Recommendation from Trading sector

This column gives you a scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

REDINGTON: LETTING INNOVATION LEAD THE WAY

HERE IS WHY
✓Profitable diversification plan
✓Good growth in revenue
✓Increasing geographical footprint 

There are a few trends that an astute investor looks in stocks that can give market-beating returns over the long term, one of which is a company’s diversification into high-margin business. This helps a company to earn better return on the capital employed and return on equity, driving the share price. One such company is Redington Limited, which has forayed into IT services with targeted revenue of USD 1 billion in the next three years. The firm will be eying large deals from small companies and small deals from large firms. 

Redington is a leading IT technology solutions provider across information technology, mobility, telecom, cloud, lifestyle and solar verticals. It has a footprint across 38 countries with over 290+ brand associations and 42,000+ channel partners. It is transforming the distribution and supply chain ecosystem through synergy between innovation and technology adoption. As a distributor it offers products like PCs, tablets, smart phones and augmented reality and virtual reality-powered wearables and solar. It has brand partners like Apple, Microsoft, Samsung,

Amazon, Dell, and many more. As an enterprise IT distributor, it provides solutions like networking, enterprise servers and storage, security, software and licensing and subscription.

It has bagged clients like Cisco, Autodesk, Lenovo, HP, etc. Under the service and solutions vertical, the company offers managed services like networking, cloud, logistics, BPM, BPO and 3D printing services. On the geographical front, besides India and Turkey, the company operates across markets in South Asia,the Middle East and Africa. Redington is bringing innovation faster to the market in several fields.

This includes cloud computing, 3D printing, Metaverse, quantum computing, augmented and virtual reality, 5G, borderless network, smart analytics, blockchain and cyber security. It is re-inventing its business model mainly in two parts i.e. from bricks and mortar model to omnichannel and from products to services. In Q3FY23, on a consolidated basis the company’s net revenue grew 30.56 per cent YoY to ₹21,674.31 crore from ₹16,600.74 crore in the corresponding quarter last year. The PBIDT excluding other income) grew 10.69 per cent YoY to ₹581.42 crore from ₹525.25 crore in Q3FY22. Owing to a steeper growth in expenses, the PBIDT excluding other income margin during the quarter contracted by 48 bps YoY to 2.68 per cent. 

The profit after tax (PAT) declined by 1.09 per cent YoY to ₹392.75 crore. The PAT margin contracted by 58 bps YoY to 1.81 per cent from 2.39 per cent in Q3FY22. Segment wise, in Q3FY23, on a global level, the IT segment contributed 70 per cent of the revenue. The mobility segment contributed 29 per cent whereas the services segment contributed 1 per cent. Geographically, 45 per cent of the revenues came from India, Singapore and other South Asian markets. Up to 55 per cent of the revenues came from the rest of the world (ROW). The company is currently trading at a TTM PE of 9.22x as against the industry PE of 33.0x. In FY22, the company delivered an ROE of 24 per cent. It currently offers dividend yield of 4 per cent. Taking into account the company’s new initiatives, better financials and higher dividend yield, we recommend BUY.