Structural story intact, valuations cheap; maintain Buy
REDI remains one of the best plays on domestic IT consumption in our view. While the company has seen muted FY12/FY13 performance in India, we believe growth rates are closer to bottom as: (1) Blackberry headwinds fade out and (2) benefits from higher UID/government ordering flow in. While margin pressures remain, benefits from lower working capital and an easing interest rate cycle should help maintain overall profitability. Further valuations at 8.5x FY14 P/E are cheap on low expectations. Maintain BUY.
India – growth rates closer to bottom: REDI’s growth rates in India have dropped from 28% in FY11 to 9% in FY13, in line with the overall slowdown in domestic economy. While the management continues to indicate an uncertain demand environment, we believe growth rates are closer to bottom, as headwinds from Blackberry and low government ordering fade out and tailwinds from Apple iPhone sales gain momentum in 1HFY14.
MEA and Turkey see healthy growth: FY13 saw REDI deliver a healthy 16% growth in overseas markets, driven largely by opportunistic market share gains, despite weak demand. The company continues to expand into value segments in these markets, which should continue to drive growth outperformance.
EBIT margins under pressure, but adequate offsets available: We expect EBIT margin pressures to persist through FY14/FY15, given the low growth expectations and a higher mix of Apple and MEA businesses. However, lower working capital (due to higher Apple mix) and an easing interest rate environment should provide adequate offsets at the net profit level and drive a 14% EPS CAGR (FY13-15).
Valuations cheap: Valuations have moderated to 8.5x FY14 P/E and look cheap, particularly in view of the low growth expectations. We maintain our BUY rating on the stock with a Mar’14 target price of Rs 95 based on 9x forward P/E.
��
-->
REDI remains one of the best plays on domestic IT consumption in our view. While the company has seen muted FY12/FY13 performance in India, we believe growth rates are closer to bottom as: (1) Blackberry headwinds fade out and (2) benefits from higher UID/government ordering flow in. While margin pressures remain, benefits from lower working capital and an easing interest rate cycle should help maintain overall profitability. Further valuations at 8.5x FY14 P/E are cheap on low expectations. Maintain BUY.
India – growth rates closer to bottom: REDI’s growth rates in India have dropped from 28% in FY11 to 9% in FY13, in line with the overall slowdown in domestic economy. While the management continues to indicate an uncertain demand environment, we believe growth rates are closer to bottom, as headwinds from Blackberry and low government ordering fade out and tailwinds from Apple iPhone sales gain momentum in 1HFY14.
MEA and Turkey see healthy growth: FY13 saw REDI deliver a healthy 16% growth in overseas markets, driven largely by opportunistic market share gains, despite weak demand. The company continues to expand into value segments in these markets, which should continue to drive growth outperformance.
EBIT margins under pressure, but adequate offsets available: We expect EBIT margin pressures to persist through FY14/FY15, given the low growth expectations and a higher mix of Apple and MEA businesses. However, lower working capital (due to higher Apple mix) and an easing interest rate environment should provide adequate offsets at the net profit level and drive a 14% EPS CAGR (FY13-15).
Valuations cheap: Valuations have moderated to 8.5x FY14 P/E and look cheap, particularly in view of the low growth expectations. We maintain our BUY rating on the stock with a Mar’14 target price of Rs 95 based on 9x forward P/E.
No comments:
Post a Comment