Redington Ltd Q2 FY2026 Concall Summary

Key Takeaways

• Best quarter ever, broad-based recovery: Revenue hit an all-time high and profitability was the best Q2 ever, with growth returning strongly across all segments after a challenged year-ago quarter.
• SSG reorganisation unlocks 48% growth: The newly formed Software Solutions Group accelerated sharply from 20–25% growth last year, contributing 16% of the top line and delivering higher-than-average PAT margins.
• Mobility and PC refresh drive the beat: Premium smartphone demand and impactful new product introductions powered Mobility, while a PC refresh cycle and AI PC penetration lifted the ESG segment, especially in India.
• Turkey restructuring drag nears its end: The Connect Vodafone contract sale and lira business exit should meaningfully reduce Arena’s interest costs and working capital, with full benefit from next financial year.
• What to watch next quarter: Whether the PC refresh trend sustains overseas, the pace of SSG’s margin-accretive scaling, and the actual interest cost reduction once the Connect sale collections complete.

Segment Performance & Drivers

• Mobility outperformed: Stronger demand in the premium segment and impactful NPIs drove growth, with very strong execution in India’s direct-to-retail channel. Overseas monthly run rates in the Middle East and Africa were ahead of plan.
• Premium Android and Apple both contributed: Redington works with two premium Android brands and is one of only two Apple distributors in India; the D2R channel with over 5,000 outlets getting only premium phones is a key driver. Management declined to give relative growth numbers.
• PC/ESG lifted by India refresh: PC business grew in both India and the Middle East, with signs of a refresh cycle and increased AI PC penetration in the commercial space. India saw consistent monthly activation growth over 6–7 months; overseas remains flattish with single-digit growth.
• Technology Solutions saw higher enterprise demand: The restated TSG (server, storage, networking hardware) benefited from enterprise demand and large deals, though margin and profitability need work. Management is being selective, pursuing opportunities with marginal cost increase.
• Arena still weathers Turkey stress: Inflation and policy rates are coming down but remain at stress levels. The lira business exit is progressive: the Vodafone contract was 100% lira, some consumer electronics business is being exited over 1–1.5 quarters, and some channel business may remain in lira at a smaller amount.
• Arena EBITDA is high but interest wipes it out: EBITDA percentage in Arena is the highest within the group, but high interest rates still result in losses. The lira business exit may not make a big EBITDA difference.

Krishnan: "Maybe in about 6 months, we should see some light at the end of the tunnel. That's where it stands."

Software Solutions Group (SSG) Restructuring

• First quarter in new form, growth accelerated to 48%: The group combines cloud hyperscaler, cybersecurity, application software, and professional services. All four pieces recorded good double-digit growth, and SSG delivered higher-than-average PAT compared to the group.
• Transition happened faster than expected: Sheer focus and attention created breadth and depth across all brands; Redington took on more brands and looked at wallet share brand by brand.
• Subscription shift underway: The cloud part has moved completely to subscription; cybersecurity and software are partly subscription, partly licensing multiyear. Directionally everything will move to subscription, with similar go-to-market motions using digital platforms and automated renewals.
• Scaling via cookie-cutter models: To scale professional services, the approach is to productise offerings into repeatable models rather than bespoke service deals, then scale with partners.
• Inorganic exploration is early: Management is exploring small inorganic opportunities in SSG for new capabilities and competencies, but says it is too early to talk about investment levels.

Hariharan: "This is the first quarter we are reporting the results at this group in this new form. It grew by 48%, contributing to 16% of the top line. If you remember, we talked about it the previous quarter that this group for last year grew somewhere between 20% and 25%, so we clearly see signs of accelerated growth in this area."

Turkey & Arena Restructuring

• Connect Vodafone contract divested: The sale was concluded towards the end or beginning of the current quarter. Collections of outstandings will continue through Q3 and partly Q4, so the full benefit arrives from next financial year.
• Interest cost reduction expected: The sale of Connect and winding down of the Turkish lira business should, ideally in the next 6 months, lead to a significant reduction in debt levels and interest costs.
• Remaining Arena business roughly \$500 million next year: Currently flat to declining due to market conditions; will depend on market size and share. The software-centric business in Turkey is growing good double digits profitably.
• Paynet divestment already done: A series of actions taken including Paynet sale, tightening working capital and opex, managing AR more closely, and divesting from local currency business.

Krishnan: "See that sale got concluded towards the end or beginning of the current quarter. We are in the process of consuming -- let's say, consummating it, which will also involve collection of some outstandings that will continue till -- this in Q3 and some part in Q4. So, a good part of the benefit should start kicking in towards the later part of the current quarter and mostly from Q4, but fully from next financial year."

Margins, Costs & Working Capital

• Operating leverage visible: Opex grew slower than revenue at 9% YoY, giving good operating leverage. From incremental gross margin, roughly half flowed into PAT.
• Working capital days improved to 31: Efficient management and a higher mix towards Mobility led to the reduction. SSG working capital is around the company average; the company average is mainly driven by MSG where working capital is much lower.
• Interest costs rose on factoring and growth: Higher factoring cost rose to INR45 cr from INR33 cr, and total interest/factoring cost was up 37% due to higher business growth in rest of markets. Outside Arena, interest costs as a percentage of revenue should come down.
• Opex investment will continue: Management will keep investing in SSG (presales, platforms, academy); opex as a percentage of revenue can go up incrementally, but they will be mindful to keep opex percentage growth lower than gross margin growth.
• Large deal economics differ: Large deals are incremental revenue and incremental margin, but from a profit percentage perspective they will not have similar margins. Management will call out and disclose large deals so performance can be tracked clearly.

Krishnan: "You all know the gross margin is x percentage, operating profit is about half of that, and PAT is about one-fourth of that. What we had observed, I mean, you can see from the numbers, from the incremental gross margin, what we have derived is almost half of that into the PAT, which very clearly shows, which is a point we have been making even in the last earnings call also on the large deals, right."

Strategy & New Initiatives

• Data centre strategy being crafted: Redington is exploring opportunities in cooling systems, power, software, and fulfilling capacity. Management indicated fairly large data centre deals may be announced as they progress.
• AI capabilities under investment: The company is investing in many AI capabilities and will share plans and executions in upcoming quarters.
• Multi-year planning underway: Three-year plans are being crafted for multiyear investments in areas like SSG.
• Dividend policy flexibility to be discussed: Management will bring feedback on being more flexible with the 40% dividend payout to the Board for discussion. The transcript cut off before a full answer on multi-year flexibility.
• Growth ambition framed: If Redington can maintain 15% top line and 15% bottom line growth, that would be "very interesting."

Hariharan: "25% of the total distribution market has become software globally and software and services. With AI, it is only going to deepen and accelerate."

Guidance & Commitments

Key Metrics