Buy Redington; target of Rs 88: Nirmal Bang

Nirmal Bang is bullish on Redington (India) and has recommended buy rating on the stock with a target of Rs 88 in its August 3, 2012 research report.

“Redington (India) results were below expectations. Q1 quarter is a slow quarter for the company, however YoY revenues disappointed.  Revenues grew 3.3% YoY to Rs.5371.5 crore on the back of India business growing 3% YoY and the overseas revenues growing 3.5% YoY.  EBIDTA margins remained flat YoY at 2.66%.  PAT de grew by 6.6% YoY on the back of higher tax rate during the quarter.”

“India business grew 4.4% QoQ and 3% YoY mainly on the back of high valued products. However, the government spending was subdued due to lack of decision making. Similarly, even the corporate sector spending was restrained due to dismal outlook of the economy. Blackberry sales have remained stable during the quarter. The company in the Q4FY12 quarter had indicated a growth of 14%-15% for FY13E on the back of lower government and corporate demand. Overseas revenues were affected by the overall slag in the global economy. Arena continues to remain under structural re-structuring phase and cancellation of contract with Nokia also contributed to slowness. However, Samsung is expected to make up for the Nokia loss of contract in the Q3 and the Q4 quarter of FY13E.”

“The company is facing pressure from the overall weakness in the economy coupled by pressure at its Turkey subsidiary and dis-continuation of contract with Nokia. Slowing down of revenues from the past two quarters remains a concern and reflects in the stock price which has corrected almost 20% in the past 3 months. We believe this is a temporary phenomenon and would lay its impact in FY13. However, with Samsung revenues catching up in the coming quarters and resolution of hitch at the Arena subsidiary, we believe the company would again go back to its regular growth trajectory. We reduce our target price from the earlier Rs.96 to Rs.88 assigning a lower P/E multiple of 10x (earlier 11x) for FY13E expected earnings due to lower revenue visibility in the near future. At CMP, the stock is trading at 8.6x and 7.3x its FY13E and FY14E expected earnings and looks attractive for long term investment and recommend BUY,” says Nirmal Bang research report. 

Public holding more than 90% in Indian cos

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