Underperform call on Redington, target price Rs 158: BNP Paribas Securities

BNP Paribas Securities has an underperform call on Redington with a target price of Rs 158. The current market price of Redington is Rs 205.8. Redington, incorporated in 1961, is a Mid Cap company with a market cap of Rs 16074.85 crore, operating in IT - Hardware sector.

Redington's key products/revenue segments include Computer Hardware, Sale of services and Other Operating Revenue for the year ending 31-Mar-2024.

Financials

For the quarter ended 30-09-2024, the company has reported a Consolidated Total Income of Rs 24952.22 crore, up 16.95% from last quarter Total Income of Rs 21335.29 crore and up 11.91% from last year same quarter Total Income of Rs 22296.59 crore. The company has reported net profit after tax of Rs 282.88 crore in the latest quarter.

The company's top management includes Prof.J Ramachandran, Mr.S V Krishnan, Mr.Tu Shu-Chyuan, Ms.Anita P Belani, Mr.B Ramaratnam, Mr.Sudip Nandy, Ms.Chen Yi-Ju. Company has Deloitte Haskins & Sells as its auditors. As on 30-09-2024, the company has a total of 78 Crore shares outstanding.


Investment Rationale
Supply constraints for Redington have largely eased, and hence, the associated benefits have also been reversed. Also, demand risks due to slowing smartphone and PC shipments remain, with a margin of risk on continued investments, in BNP Paribas Securities' view. Redington is making aggressive investments in technology and human capital in the services business. While the brokerage sees the sharp moderation in its revenue growth and margin to be behind, they do not see any material pick-up in growth or margin ahead. With the stock offering just c7% earnings CAGR over FY24-26, they find valuations expensive, and consensus estimates at risk of disappointment.

Valuation methodology
BNP Paribas values Redington with a target P/E of c9x applied to Dec-26E EPS. Their target multiple is similar to its past five-year mean NTM P/E, as they see the company going through a normalisation phase with post-Covid benefits reversing.

Upside risks to the P/E-based target price are: 1) swift margin recovery; 2) working capital improving; and 3) better-than-expected free cash flow generation.

Downside risks to the P/E-based target price are: 1) sharp slowdown in ESG vertical demand; 2) the Africa market seeing a significant hit due to macroeconomic challenges; 3) inflationary pressure increasing in the Turkey market; 4) working capital days and margins reversing to pre-Covid levels; 5) any material reduction in dividend payout.

Promoter/FII Holdings
Promoters held $MarketsData-marketResults.newShareHolding.summary.promoters.percentage per cent stake in the company as of 30-Sep-2024, while FIIs owned 58.07 per cent, DIIs 17.87 per cent.