Buy Redington (India); target of Rs 103: Motilal Oswal

Motilal Oswal is bullish on Redington (India) and has recommended buy rating on the stock with a target of Rs 103 in its January 25, 2013 research report.
 
“Over the years, REDI has evolved as an end-to-end supply chain management (SCM) solutions and strategic partner to the world’s leading technology companies. As India has significant under-penetration in IT and consumer goods, increasing discretionary spending would change this and lead to more spending in IT related products and consumer durables. Company is not only the largest and leading IT SCM player in India but also leads in international markets like Middle East and Africa.”
 
“REDI is pursuing a four-pronged strategy to achieve strong growth and sustain the competitive advantage in IT distribution industry: 1) growth in existing product lines, 2) foray into new verticals and business lines, 3) explore new regions and geography/inorganic acquisitions and 4) strategic initiatives. As India’s market offers significant opportunities to IT services providers due to increasing demand, company has scope to add new products to its existing verticals and move up the value chain. A diversified portfolio enables it to manage vendor risks and growth effectively. Also, REDI’s global reach gives a competitive advantage, with suppliers eyeing worldwide market penetration. To leverage existing strengths in IT logistics business and broadbase its product offerings, REDI forayed into distribution of consumer goods. Non-IT business has grown from ~5% of overall revenues in FY07 to ~19% in FY12. Given lack of quality third party logistics (3PL) players in India, REDI is well-placed to create a niche in this segment. We model its consumer goods business, consists of key clients like LG, Whirlpool, Voltas, Godrej, etc, to increase from ~INR1.8b in FY12 to ~INR8.5b by FY15E.”
 
“We expect REDI to post revenue CAGR of 17% and net profit CAGR of 20% respectively over FY12-15E. Implementation of GST would unveil and increase significant opportunities for the company, particularly in non-IT verticals. We believe execution of REDI’s strategic initiatives could allay concerns on 1) its NBFC arm, 2) recovery in Arena and 3) asset-heavy capex plans for ADCs. REDI trades at 7.5x/6.3x FY14E/FY15E EPS and EV of 6.2x/5.4x FY14E/FY15E EBITDA. We initiate coverage with a Buy and a target price of INR103, based on intrinsic P/E of 8x its FY15 earnings, an upside of ~27%,” says Motilal Oswal research report.

Bodies Corporate holding more than 50% in Indian cos

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