Buy Redington (India); target of Rs 175: Prabhudas Lilladher

Prabhudas Lilladher's research report on Redington (India)

Redington's 4QFY18 results were a mixed bag. Tepid revenues were negated by EBIDTA margin  beat. Revenues at Rs113.1bn were up 4.8% YoY and below our estimates (Rs116.3bn). Revenues from India came at Rs38.9bn down 4.1% YoY led by softness in mobility portfolio and GST impact (~6% negative impact from GST on revenues).Adjusted for GST impact, India business revenues would have grown 2% YoY for 4QFY18. Revenues from Overseas (Middle east, Turkey, South Asia) came at Rs74.2bn up 9.8% YoY (3% headwind from translation impact). Adjusting for translational impact, Overseas business revenues would have grown 13% YoY for 4QFY18. EBIDTA margin came at 2.05% for 4QFY18 up 26bps QoQ and down 12bps YoY. Absolute EBIDTA came at Rs2.3bn for 4QFY18 down 1% YoY and up 11% QoQ. Sharp improvement in overseas business margins on a sequential basis has aided sequential margin expansion. PAT at Rs1432mn was 11% above our estimates. However, 4QFY18 PAT is down 3% YoY. Management guided that volatility owing to GST and weakness in select markets (Turkey) would lead to softer revenue growth 1HFY19. However, Management expects revenue growth momentum to pick up in 2HFY19.  Management also cited scope for increase in working capital cycle in near term with Enterprises in India are demanding a higher credit period.

Outlook

Our TP is trimmed by 8% to Rs175/sh (10x FY20E EPS for core business and 22x FY20EPS for logistics business). Retain BUY.