Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Redington Ltd (BOM:532805, Financial) reported a 13% year-on-year growth in profit after tax, achieving a PAT percentage of 1.42.
- The company recorded its highest Q1 revenue at INR19,032 crores, with revenues growing 1% year-on-year excluding its Turkey subsidiary, Arena.
- The cloud business unit showed stellar performance with a 35% top-line growth, driven by success in the hyperscaler business and subscription software.
- The Endpoint Solutions Group contributed to growth with an 11% revenue increase, driven by commercial and consumer PCs.
- The company has rebuilt its corporate strategy around four pillars, focusing on sustainable profitable core, accelerating business growth, route-to-market transformation, and leveraging the power of One Redington.
Negative Points
- Redington Ltd (BOM:532805) faced challenges in its Turkey subsidiary, Arena, due to high inflation and interest rates, resulting in a loss for the quarter.
- The notebook PC market in Turkey declined by almost 30%, significantly impacting the company's performance in that region.
- Gross margins saw a drop across businesses, partly due to higher inventory provisions and market softness in key regions like KSA.
- There were delays in India due to elections and capital decision delays, affecting the Technology Solutions Group's growth in the region.
- The company experienced headwinds in the Middle East and Africa due to longer festive holidays and government project delays in Saudi Arabia.
Q & A Highlights
Q: In the prior quarter, it was thought that headwinds were bottoming out. What are your thoughts on the current relative weakness and the drop in gross margins across businesses? Also, how is the Africa business performing?
A: Some headwinds this quarter are transient, such as delays in India due to elections and extended holidays in MEA. We don't see these headwinds carrying forward. Africa has shown a nice uptick in both top line and bottom line this quarter. Regarding gross margins, there is some softness and higher inventory provisions in a few places, but PAT percentage remains strong at 1.42% without Arena.
Q: How much is the inventory provision for the quarter? And do you see recovery in KSA after government postponements?
A: The inventory provision for the current quarter is at 13 bps, up from the usual 6 bps. We do see recovery in KSA, with some visionary projects being readjusted and rightsized. We expect recovery going forward.
Q: Are we seeing a comeback in CapEx dialogues with corporates in India post-elections? And can we expect margins to return to the 2.4%-2.5% range?
A: Yes, we are seeing signs of recovery in commercial PCs and mid-market segments. Enterprises are making decisions post-elections, and we expect government projects to unfold this quarter. We are confident in maintaining EBITDA percentage between 2.3% to 2.5%.
Q: How should investors expect margin recovery at an EBITDA level for the rest of the year?
A: Q1 is typically a subdued quarter. We are positive about improvement in the rest of the year. We aim to maintain operating profit between 2.3% to 2.5% and PAT percentage of 1.3% to 1.4%, excluding Arena.
Q: What is the outlook for Turkey, given the 30% decline in the PC market?
A: The decline was a combination of high interest rates and extended holidays. We see an uptick of 30%-40% between June and July, indicating a correction. We are closely monitoring demand and working capital management to navigate the high-interest environment.
Q: Can you provide a status update on ProConnect and its expected performance?
A: ProConnect is performing well, with consolidated revenue of INR228 crores, EBITDA growth of 21%, and PAT growth of 61%. We are confident about its growth prospects.
Q: What is the current breakup between cloud resale and cloud services, and what can be expected going forward?
A: Cloud resale is still very large, with services contributing less than 2% of overall revenues. We expect growth in professional services like migration and modernization, but services will remain a smaller part of the overall business.
Q: Are there any plans to enter new geographies?
A: Yes, we have entered Malaysia and are planning to enter Singapore, focusing on cloud resell and professional services. In MEA, we have entered the Republic of South Africa and are planning to expand in Central Asia, including Azerbaijan and Kazakhstan.
Q: How do you see the seasonality affecting your business going forward?
A: Q3 and Q4 are typically higher quarters, with Q1 being the softest. Seasonality varies by geography, influenced by factors like festive seasons, government buying, and new product introductions.
Q: What is the outlook for the Middle East, given the decline in profitability?
A: Middle East margins remain better, but there was some erosion in gross margin due to demand environment in KSA and challenges in the mobility business. We expect this to be short-term and see recovery going forward.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
