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UBS Investment Research
Redington India
Distribution powerhouse
Initiate coverage with a Buy rating
Redington India (REDI) is a leading IT distributor with a presence in key highgrowth
emerging markets—it was the second largest distributor in India and
Turkey, and the largest in the Middle East and Africa in terms of revenue in FY11.
REDI has also expanded beyond IT products; non-IT products contributed
14%/18% of revenue in FY10/11. We expect the company’s strong growth and
robust ROE to continue in this highly consolidated industry.
Smartphones, tablet PCs and new geographies should drive growth
REDI’s non-IT business recorded a 111%/28% revenue CAGR in India/the Middle
East over FY08-11 (IT business CAGR was 6%/21%). BlackBerry has driven
revenue growth over the past two years in the non-IT segment, and REDI expects
smartphones and tablet PCs to drive growth in the future. It also plans to expand
Arena (Turkey’s second largest IT distributor in terms of revenue, and in which it
has a stake) beyond Turkey and into the non-IT product segments.
High ROE and robust growth are underappreciated; potential re-rating
We believe REDI’s robust growth and high 29% core ROE in FY11 are
underappreciated by the market. We expect the share price to rise on improving
return ratios and strong revenue growth.
Valuation: Rs120.00 price target
We value REDI on 12.5x FY13E PE. This is supported by 24% consolidated ROE
and 29% ex-cash ROE in FY11, and our 25% EPS CAGR forecast over FY12-15.
Our PE multiple is in line with REDI’s three-year historical average, and in line
with Synnex Technology International’s 2012E PE.
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