Macro weakness persists; expect a muted quarter
We interacted with the REDI management for a business update on operations. Key takeaways are: 1) India business muted on sluggish government/ corporate business even as retail demand is largely unaffected and 2) Apple continues to do well for REDI, while Blackberry remains steady. While valuations have moderated (9x FY13E P/E), we believe macro conditions remain tough and REDI could see another muted quarter with slower-than-usual seasonality. Key trigger, in our view, would be deal announcements with other top smartphone vendors (most notably iPhone).
India business muted: India business remains muted as government/corporate (~35% of mix) business is weak. However, contrary to our expectations, retail demand is still holding up as OEMs have not passed on the impact from rupee depreciation onto the customers. In non-IT, Apple continues to grow but blended growth rates could moderate as growth in Blackberry begins to flatten. Overall, we expect another muted quarter from REDI as regards the India business with a weaker-than-normal seasonality in Q2.
Africa – Samsung seeing good traction: Samsung is seeing strong traction in Africa and we believe the net impact from loss of Nokia would be limited to ~3% in FY13.
iPhone 5 through distributors?: As per blogs (BGR), Apple is looking to launch iPhone 5 in India through distributors, unlike the operator-driven strategy currently. While there is no official confirmation, we believe REDI has a strong relationship with Apple (already selling iPad and iPod) and is likely to be a key beneficiary should Apple look to adopt the distributor channel for iPhone.
Valuations have moderated: While valuations now look reasonable trading at 9x FY13E earnings and 1.8x P/B, we believe macro remains weak and Blackberry could be a drag on non-IT growth rates. However, on a structural basis, we continue to like REDI – investors with a long-term view should accumulate on dips.
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