Redington Ltd Q4 FY2022 Concall Summary

Key Takeaways

• Record revenue, uneven geography: India grew 22% but Overseas EBITDA jumped 18% on just 4% revenue growth, showing the margin power of the international portfolio.
• The Apple GTM reset is lapping: India absorbed a ~₹3,200 Cr revenue hole from Apple’s direct-to-retail shift and still grew 19%, and the YoY compare turns positive from Q2.
• Cloud is the growth engine: Cloud revenue grew 41% in FY22, riding hyperscaler partnerships and the everything-as-a-service shift, and management expects the story to strengthen.
• Opex is rising by design: Operating expenses climbed to ~₹332 Cr as the company invests in cloud platforms, e-commerce, and services talent to pivot from a product distributor to an omni-channel, services-heavy model.
• What to watch next quarter: Whether mobility supply constraints actually ease, the pace of working capital normalization as DPO mean-reverts, and any margin signal on whether the elevated opex base is the new normal.

The Apple Reset & GTM Re-engineering

• The hole that was filled: Apple shifted volume from partners like Redington to direct retail (Flipkart, Amazon) in India and cut regional distributors in Middle East and Africa, costing Redington roughly ₹3,200 Cr in revenue. India still grew 19% because the loss was more than made up through other brands and strategies.
• GTM re-engineering was the answer: Multiple brands (Lenovo, Acer, and others) changed business models last year, and Redington re-engineered its go-to-market across the board, which collectively enabled the 19% growth.
• The lapping math: The YoY compare for the Apple GTM impact turns positive from Q2 FY23 onward, because Q2, Q3, and Q4 of FY22 were already impacted. Only Q1 FY23 carries a residual drag.
• Apple’s India manufacturing optionality: Apple announced it would consider increasing production volumes from its Bangalore factory, which management flagged as a potential catalyst that could completely mitigate the supply chain gap if volumes dial up.
• Disintermediation is a permanent risk, not a crisis: Management treats brand GTM changes as normal business happenings that occur all the time, and the response is to stay mindful and keep growing in a favorable market.

Rajiv Srivastava: "I think what is more relevant for you and for us is how did Redington re-engineered its GTM to maximize the market opportunity."

Cloud & the Services Pivot

• Cloud outperformance: Cloud business grew 41% in FY22 against overall business growth of roughly 10%, riding the shift to everything-as-a-service and subscription models, with partnerships across all three hyperscalers (Amazon, Microsoft, Google).
• Platform investment for scale: Redington invested in a cloud platform enabling no-touch or less-touch transactions, and launched an online platform where customers can configure product solutions and services, procure, and provision for themselves in a self-serve model.
• Services are small but meant to scale: Management acknowledged cloud services are currently small and declined to share specific hyperscaler benefits, but stated unequivocally that services will scale up alongside cloud.
• The model shift is structural: The company is pivoting from a brick-and-mortar offline product distributor to an omni-channel, product-plus-services combination, which requires acquiring people with the best capabilities and is the primary driver of the opex increase.

S.V. Krishnan: "We have also invested in a very good cloud platform which will enable no touch or a less touch level of transaction and that is also going to help us in terms of scaling the business at optimized cost."

Opex, Investment & the Margin Story

• Opex up ~28% on a comparable base: Operating expenses rose from ~₹260 Cr (Q3 FY21) to ~₹332 Cr (Q4 FY22) because of investments in cloud technology, e-commerce platforms, internal tech capabilities, and the pivot to a services-heavy, people-dominated business model.
• Employee cost is not the opex driver: Employee cost actually declined to ₹238 Cr from ₹250 Cr in the December 2020 quarter (Q3 FY21). The opex increase on people is specifically due to investments in services capabilities, not headcount inflation.
• Investment is framed as future-proofing: Management explicitly stated these are the best times to make investments, positioning the spend as securing relationships and capabilities for future robust growth rather than as a cost to be optimized.
• Opex will keep rising: Digitalization of the business will continue at a very fast pace, and opex will go up because the company intends to stay on the trajectory of implementing and investing in tech.
• Profitability sustainability is an open question: Management declined to commit to whether last year’s profitability will continue, citing an uncertain world with headwinds (inflation, commodity prices, energy cost) and tailwinds (fuel prices helping Middle East). In the near term, gross margins should hold up, but the company will adjust business priorities on a real-time dynamic basis.

Rajiv Srivastava: "These are the best time to make investments, because if you make investments now, you really can get the best of the investments that you make and the relations that we have for future continued robust growth in the future, so we are in a way, in a sense, we are future proofing ourselves."

Working Capital & the DPO Question

• Working capital held at 13–14 days: DSO and DIO have gone up, but the increase was offset by a rise in DPO, keeping working capital stable.
• DPO increase is mix-driven, not a renegotiation: The DPO increase comes from product mix (the IT division, especially enterprise, carries significantly higher credit days from vendors) and some supply bunching toward quarter-end. Management stated there is no real revision or reworking on credit terms, only deal-by-deal reworking.
• Normalization will reverse the tailwind: Whenever market normalization happens, all three components (DSO, DIO, DPO) will normalize, resulting in an increase in working capital. The supply bunching effect is also expected to unwind.

Mobility, Supply Chain & Market Share

• Mobility declined 11% on global supply constraints: All major brands struggled (Apple short on supplies by eight billion last quarter, Samsung, Oppo, Vivo all affected), and the global smartphone market degrew 6% in Q2, 6% in Q3, and 9% in Q4.
• Management is hoping, not forecasting, a recovery: Supply chain issues have caused degrowth for three quarters. The current quarter looks a little better than the previous one, but some factories in China remain under COVID lockdown, and management would only say "let us keep our fingers crossed" on brands coming out of supply constraints this year.
• PC market share gains were material: Redington grew 46% in the India PC market vs market growth of 31% in Q4, and grew 21% in Middle East and Africa vs market growth of 8%, driven by the re-engineered GTM strategy.
• Enterprise IT was the standout: Enterprise IT grew 30% last year driven by changes in cloud buying behavior and enterprises running large complex projects, while consumer IT grew 21% for the full year.
• Q3 seasonality is structural: Q3 has historically been on the higher end for revenue and profitability because new launches in the mobility space correspond to the festive season, which spikes revenue and enables better profitability.

International Portfolio & Turkey

• Overseas: low growth, high margin conversion: International revenue grew only 5% in gross accounting terms (despite the Brightstar acquisition) because the overall market came down and Redington focused on outsizing a stable or de-growing market. Yet Overseas delivered 18% EBITDA growth and 20% PAT growth.
• Turkey is profitable in a 70% inflation economy: Turkey operations delivered PAT growth of 15.5% YoY despite operating in a 70% inflation environment and a volatile economic region.
• Turkey is strategic, not just financial: Management views Turkey as a gateway to the West and a source of innovation, and intends to stay invested and leverage it for a variety of other innovations it is capable of bringing.

Rajiv Srivastava: "Turkey is extremely strategic for Redington and we will make sure that they continue to grow faster in the market which is what they have been doing over the last so many years despite a very difficult economic environment and we will leverage Turkey for a variety of other innovations that they are capable of bringing."

Guidance & Commitments

Key Metrics