and 17,432 community members.
• Edu-Tech-Academic Bridge Course benefited 1,720 students.
• Mobile Health Units (MHUs) provided regular health check-ups to 2,584 patients.
• FY24 CSR Spend was I 13.96 Crores.
• 25,000+ hours of skill training through COLTE in partnership with the government through the Logistics Skill Council (NSDC).
• 50,000+ Beneficiaries from CSR projects undertaken during FY24.

Governance Structure and Effectiveness #

• Board comprises 29% women.
• 43% of Board members are Independent Directors.
• Average age of Directors is 61 years.
• Board meeting attendance rate was 96.17%.
• A group Whistleblower Policy is active, managed by a third-party organization.
• The corporate governance framework aligns with global best practices, including OECD Principles of Corporate Governance and UN Global Compact.
• Interlink ESG KPIs to KMP’s and BOD.
• Target to achieve 8 hours of ESG training per employee per year.
• Target to achieve ISO 27001 certification for Redington corporate offices.
• Achieve top quartile of NPS score (>75%).
• 100% Training completion on ACT.

Sustainability Investments and ROI #

• At least 8 lines of businesses are linked to positive sustainability outcomes, including solar distribution, Ensure Services, digital printing, and green cloud distribution.
• Investments made in solar energy adoption (299 KW rooftop solar facility in Jebel Ali).
• Investments in digital transformation and back-office automation contribute to operational efficiency.

ESG Ratings and Peer Comparison #

• Redington is certified ‘A’ as per MSCI rating for good practices in Business Operations.
• Global Employee Engagement score 82%.
• Group NPS survey score of 62
• Winner of the CSRBOX award for Integrated Village Development project with DHAN.
• Striving to be at the top quartile of NPS score (>75%).

Regulatory Compliance and Future Preparations #

• The Company is registered under Extended Producer Responsibility (EPR) in India, recycling about 100 MT of e-waste per year.
• The Company complies with the Foreign Exchange Management Act, 1999, concerning downstream investments.
• The Company is exploring partnerships and opportunities in responsible recycling/reuse of server and its components.
• Target 70% Trade Vendors ESG aligned
• 70% of Non-trade suppliers in compliance with ESG screening criteria.

Forward Outlook #

Segment-wise Financial Analysis #

Management Guidance and Assumptions #

• SISA (Singapore, India & South Asia): Management assumes favorable macroeconomic tailwinds will continue, supporting growth. They anticipate opportunities in AI, cloud adoption, IT infrastructure, and cybersecurity. Opex and Capex technology consumption models are expected to evolve concurrently. Management assumes rural economy focus will be supported by partner and vendor networks.
• ROW (Rest of the World): Management notes a digital transformation in the Middle East and Africa (MEA) IT market. They assume AI, infrastructure advancements, and cloud services will drive growth. Specific growth is anticipated in Saudi Arabia and the UAE. Management acknowledges challenges including demand slowness, inflation, geopolitical issues, and currency limitations, particularly in Africa, which they plan to combat using tech and data analytics.
• Turkey: Continued focus on technologies such as cybersecurity, cloud computing, AI, IoT, and data centers in Turkey and the CIS region. Management expects Vodafone Turkey partnership to provide access to cutting-edge technologies.
• Arena: Management assumptions includes increased smartphone demand. They also forsee an increasing demand for e-recycling.
• ProConnect: Management assumes its focus on exapnding its wings to Northern and Western parts of India, and expects to enhance customer experiences using new tech.

Market Growth Forecasts #

• Global IT Spending (Gartner): Projected to grow by 6.8% in 2024, reaching $5 trillion. IT services spending is expected to surpass communications services spending.
• MENA IT Spending (Gartner): Forecasted to increase by 5.2% in 2024, totaling $193.7 billion. Cloud services spending is expected to increase significantly.
• India IT Spending (Gartner): Projected to grow by 10.7% in 2024, reaching $124.6 billion. Investments in AI and GenAI are major drivers. Software and IT services spending are forecasted to grow by 18.5% and 14.6%, respectively.
• India PC Market (Canalys): Forecasted to grow by 14% Y-o-Y in 2024 and 15% in 2025.
• India Digital and 3D printing market: Projected to reach $1.79 billion by 2030.
• India Solar Energy Market: Projected to soar to $238 billion by 2030.

Planned Strategic Initiatives #

• Overall: Focus on building a sustainable profitable core business, driving new business growth areas, creating unique routes to market, and leveraging best practices across geographies.
• SISA: Leverage partner and vendor networks for rural economy penetration. Engage with stakeholders and upskill teams for AI revolution participation. Drive technology, innovation, and partnerships.
• ROW: Enhance cloud capabilities through Track My Cloud and CloudQuarks. Expand enterprise offerings (DigiGlass, mobility solutions). Diversify into new verticals (professional displays, surveillance, unified communications). Expand into South Africa and venture into Green Energy solutions in East Africa.
• Turkey: Strengthen partnerships and the ecosystem. Invest in cutting-edge technologies and innovative practices. Expanded services in CIS region and Turkey.
• Arena: Leverage Brightstar Turkey acquisition. Focus on becoming the premier distributor for integrated technologies. Invest in RPA and AI to develop new service businesses.
• ProConnect: Expand to Northern and Western parts of India. Redesign organizational structure. Roll out Transport Management System (TMS).

Efficiency Improvement Targets #

• Redserv: Accelerate adoption of RPA and AI-powered tools to automate workflows. Leverage advanced analytics to identify optimization opportunities.
• Overall: Optimize processes to minimize waste and maximize resource utilization.
• Back Office Transformation: Automate and digitize manual processes.

Potential Challenges and Opportunities #

• Challenges:

  • Geo-political risks, forex volatility, interest rate fluctuations, and market risks in operating geographies.
  • Currency depreciation and dollar non-availability in Africa.
  • Collections delays and credit insurance absence in Africa.
  • E-waste management.
  • Management of inventory due to normalisation of credit terms.
  • Increase in finance costs due to increased interest rate and working capital.

• Opportunities:

  • Fast-growing geographies (India, KSA, UAE, Southeast Asia) with high IT consumption growth projections.
  • Cloud migration of customer IT infrastructure.
  • Gen AI adoption and tech refresh cycles.
  • Sustainability initiatives, including solar products distribution and e-recycling.
  • Expansion into Southeast Asia.
  • Setting up of International Visiting Chair Professorship at IIT Madras.
  • Growth in subscription and consumption based technology models.
  • Rural market penetration.

Scenario Analysis and Sensitivity to Key Assumptions #

• Scenario 1: Slower than Expected IT Spending Growth: If global or regional IT spending growth is lower than Gartner’s forecasts, Redington’s revenue growth could be negatively impacted. Sensitivity analysis would involve modeling revenue projections with lower growth rates (e.g., 3-5% instead of 6.8% globally).
• Scenario 2: Increased AI Adoption and Faster tech refresh cycles: Higher demands in AI and GenAI technologies can bring in more business revenue.
• Scenario 3: Currency Fluctuations: Significant currency depreciation in key markets (especially Turkey, Africa) could negatively impact profitability. Sensitivity analysis would require modeling the impact of various exchange rate scenarios on revenue and costs.
• Scenario 4: Increased Interest Rate: Profitability and cash flow can be negatively impacted if there is a increase in interest rates.
• Scenario 5: Supply Chain Disruptions: Continued or new supply chain disruptions (geopolitical, logistical) could impact product availability and costs. Sensitivity analysis could model the effect of extended lead times and increased freight costs.
• Scenario 6: Slower Adoption of New Business Models: If adoption rates for cloud and subscription models occur at a slower rate.

Audit and Compliance Analysis of Redington Limited for FY2023-24 #

Auditor’s Opinion and Qualifications #

• The Statutory Auditors, Deloitte Haskins & Sells, issued an unmodified opinion on the standalone and consolidated financial statements.
• The audit report does not contain any qualifications, observations, or adverse comments.
• There were delays in filing forms with the Ministry of Corporate Affairs, filed with additional fees.
• Audit trail feature issues were noted for both the Parent Company and subsidiaries.

Key Accounting Policies and Changes #

• The financial statements are prepared in accordance with Indian Accounting Standards (Ind AS).
• Key accounting judgements and estimates relate to revenue recognition, useful lives of property, plant and equipment, income taxes, stock appreciation rights, inventory obsolescence, OEM supplier programs, impairment of financial assets, and defined benefit plans.
• There were no changes in accounting policies during the year.
• No alternative accounting treatment prescribed differently from Ind AS was adopted.
• Arena Connect has merged with its parent company during the year.

Internal Control Effectiveness #

• The Company has an Internal Financial Controls (IFC) framework, including entity-level controls, efficiency controls, risk controls, fraud preventive controls, and IT general controls.
• The Board opines that internal controls for the preparation of financial statements are adequate and sufficient.
• The external auditor’s report on internal financial controls expresses an unmodified opinion.
• Audit trail issues were observed in the accounting software, specifically related to the period when the audit trail feature was not enabled and for software operated by third-party providers.

Regulatory Compliance Status #

• The Company has complied with all applicable provisions of Secretarial Standards - 1 and Secretarial Standard - 2.
• The Company has complied with the requirements of Stock Exchange/SEBI/Statutory Authority on all capital market-related matters.
• There is compliance with the Foreign Exchange Management Act, 1999, regarding downstream investments.
• The Company is in the process of filing FC-GPR forms for the allotment. Upon the approval, the Company will make a compounding application.
• No non-compliance except as stated.

Legal Proceedings and Potential Impact #

• There are no significant and material orders passed by the Regulators, Courts, or Tribunals impacting the Company’s going concern status.
• There are no pending proceedings against the Company under the Insolvency and Bankruptcy Code, 2016.
• There are no instances of a one-time settlement with any Bank or Financial Institution.
• Disputed tax demands exist, and the impact of pending litigations has been disclosed.
• The Redington Distribution Pte. Limited has a tax dispute and made payment under protest and an application for resolution.

Related Party Transactions #

• All transactions with related parties were in the ordinary course of business and at arm’s length.
• No transactions with related parties fall under the scope of section 188(1) of the Act.
• Omnibus approval of the Audit Committee was obtained for related party transactions.
• Sale of equity share was executed between subsidiaries.

Subsequent Events #

• The Board of Directors has recommended a dividend of ₹6.20 per equity share (310% of the face value) for FY2023-24, subject to shareholder approval.
• A definitive agreement has been executed on May 6, 2024, for the sale of Paynet by a step-down subsidiary Arena.
• ProConnect Holding Limited, Dubai purchased 100% of the equity share of ProConnect Supply Chain Logistics LLC.

Accounting Quality and Regulatory Risk Assessment #

• Accounting Quality: The unmodified audit opinion and the adherence to Ind AS suggest a generally high quality of accounting. However, the issues identified with the audit trail feature in the accounting software, affecting periods within the fiscal year, slightly lowers the accounting quality.
• Regulatory Risk Assessment: The historical instances of delays in filing forms indicate regulatory monitoring risk. The ongoing compliance and the resolution of the tax disputes also contribute to the overall regulatory risk profile. The restatements related to the change in the method of accounting in foreign currency, and the unspent CSR amount being transferred to a special account, also impact regulatory risk. The transfer of the registered office, expansion to new geographies, and internal restructuring also present a moderate regulatory risk.