GNG Electronics margin expansion drives earnings upgrade as refurbished-device demand strengthens

Investment View and Refurbished-Device Demand

Motilal Oswal Financial Services retained its BUY recommendation on GNG Electronics after a strong start to FY27. Growth was led by demand for refurbished devices, higher average selling prices and broad-based margin expansion. The broker believes AI-led computing demand, persistent memory shortages and rising prices of new PCs are widening the affordability gap, supporting structural demand for refurbished devices from enterprise and education customers.

Motilal Oswal views GNG Electronics' scale, supplier access and institutional distribution network as reinforcing sourcing and distribution advantages. These advantages can support recovery rates, realisations, inventory rotation and execution.

Q1 FY27 Financial Performance

GNG Electronics reported consolidated Q1 FY27 revenue of Rs 4,125 million, up 32 per cent year on year and broadly in line with Motilal Oswal's estimate of Rs 4,122 million. Growth moderated from approximately 40 per cent in each of the preceding two quarters. Volumes increased approximately 18 per cent year on year to 150,000 units, while blended average selling price increased approximately 12 per cent, reflecting better product mix and realisations.

Gross margin expansion was attributed to procurement efficiencies, higher international contribution and better realisations. Profit after tax grew despite higher depreciation, finance costs and tax. Employee costs rose 43 per cent and other operating expenses increased 69 per cent year on year, reflecting investment in technical talent, management, channel expansion, sales incentives and marketing.

Volume and Geographic Performance

Laptops accounted for 108,000 units, or 72 per cent of volume, and contributed 81 per cent of revenue.

Revenue mix comprised India at 36 per cent, the US at 24 per cent, Europe at 23 per cent, the Middle East at 12 per cent and other markets at 5 per cent.

Upgraded FY27 Guidance and Operating Position

Management upgraded FY27 revenue-growth guidance to 30 per cent from 25 per cent. It also forecast profit after tax margin expansion of 75 to 100 basis points, compared with 50 basis points earlier.

Management said supplier relationships, advance procurement and supplier diversification kept procurement costs broadly stable despite 12 to 13 per cent market inflation in sourcing prices. Inventory was approximately Rs 7,000 million, compared with approximately Rs 7,400 million at FY26-end. The company maintained 30 to 40 days of finished stock for fulfilment and sourcing opportunities. Net debt increased to approximately Rs 4,000 million from approximately Rs 3,000 million at FY26-end due to inventory investment.

Earnings Estimates and Cash-Flow Outlook

Motilal Oswal raised gross-margin assumptions by approximately 100 basis points, increasing its FY27 to FY29 profit after tax estimates by approximately 7 to 9 per cent.

Motilal Oswal estimates cumulative cash flow from operations of approximately Rs 1,400 million and free cash flow to the firm of approximately Rs 800 million over FY26 to FY28.

Key Constraint and Valuation

Working-capital intensity remains the key structural constraint because inventory-led procurement requires investment of approximately 40 per cent of revenue.

The Rs 700 target price is based on 30 times FY28 earnings per share. Against the CMP of Rs 556, this implies 25.6 per cent upside.