Buy Redington (India); target of Rs 167: Prabhudas Lilladher

Prabhudas Lilladher's research report on Redington (India)

Redington’s revenue growth of 25% YoY was much above our estimate of 15% YoY growth. Growth was led by broad-based growth across IT (18.3% YoY) and Mobility (46.6% YoY). In terms of markets growth was led by SISA (37% YoY). RoW grew 15.6% YoY. Demand for IT from Enterprises, Governments and Schools was strong in Q1FY23 led by gradual shift to work from office, whereas demand from consumer segment was subdued. We expect demand to normalize going forward as both consumers and enterprises are likely to moderate spends given inflationary pressures and challenging macro environment. EBIT margin improved by 23bps YoY despite investments in talent and capabilities led by operational improvements (set-up of shared-services centre). Our EPS estimates increase by 4.4%/3.6% for FY23/24E led by slight increase in revenue and margin estimates for FY23/24. We expect EBIT margin to be ~2.4% for FY23/24 lower than 2.6% for FY22 as benefit of lower discounts given to customers will fade away as supply shortages ease off, but higher than ~1.8% pre-covid, due to increasing share of Enterprise IT and operational improvements. In the long term, as high margin cloud, solar products and logistics services business scale up, it will also aid margins.

Outlook

We continue to value Redington on 10x on FY24 EPS of Rs 16.7 to arrive at revised TP of Rs 167 (earlier: 162). Currently, Redington trades at 7.9x/7.6x on FY23/24E EPS of Rs16.1/Rs.16.7 respectively with Revenue CAGR of 10.9% and low 1.1% EPS CAGR over FY22-24E. Maintain BUY on attractive valuations.

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