Redington confident of sustaining gross margins at over 6%: CFO

Redington (India) saw a stable growth in third quarter ended December, 2015. The revenues were up in the quarter by 7.4 percent at Rs 9,003 crore versus Rs 8,380 crore for the same quarter in the earlier fiscal.However, Apple’s transition from two distributors to four distributors did impact revenues of India business this quarter and would impact in Q4 as well, said CFO SV Krishnan. However, going forward into FY17 this issue is likely to get ironed out as base effect wears off, he said. The revenues have grown 17 percent CAGR in the last nine years.He is also confident of sustaining gross margins at over 6 percent on back of better product mix.Company’s India market share of Apple declined from 55 percent to 29 percent in the third quarter. The overseas business too is facing structural headwinds but margins expanded due to recent distribution pacts for iPhone and iPad sales in UAE and Nigeria, said Krishnan.Below is the transcript of SV Krishnan’s interview with Nigel D’souza and Reema Tendulkar on CNBC-TV18.Nigel: This quarter around, not such a great quarter for the Indian business, though in fact, the international business did quite well. Do we expect to see more of the same going ahead as well?A: Not really. As you know, we are having this transition in Apple. From a two-distributor model, it became a four-distributor model starting form in between Q4 of last year and that impact is being felt in the current quarter. So, as we move forward, we expect both the India business and the overseas business to grow quite strongly. An even if you see, in this quarter, if you eliminate the impact on account of Apple, the rest of the business has still grown positively by about 4 percent.Reema: So, the India business ex of Apple is up close to about 4 percent. You indicated that the India as well as the overseas business will continue to see strong growth. Could you quantify that? What could be the growth that you will see in FY17 in terms of India revenues as well as overseas revenues?A: Let me tell you, we have grown consistently, our revenue and profits after initial public offering (IPO). Every of the quarter, you would have seen our revenue and profits have grown and our compounded and annual growth rate (CAGR) in the last nine years, post the IPO, in terms of revenue, was 17 percent and in terms of profits, 18 percent. While I cannot talk about the percentage as such for the future, since we have been growing quite strongly, you can imagine what can be the growth rates going forward. We think the markets are still attractive. Nigel: Talking about your international business, there were a lot of tailwinds that came in over there. How is the Middle-east business expected to perform going ahead and also, we did see, there was some good income as well as good margins that come in on the back of your iPad sales in UAE as well as Nigeria. What is your outlook on this? Do you expect this business to grow going ahead as well?A: Yes, but you need to understand that he environment in those markets, be it the geopolitical tensions, be it the oil price and the resulting fiscal deficits are all very tough. And what we have done in the last many quarters in these markets in spite of this background is something that is what is appreciable and we have done, our subsidiary in these regions have done very well and we can assure you that we will not leave any stone unturned. We will do whatever best possible in the given environment.Reema: Gross margins at over 6 percent is the highest that we have seen in the last many quarters. Is this sustainable at current levels?A: We think it is sustainable. I mean, we see in the last couple of quarters, the product mix is becoming better. The sale of value products and also, the revenue from services side and particularly, the logistics business that we started about 3.5 years back. So, all these we expect going forward, in terms of contributing more margins and we should see increase in margins going forward. I mean, as we go towards this trend. Nigel: What about the working days? They have increased marginally to around 60 days approximately from around 57. What is update on that going ahead? Can we see that come back down towards normal levels?A: It should come back. This is one area where we think we could have done better, but having said that, it is more one off. It is because of the inventory build up because of some slowdown in some few products. Normally Q4 is a very large quarter for us with an increased sell-through, so if we can work our plan better, we should come back to the normal working capital days by end of Q4.Reema: Just one word on Apple. Since that is a big chunk of your revenues, do you expect it to hurt even in the coming quarters? Give us some numbers on Apple.A: If you remember, the change in the number of distributors as far as the iPhone was concerned, was changed towards the middle of Q4 last year. Roughly around February, 2015. So, to that extent, you will see the impact as far as the Q4 numbers also. But, having said that, after Q4, from Q1, this should not be there and we should see a consistent growth and also particularly because as you know, they have got the Apple contract in UAE, as well as in Nigeria. This again, is going to give us an additional revenue. So, overall, we are confident about Apple as a product and Apple is also doing very well in these markets. So, we are generally quite gung-ho as far as this brand is concerned.