25 January 2013
Initiating Coverage | Sector: Logistics
Redington India
REDI to roll
Siddharth Bothra
(Siddharth.Bothra@MotilalOswal.com); +91 22 3029 5127

Redington India
Redington India: REDI to roll
Page No.
Summary
........................................................................................................
3-4
An indispensable link in IT supply chain
......................................................
5-9
Pursuing four-pronged growth strategy
..................................................
10-14
Strategic diversifications aimed to de-risk model
...................................
15-17
Strong revenue and earnings growth outlook
........................................
18-21
Valuation and view
....................................................................................
22-24
Company background and key risks
.........................................................
25-26
Financials and valuation
...........................................................................
27-28
25 January 2013
2

25 January 2013
Initiating Coverage | Sector: Logistics
Redington India
BSE SENSEX
S&P CNX
19,924
6,019
CMP: INR81
REDI to roll
TP: INR103
Buy
Diversification beyond IT supply chain - a shot in the arm
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
REDI IN
398.6
M.Cap. (INR b)/(USD b) 32.3/0.6
94/65
-11/-3/-16
Valuation summary (INR b)
Y/E March
2013E 2014E 2015E
Sales
241.6 284.2 331.9
EBITDA
6.9
8.3
9.8
NP
3.4
4.2
5.0
EPS (INR)
8.5 10.6 12.6
EPS Gr. (%)
16.3 23.6 19.8
BV/Sh. (INR) 40.9 49.7 60.2
RoE (%)
23.1 23.3 23.0
RoCE (%)
18.7 19.7 20.7
Payout (%)
9.6 16.6 16.7
Valuations
P/E (x)
9.3
7.5
6.3
P/BV (x)
1.9
1.6
1.3
EV/EBITDA (x) 7.1
6.2
5.4
Div Yield
0.9
1.9
2.3
EV/Sales (x)
0.2
0.2
0.2
Redington India (REDI) is the leading IT SCM player in India and Middle East and a strategic
partner to some of the world’s leading technology companies.
Its efforts to diversify across the supply chain industry are paying off, with non-IT segment,
as a percentage of revenues, increasing from ~5% in FY07 to ~19% in FY12. We estimate
a further increase to ~22% by FY15E.
During 1HFY13, REDI’s revenue growth was muted at ~10% (2% in domestic and 19% in
international). We expect the company to benefit from 1) pent up government demand
based on implementation of Goods and Services Tax (GST), 2) iPhone distribution to
boost domestic non-IT growth and has the potential to contribute ~INR24b to REDI’s top
line by FY14 and 3) revival in subsidiary Arena’s operations.
We believe execution of REDI’s strategic initiatives could allay concerns on 1) its NBFC
arm, 2) recovery in Arena and 3) asset-heavy capex plans for automatic distribution
centers (ADCs).
REDI trades at 7.5x/6.3x FY14E/FY15E EPS and EV of 6.2x/5.4x FY14E/FY15E EBITDA. We
initiate coverage with a Buy and a target price of INR103, based on intrinsic P/E of 8x its
FY15 earnings, an upside of ~27%.
An indispensable link in IT supply chain
Over the years, REDI has evolved as an end-to-end supply chain management
(SCM) solutions and strategic partner to the world’s leading technology
companies. As India has significant under-penetration in IT and consumer goods,
increasing discretionary spending would change this and lead to more spending
in IT related products and consumer durables. Company is not only the largest
and leading IT SCM player in India but also leads in international markets like
Middle East and Africa.
Shareholding pattern (%)
As on
Sep-12
Promoter
21.1
Dom. Inst
9.0
Foreign
63.3
Others
6.7
Jun-12 Sep-11
21.1
21.1
9.4
8.9
63.3
63.4
6.3
6.6
Pursuing successful four-pronged growth strategy
REDI is pursuing a four-pronged strategy to achieve strong growth and sustain
the competitive advantage in IT distribution industry: 1) growth in existing product
lines, 2) foray into new verticals and business lines, 3) explore new regions and
geography/inorganic acquisitions and 4) strategic initiatives. As India’s market
offers significant opportunities to IT services providers due to increasing demand,
company has scope to add new products to its existing verticals and move up the
value chain. A diversified portfolio enables it to manage vendor risks and growth
effectively. Also, REDI’s global reach gives a competitive advantage, with suppliers
eyeing worldwide market penetration.
Stock performance (1 year)
Strategic diversifications aimed to de-risk model
Investors are advised to refer
through disclosures made at the end
of the Research Report.
25 January 2013
To leverage existing strengths in IT logistics business and broadbase its product
offerings, REDI forayed into distribution of consumer goods. Non-IT business
has grown from ~5% of overall revenues in FY07 to ~19% in FY12. Given lack of
quality third party logistics (3PL) players in India, REDI is well-placed to create a
3

Redington India
niche in this segment. We model its consumer goods business, consists of key clients
like LG, Whirlpool, Voltas, Godrej, etc, to increase from ~INR1.8b in FY12 to ~INR8.5b
by FY15E.
Initiate coverage with a Buy and target price of INR103
We expect REDI to post revenue CAGR of 17% and net profit CAGR of 20% respectively
over FY12-15E. Implementation of GST would unveil and increase significant
opportunities for the company, particularly in non-IT verticals. We believe execution
of REDI’s strategic initiatives could allay concerns on 1) its NBFC arm, 2) recovery in
Arena and 3) asset-heavy capex plans for ADCs. REDI trades at 7.5x/6.3x FY14E/FY15E
EPS and EV of 6.2x/5.4x FY14E/FY15E EBITDA. We initiate coverage with a
Buy
and a
target price of INR103, based on intrinsic P/E of 8x its FY15 earnings, an upside of
~27%.
SCM players - an indispensable link in IT supply chain
Source: GTDC Research
3PL logistics to increase
As compared to developed
nations, 3PL contribution
remains at a nascent stage
REDI present in most attractive segments
Current 3PL penetration
High
Neutral
Low
Retail
Infrastructure
Equipment
Chemicals and
Industrial products
Pharmaceuticals
IT Hardware
Telecom
LOW
Consumer
products
MEDIUM
Profitability of 3PL
Automotive
HIGH
Source: KPMG Analysis
25 January 2013
4

Redington India
An indispensable link in IT supply chain
Market leader in a fast growing industry
Over the years, REDI has evolved into an end-to-end supply chain management (SCM)
solutions and strategic partner to the world’s leading technology companies.
The outlook for Indian IT and telecom industry is promising, with IDC forecasting it to post
a CAGR of 10% over FY12-16, from ~USD66b in FY12 to ~USD96b by FY16. As India has
significant under-penetration in IT and consumer goods, increasing discretionary spending
would change this and lead to more spending in IT related products and consumer durables.
Company is not only the largest and leading IT SCM player in India but also leads in
international markets like Middle East and Africa.
Emerging as a complete SCM player
REDI creates value in the market by extending the reach of its technology partners,
capturing market share for resellers and suppliers, creating innovative solutions and
offering credit. It is engaged in the business of selling high-volume, low-margin
products like laptops, servers and smart phones to consumer resellers and retailers.
REDI is not only the the largest IT distributor in India but also the leading SCM player
in the Middle East and Africa.
Over the years, REDI has evolved from a distributor to an end-to-end supply chain
management (SCM) vendor and a strategic partner to the world’s leading technology
companies. The scale of operations and business volume ensure tremendous
bargaining power with various product manufacturers and resellers. The value added
through integrated business model, vast geographic reach, efficient working capital
management, deep-rooted relationships with vendors and channel partners and
economies of scale create significant entry barriers for new players in this business.
REDI has transformed from a distributor to total SCM player
... To Supply Chain Management
From Distribution...
Distribution of only IT products
in India
Cash and carry model
No inventory, only back-to-back
orders
Distributor of IT, Telecom &
consumer durables
Third party logistics services
Door-to-door delivery
Credit to channel partners
Channel relationship
management
Management of inventory
After sales support service
Source: Company, MOSL
Well-proven business model
The wholesale distribution model has proven to be well-suited for both manufacturers
of technology products and resellers. The large number of resellers makes it cost-
efficient for vendors to rely on wholesale distributors to serve this diverse and highly
fragmented customer base. An SCM player like REDI adds value by 1) reducing
manufacturer’s inventory and improving its time-to-market, 2) enhancing
manufacturers’ go-to-market strategies and 3) providing efficient market engine for
manufacturers.
25 January 2013
5

Redington India
Similarly, the wide spectrum of products offered by multiple vendors helps the company
achieve economies of scale and provide customers a single sourcing point. Due to many
vendors and products, resellers often cannot establish direct purchasing relationships
with them. Hence, they often rely on wholesale distributors such as REDI who can
leverage purchasing costs across multiple vendors to satisfy a significant portion of
their product procurement, logistics, financing, marketing and technical support needs.
SCM players - an indispensable link in IT supply chain
Source: GTDC Research
Role of SCM players like REDI to be critical, going forward
Given that India has significant under-penetration in IT and consumer goods,
increasing discretionary spending could lead to more on IT and consumer related
goods. Globally, majority of the supply chain is managed by dedicated 3PL players;
currently, their share in India is ~9%, which is expected to increase sharply post the
introduction of GST. Within 3PL services, IT distribution is one of the most attractive
segments. Thus, REDI is well-placed to benefit from these emerging opportunities
and increase its value-added sales, going forward.
3PL logistics to increase
As compared to developed
nations, 3PL contribution
remains at a nascent stage
REDI present in most attractive segments
Current 3PL penetration
High
Neutral
Low
Retail
Infrastructure
Equipment
Chemicals and
Industrial products
Pharmaceuticals
IT Hardware
Telecom
LOW
Consumer
products
MEDIUM
Profitability of 3PL
Automotive
HIGH
25 January 2013
Source: KPMG Analysis
6

Redington India
Expect value-added services to increase sharply
Source: Company, MOSL
The distributor’s model
The chart below shows that some distributors sell components to vendors and also
buy finished IT products from manufacturers. Certain manufacturers and distributors
sell directly to end-user businesses in addition to supplying resellers with their wares.
As there is no demarcation to distinguish one part of the supply chain from another,
a product could take multiple paths to the market. Since the industry has evolved
from a linear to non-linear marketplace, partnership and collaboration are now more
imperative. Successful manufacturers, distributors and resellers form and reform
teams and partnerships responding to market trends.
The distributor’s model
MANUFACTURER
DISTRIBUTOR
4-6%
RESELLER
15%
9-11%
Government
Resellers
Corporate
Resellers
IT Full-Line
Distributors
Direct
Marketers
VARs
IT Specialty
Distributors
Retailers
Online
Resellers
DIRECT (%)
Source: Industry, MOSL
25 January 2013
7
Government
/ Education
Fortune 1000
Businesses
Small and
Medium-sized
Businesses
END USER
Subsystems
and
Peripherals
Component
and Material
Suppliers
Electronic
Component
Distributors
Electronic
Contract
Manufacturers
IT Original
Equipement
Manufacturers
(IT OBMs)
Software
Consumer

Redington India
Key risks and mitigation strategies
Key business model risks
-
-
Low gross margins
Business is characterized by narrow
gross operating margins.
These narrow margins magnify the impact
of any change in operating results attributed
to variations in sales and operating costs
High vendor concentration
HP accounts for ~35% of REDI's overall sales
(20% of domestic and 44% of international)
Receivable risk
As REDI sells its goods on credit to several
fragmented re-sellers, there is
high receivable risk
High working capital intensity
Working capital intensity is high as distributors
have to keep inventory and sell on credit
Inventory risk
REDI's business subjects it to the risk that
the value of inventory could be adversely
affected by suppliers' price reductions or by
technological changes, thus affecting
usefulness or desirability of products
Mitigation strategies
-
Increasing value portfolio; New initiatives
-
-
-
Broad-basing vendors; increasing depth of product lines
-
-
-
Historically bad debt, including provisions, as percentage of sales
has been less than 0.07%.
As company has a wide portfolio, re-sellers dependence is high
Working capital management disciplines
-
-
-
-
-
Market knowledge; forecasting ability and robust IT system
Obsolescence overcome by stock rotation policy supported by vendors
Price erosion supported by vendor discounts
Suppliers provide warranties on products that REDI distributes and
allow return of defective products, including those by customers
Source: MOSL
Leader in key markets
Domestic IT distribution industry is dominated by two players Ingram Micro and REDI
and control ~70% of the market, with a presence in similar product categories. Ingram is
the global leader in IT distribution industry with revenues of ~USD36b in FY12. However,
leading international players like Tech Data and Synnex are not present in the Indian
market. Other key players in the domestic market are Neoteric, Rashi Peripherals,
Compuage and Savex. In the Middle East and Africa market too REDI is the market
leader and has a higher share compared to the next two peers put together.
Competition and market mapping
Sales
%
-IT
-Non-IT
-Services
PAT
%
Product range
Domestic
INR99b
47%
79%
19%
2%
INR1.8b
62%
IT peripherals:
PCs, PC components,
UPS, networking products, packaged
software, storage products, high-end
servers
Non-IT:
Telecom devices, consumer
durables, digital printing press,
tablets and gaming consoles
HP -20%, RIM -18%, Microsoft - 7%,
Acer/ Lenova -5% and Apple - 5%,
Others -40%
International
INR112b
53%
81%
16%
3%
INR1.1b
38%
IT peripherals, PCs, PC components,
UPS, networking products, packaged
software, storage products, high-end servers
Non-IT:
Telecom and Tablets
Consolidated
INR212b
100%
INR2.9b
100%
Top vendors (FY12)
HP - 39%, Nokia - 14%, Dell - 9% and
Others 38%
Source: Company, MOSL
25 January 2013
8

Redington India
Extensive distribution network
REDI has a strong distribution network and wide range of brands, with a presence
across 25 countries. It has ~66 warehouses in India and 27 in the Middle East and
Africa. With a view on impending introduction of GST in India, REDI is proactively
building large ADCs in key business regions to capture emerging opportunities. It has
two ADCs at Chennai and Dubai operational since July 2009 and September 2010 and
is working on three ADCs, which would be functional soon.
REDI’s domestic and global distribution network
India
Channel partners
Sales office
Warehouses
Service centers
Partner centers
Product range
23,337
56
66
70
292
80 plus
Middle East & Africa
9,857 (present in 20 countries)
21
27
38
18
50 plus
Source: Company, MOSL
REDI has a wide Pan India presence
Source: Company, MOSL
25 January 2013
9

Redington India
Pursuing four-pronged growth strategy
Strategic initiatives to yield results
REDI is pursuing a four-pronged strategy to achieve strong growth and sustain the
competitive advantage in IT distribution industry.
India’s market offers significant opportunities to IT services providers due to increasing
demand.
Company has scope to add new products to its existing verticals and move up the value
chain. A diversified portfolio enables it to manage vendor risks and growth effectively.
REDI’s global reach provides competitive advantage as suppliers eye worldwide market
penetration.
Four-pronged growth strategy
Growth in existing
product lines
Partnering with
new vendors
Adding new
products
Foray into new
verticals and
business lines
ADC
Nook
Exploring new
regions and
geography/
inorganic
acquisitions
Entry into CIS
countries
Strategic
initiatives
Lower stake in
NBFC
Asset-light plans
for the entity
Source: MOSL
A) Growth in existing product lines
REDI is likely to be a key beneficiary from the robust growth outlook of Indian IT
industry, which is forecasted to post a CAGR of 10% from ~USD66.4b in FY12 to
~USD95.9b by FY16. India’s market offers significant opportunities to IT services
providers due to increasing demand.
Indian IT and Telecom industry to post a CAGR of ~10% over FY12-16E (USD b)
2012
Hardware
% of total
% Change
Software
% of total
% Change
Services
% of total
% Change
Telecom
% of total
% Change
Total
% Change
9.1
13.7
3.5
5.3
9.2
13.9
44.7
67.3
66.4
2013
9.5
14.3
4.4
4
6.0
14.3
10.3
15.5
12.0
47.8
72.0
6.9
71.5
7.7
2014E
10.9
16.4
14.7
4.5
6.8
12.5
11.9
17.9
15.5
51.5
77.6
7.7
78.9
10.3
2015E
12.5
18.8
14.7
5.2
7.8
15.6
13.8
20.8
16.0
54.6
82.2
6.0
86.2
9.3
2016E
14.3
21.5
14.4
6
9.0
15.4
16.1
24.2
16.7
59.5
89.6
9.0
95.9
11.3
CAGR (%)
(2012-2016)
12.0
14.4
15.0
7.4
9.6
Source: IDC
Company has six separate business units (SBU) in IT business such as components,
peripherals and consumer PC, system and commercial PC, software, networking and
enterprise.
25 January 2013
10

Redington India
Key initiatives across categories
Categories
Components
Peripherals and PCs
System and commercial PC
Software
Networking
Enterprise
Initiatives/Triggers
Increasing brand affiliations
Has affiliations with all key players
Revival of government spending
Moving up the value chain
New opportunities in the cloud space
Revival of government spending
Source: MOSL
Breakup of Indian IT industry FY13 (%)
REDI IT product-wise breakup
Source: IDC
REDI has good scope to add new products to its existing verticals and move up the
value chain. A diversified portfolio enables it to manage vendor risks and growth
effectively. A key example is the addition of Apple iPhone, which has the potential to
contribute ~INR24b to REDI’s top line by FY14.
Potential to move up value chain
Legacy
Distribution
Value
Distribution
Deepar
Technical
Aptitude
Product
Excellence
Solutions-Based
Distribution
Partner Enablement
and Development
Core Value
Proposition
Pick, Pack, Ship
Expertise
Operations,
Logistics, Scale
Selling into Target
Markets
Differentiators
Line Card, Price,
Availability
Technical
Specialization
Analystics-Based
Marketing, Technical &
Sales Acumen
Developing a Knowledge
Base of Expertise
Key Services
Credit, Account
Management,
Logistics
Vertical Focus;
Professional
Services
Source: Industry, MOSL
25 January 2013
11

Redington India
Apple sales in India set to mimic RIM success
Source: Company, MOSL
Vendor de-risking: Reliance on HP in the domestic revenues has declined (%)
HP
RIM
Microsoft
Acer
Lenova
Apple
Others
Total
FY07
44
0
9
3
6
0
38
100
FY08
40
0
9
2
6
0
43
100
FY09
38
0
10
3
5
0
43
100
FY10
34
5
10
5
5
0
41
100
FY11
FY12
22
20
15
18
8
7
5
5
6
5
0
5
44
40
100
100
Source: Company, MOSL
B) Foray into new verticals and business lines
REDI is focusing on new revenue lines: 1) consumer durables, 2) ADC operations and
3) nook initiative. With a view to leverage its existing strengths in logistics business
and also to broad-base product offerings, company forayed into distribution of
consumer durable goods. It is mostly focused in South India and is increasing its
presence in the West; key clients include LG, Whirlpool, Voltas, Godrej etc.
Management expects this business to reach INR10b by FY15. Implementation of GST
could increase demand for 3PL players, thus benefiting this segment in particular and
REDI significantly.
C) Exploring new regions and geography
Geographical foray provides the company with a more balanced global portfolio to
manage and mitigate risk. REDI’s global reach enables it competitive advantage, with
suppliers eyeing worldwide market penetration. It is the largest distribution company
in the Middle East and also has significant presence in Africa and Turkey. Around 54%
of revenues is derived from international operations, while 46% of revenues is from
domestic operations. Similarly, ~38% of net profit is derived from international
operations, while ~62% of net profit is from domestic operations.
25 January 2013
12

Redington India
Growth of international business (INR m)
Source: MOSL
D) Successful strategic initiatives could be a key positive
We expect REDI to take strategic initiatives to 1) lower stake in the 100% NBFC by
attracting strategic financial and operational partners and 2) possible corporate
restructuring to make it asset light. We believe successful implementation of REDI’s
strategic plans could allay concerns on 1) its NBFC arm, 2) recovery in its subsidiary
Arena and 3) asset-heavy capex plans for ADCs.
NBFC contributes to REDI’s success
REDI has a wholly-owned non-banking finance company (NBFC), Easyaccess Financial
Services Ltd (EFTL), which was set up in 2008 to cater to trade finance needs of domestic
IT industry. EFTL enables REDI’s channel partners to transact large volumes of business
without being constrained for credit through a range of solutions like trade finance,
enterprise finance and A/R management.
The NBFC also provides need-based financing to channel partners beyond the
distributor credit period. Till date it has no NPAs. Though currently it is a 100%
subsidiary of REDI, management has plans to lower stake to ~51% by divesting to a
strategic investor, PE fund etc. This we believe would be a key positive for REDI and
allay investor concerns on the NBFC.
ADCs to tap emerging opportunities
With a view on impending introduction of GST in India, REDI is proactively building
large automatic distribution centres (ADCs) in key business regions to capture
emerging opportunities such as 3PL services, storage and warehousing etc. It has two
ADCs at Chennai and Dubai operational since July 2009 and September 2010 and is
working on three ADCs, which shall be functional soon.
Details of warehouses
Acres
Acquired Land
Chennai
Kolkata
New Delhi
Mumbai
Long term Lease
Dubai
11.56
13.76
13.32
Status
Operational since Jul'09
2HFY13
2HFY14
Yet to acquire land
Operational since Sep'10
Source: Company, MOSL
13
5.16
25 January 2013

Redington India
Chennai ADC
Dubai ADC
Source: Company, MOSL
25 January 2013
14

Redington India
Strategic diversifications aimed to de-risk model
Non-IT segment to be the key growth driver
To further leverage its existing strengths in the logistics business and to broadbase product
offerings, REDI forayed into distribution of consumer goods. Its non-IT business has grown
from ~5% of its overall revenues in FY07 to ~19% in FY12. Given lack of quality 3PL players
in India, REDI is well-placed to create a niche in this segment.
We expect its consumer goods business, which has key clients like LG, Whirlpool, Voltas,
Godrej, etc to increase from ~INR1.8b in FY12 to ~INR8.5b by FY15E.
Non-IT business gains momentum
With a view to leverage strengths in the logistics business and de-risk its business,
REDI forayed into distribution of consumer goods such as smart phones, tablets,
washing machines, refrigerators and other electronic consumer durables. Given lack
of quality 3PL players in India, it is well-placed to create a significant niche in this
segment. REDI’s non-IT business has grown from ~5% of its overall revenues in FY07 to
~19% in FY12. Increasing share of non-IT products as a percentage of overall revenues
is a key positive for REDI as they have lower working capital requirements, enjoy
better margins and also de-risk it from any potential slowdown in the IT segment.
Share of non-IT business increases (% of total revenues)
Source: Company, MOSL
REDI set to mimic its Blackberry success with iPhone
To broaden the basket of new brands, REDI recently tied up with Apple to distribute
iPhone range, which could be its next big success story. REDI had ventured into the
smart phone category in FY09, with the launch of Blackberry smart phones. This was a
huge success as within three years, Blackberry sales increased from ~INR162m in FY09
Projections for smart phone sales (m)
Blackberry, a key success story
('000)
(m)
25 January 2013
Source: Industry, MOSL
15

Redington India
to ~INR16b in FY12. Though growth rates for Blackberry have moderated, the strong
growth in smart phone category continues.
Industry estimates suggests the total iPhone market in India at ~1m. Currently, Apple
has two distributors in India - Ingram Micron and REDI. Management is confident of
garnering a market share of 60-70% in this category, implying a potential market of
~INR24b for REDI. Though margins provided by Apple are lower than Blackberry, working
capital requirements are low-to-negative, given the high demand for Apple products
in India.
Apple products sale in India over 1HFY10 to 1HFY13
Source: Company, MOSL
Revenue of consumer durable goods to increase by ~5x over FY12-15E
With a view to leverage its existing strengths in the logistics business and to broad-
base product offerings, REDI forayed into distribution of consumer goods. It is mostly
focused in South India and is increasing its presence in the West. Key clients include
LG, Whirlpool, Voltas, Godrej etc, and management expects the business to reach
INR8.5b by FY15E. Implementation of GST could increase the demand for 3PL players
and thus benefit the segment and REDI significantly.
Consumer goods sales to post strong growth (INR m)
Source: Company, MOSL
25 January 2013
16

Redington India
Services business - one of the most profitable vertical
Though services account for only ~2% of REDI’s revenues, it enjoys high gross margins
of ~30-40%. Almost 72% of services income is derived from international business
and 28% from domestic. REDI’s services vertical not only provides it a mean to expand
the revenue stream, but also acts as a key differentiating factor compared to
competitors. Company follows a unique model for its services business, whereby the
centers are neutral and not exclusive to REDI or any particular brand. It has two business
segments: 1) warranty period and 2) post warranty period. The table below depicts
various revenue streams for REDI under both formats.
Redington Service Model
Redington Service Model
Warranty
Post-Warranty
Event Based
Vendor pays for
service
provided to
customer on
request
Retainer
Paid monthly by
vendor to
maintain agreed
resources and
service level
agreements for
their products
Annuity
Vendor pays
annual support
charges per
unit sold
during the
year
Event Based
Customers pay
as and when
they use the
services
Infrastructure
Management
Services
Customer pays
for round the
clock support
for hardware
and application
maintenance
Source: Company, MOSL
25 January 2013
17

Redington India
Strong revenue and earnings growth outlook
Expect revenue CAGR of 17% over FY12-15E
We estimate REDI to report revenue CAGR of ~17% over FY12-15E, which would be
driven by ~18% CAGR in domestic revenues and 15% CAGR in international revenues.
Domestic IT segment is likely to post ~16% CAGR, while non-IT segment is likely to
register 24% CAGR. In the international vertical, we expect IT segment to clock a CAGR
of 15.4%, while the non-IT segment would post a CAGR of 15%. The revenue mix
among IT, non-IT and services would be ~77%, 22% and ~2% respectively by FY15E.
The share of domestic revenues is likely to increase from ~46% in FY12 to ~48% by
FY15E.
Breakup of sales and key assumptions (INR m)
Y/E March
Domestic
% Change
% of net sales
Non IT
Value
% Change
% of sales
IT
Value
% Change
% of sales
Service
Value
% Change
International
% Change
Non IT
Value
% Change
% of sales
IT
Value
% Change
% of sales
Service
Value
% Change
% of sales
IT
Non IT
Services
Net Sales
Change (%)
2010
64,861
7
47
6,526
5
54,486
40
913
69,245
5
12,099
9
54,726
40
2,420
2
109,212
18,626
3,333
137,578
8.5
2011
81,778
26
49
17,633
170
11
61,782
13
37
723
-21
86,531
25
12,134
0
7
71,675
31
43
2,723
12
2
133,457
29,766
3,446
167,038
21.4
2012
96,665
18
46
26,474
50
12
69,175
12
33
1,017
41
112,976
31
14,216
17
7
96,087
34
45
2,674
-2
1
165,261
40,689
3,691
211,930
26.9
2013E
113,025
17
47
32,828
24
14
78,997
14
33
1,200
18
129,089
14
16,348
15
7
109,827
14
45
2,914
9
1
188,824
49,175
4,114
241,509
14.0
2014E
136,045
20
48
43,004
31
15
91,637
16
32
1,404
17
148,616
15
18,964
16
7
126,301
15
44
3,352
15
1
217,938
61,968
4,755
283,950
17.6
CAGR
(FY12-15)
159,602
18.2
17
48
50,745
18
15
107,215
17
32
1,642
17
173,312
17
21,619
14
7
147,772
17
44
24.2
2015E
15.7
15.3
15.0
15.4
3,921
13.6
17
1
254,988
15.6
72,363
21.2
5,564
14.7
332,082
16.6
17.0
Source: MOSL
25 January 2013
18

Redington India
Growth in domestic and international markets
Source: Company, MOSL
Segment-wise revenue breakup
Breakup among domestic and global business
Source: Company, MOSL
Expect margins to remain stable
We estimate EBITDA to increase from INR6.2b in FY12 to ~INR9.8b in FY15E, a CAGR of
16.5%. While EBITDA margins to improve marginally from 2.9% in FY12 to ~3% in FY15E.
This would be driven by an increasing proportion of non-IT and services revenues,
which enjoy higher margins. In FY15, we expect domestic operations to account for
~64% of EBIT, while the international operations is likely to account for ~36% of EBIT.
EBITDA to post a CAGR of 16.5% over FY12-15E
Source: MOSL
25 January 2013
19

Redington India
EBIT margins in domestic and international markets
Source: Company, MOSL
Expect net profit growth of ~20% over FY12-15E
We expect REDI's net profit to post a CAGR of ~20% over FY12-15E. This would primarily
be led by strong revenue growth, marginal improvement in EBIT margins and benefits
from lower leverage. We expect net profit margin to increase marginally from 1.4% in
FY12 to ~1.5% by FY15E. We expect domestic operations to contribute ~62% of profits
and the international operations to contribute ~38% of profits.
Net profit CAGR of ~20% over FY12-15E
RoCE, RoE to remain strong
Source: Company, MOSL
Working capital intensity to remain stable
IT product and services distribution industry is intensive in working capital and requires
significant levels in receivables and inventory, which to some extent is offset by
vendor trade account payables. Based on the timing of customer receipt and payment
to vendor, the actual level of net debt could vary significantly compared to actual
debt at a period's end. We expect REDI's net working capital to decline from ~46 days
in FY13 to ~44 days by FY15E. Typically working capital requirement for a distribution
company like REDI gets negatively impacted during economic downturn and improves
on the back of economic upturn.
25 January 2013
20

Redington India
Muted 1HFY13 performance, sharp recovery expected in 2HFY13
During 1HFY13, REDI’s revenue growth was muted at ~10% (2% in domestic and 19.3%
in international). We expect REDI to benefit from 1) pent up government demand
based on implementation of Goods and Services Tax (GST), 2) iPhone distribution to
boost domestic non-IT growth and has the potential to contribute ~INR24b to REDI’s
top line by FY14 and 3) revival in subsidiary Arena’s operations thus driving
international growth.
Share of international revenues has been increasing
Source: Company, MOSL
25 January 2013
21

Redington India
Valuation and view
REDI is the leading IT SCM player in India and the Middle East and is a strategic partner
to the world's leading technology companies. We expect REDI to post revenue CAGR
of 17% and net profit CAGR of ~20% over FY12-15E. Implementation of GST would
unveil and increase new opportunities for the company, particularly in non-IT vertical.
Its efforts to diversify across the supply chain industry are paying off, with non-IT
segment as a percentage of revenues increasing from ~5% in FY07 to ~19% in FY12.
REDI recently tied up with Apple to distribute iPhone range. We estimate the iPhone
market in India at ~1m and expect REDI to garner ~60% market share, which implies a
potential new product category of ~INR24b for it in FY14E. We believe successful
implementation of REDI's strategic initiatives could allay concerns on 1) its NBFC arm,
2) outlook for its subsidiary Arena and 3) asset-heavy capex plans for ADCs. REDI
trades at 7.5x/6.3x FY14E/FY15E EPS and EV of 6.2x/5.4x FY14E/FY15E EBITDA. We initiate
coverage with a
Buy
and a target price of INR103, based on intrinsic P/E of 8x its FY15E
earnings, an upside of ~27%.
Intrinsic P/E calculation for REDI
Current Earnings
Book value of equity
Revenues
Growth Period
Length of growth period (Years)
Growth rate during period (g)
Payout ratio during period (%)
Cost of Equity during period
Stable/ Terminal Growth Period
Growth rate in steady state
Payout ratio in steady state
Cost of Equity in steady state
Target Price (Based on FY15E EPS)
Current Price
Target Price
% Upside
PER (x)
3,404
16,303
209,086
10
15.4%
27%
14.55%
4.6%
50%
15.3%
81
103
27.0
8.1
RoE =
21%
Expected RoE =
21%
Expected RoE =
18%
Cost of Equity: Growth Period
Rf
Rmp
Beta
COE
7.8%
7.5%
0.9
14.6%
Cost of Equity: Stable Period
Rf
Rmp
Beta
COE
7.8%
7.5%
1.0
15.3%
25 January 2013
22

Redington India
Sensitivity to Cost of Equity
Impact of change in growth COE (INR)
Impact of change in terminal COE (INR)
Impact of change in both growth and terminal COE (INR)
Source: Company, MOSL
25 January 2013
23

Redington India
Comparative Valuations
CMP
Avnet INC (USD)
Arrow Electronics (USD)
Ingram Micro INC-CL A (USD)
Synnex Corp (USD)
Tech Data Cor (USD)
Synnex Technology (TWD)
Redington India (INR)
Digital China (HKD)
34
39
18
36
49
59
81
13
MCap
(M)
4,721
4,156
2,758
1,359
1,867
91,616
33,283
13,733
EPS Gr. (%)
CY13
CY14
-25.7
0.4
17.4
6.2
0.9
16.7
FY14
18.7
19.8
18.5
11.2
9.7
10.3
15.2
11.3
FY15
17.7
16.8
P/E (x)
CY13
CY14
11.1
9.2
8.7
8.8
9.8
13.4
FY14
8.0
8.7
9.4
8.2
7.9
8.0
8.5
12.1
FY15
6.8
7.5
P/BV (x)
CY13
CY14
1.2
1.0
0.7
1.0
1.2
FY14
1.7
1.5
1.1
0.9
0.7
0.8
1.1
FY15
1.4
1.3
EV/EBIDTA
CY13
CY14
6.9
6.6
3.5
5.0
4.6
10.0
FY14
6.8
6.1
6.0
6.1
3.4
4.5
4.1
-
FY15
5.9
5.2
RoE (%)
CY13
CY14
10.5
11.0
8.6
11.2
10.2
15.4
FY14
22.6
18.7
Source:
14.1
10.6
8.8
11.9
11.1
-
FY15
22.2
19.2
MOSL
Redington India PE band
Redington India PB band
25 January 2013
24

Redington India
Company background
REDI is promoted by the Singapore-based Kewalram Chanrai Group that also owns
OLAM and Jaslok Hospital in Mumbai, India. In 1993, it began as a component distributor
and moved into completed products such as PCs, desktops etc and finally into value-
added products. It then positioned as a complete supply chain manager, with a focus
on value-added IT products.
In the past 3-4 years, REDI is slowly transitioning into a complete supply chain manager
to include non-IT products too, with a presence in India, Middle East, Africa and Turkey.
Company has organically grown its business to be the largest IT distributor in India
and the Middle East and Africa (MEA). REDI plans to slowly extend its reach to CIS
countries too. It aims to have a global footprint in developing countries.
Group structure
Source: Company
25 January 2013
25

Redington India
Key risks
Failure to adapt to IT industry changes
IT products industry is subject to rapid technological changes, new and enhanced
product specifications, evolving industry standards and changes in the manner
technology products are distributed and managed. If REDI fails to adopt these changing
dynamics, it may incur inventory loss or fail to sustain its leadership position.
Intense competition
Key competitors include local, regional, national and international distributors and
suppliers that employ a direct-sales model. Thus, competition is intense and often
price-based. Currently, some of the leading global distribution companies like Tech
Data and Synnex Taiwan are not present both in India and the Middle East. Hence,
their entry could increase competition.
High risk of clients’ concentration
A significant percentage of REDI’s revenues relates to products sold by few suppliers.
Due to such concentration risk, terminations of supply or services agreements or a
significant change in the terms of business could adversely impact it. REDI’s key clients
in the domestic market are HP (~20%) and RIM (~18%), while HP (~39%) and Nokia
(~14%) account for key international clients. However, the dependence on these
vendors is constantly reducing, given additions of new verticals and product categories.
HP accounted for 44% of its domestic sales in FY07 and 20% in FY12; globally, HP was
~60% of sales in FY07 and ~39% in FY12.
Exposed to risks of conducting business in multiple geographies
Company is exposed to the impact of foreign currency fluctuations, interest rate
changes and other macro risks due to its exposure to international markets.
25 January 2013
26

Redington India
Financials and Valuation
Income Statement
Y/E March
Net Sales
Change (%)
Total Expenditure
% of Sales
EBITDA
Margin (%)
Depreciation
EBIT
Int. and Finance Charges
Other Income - Rec.
PBT bef. EO Exp.
EO Expense/(Income)
PBT after EO Exp.
Current Tax
Deferred Tax
Tax Rate (%)
Reported PAT
PAT Adj for EO items
Change (%)
Margin (%)
Less: Mionrity Interest
Profit for the Year
2010
137,578
8.6
134,118
97.5
3,459
2.5
234
3,225
664
198
2,759
0
2,759
639
0
23.2
2,120
1,843
15.5
1.3
276.9
1,843
2011
167,038
21.4
162,294
97.2
4,744
2.8
246
4,499
1,177
189
3,510
4
3,506
893
-31
24.6
2,644
2,259
22.6
1.4
387.7
2,259
2012
211,930
26.9
205,718
97.1
6,212
2.9
310
5,902
1,689
290
4,503
-1
4,505
1,131
-18
24.7
3,392
2,928
29.6
1.4
463
2,928
2013E
241,595
14.0
234,678
97.1
6,916
2.9
387
6,530
1,837
266
4,958
0
4,958
1,339
0
27.0
3,619
3,404
16.3
1.4
215
3,404
(INR Million)
2014E
284,189
17.6
275,852
97.1
8,336
2.9
467
7,869
1,931
285
6,223
0
6,223
1,755
0
28.2
4,468
4,208
23.6
1.5
260
4,208
2015E
331,873
16.8
322,050
97.0
9,823
3.0
553
9,269
1,982
339
7,627
0
7,627
2,288
0
30.0
5,339
5,040
19.8
1.5
299
5,040
Balance Sheet
Y/E March
Equity Share Capital
Total Reserves
Net Worth
Deferred Liabilities
Total Loans
Minority Interest
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Capital WIP
Curr. Assets, Loans&Adv.
Inventory
Account Receivables
Cash and Bank Balance
Loans and Advances
Curr. Liability & Prov.
Account Payables
Provisions
Net Current Assets
Appl. of Funds
E: MOSL Estimates; * Adjusted
25 January 2013
2010
786
9,971
10,757
0
11,486
2,403
24,646
1,271
424
847
121
2011
793
11,761
12,553
36
16,128
3,413
32,130
3,309
1,192
2,118
14
2012
797
12,428
13,225
11
20,917
949
35,102
3,858
1,505
2,353
87
51,885
17,000
22,190
4,834
7,860
20,020
19,707
313
31,865
35,102
2013E
797
15,505
16,303
11
22,317
1,164
39,795
4,708
1,892
2,816
0
59,494
20,519
25,152
5,218
8,605
23,129
22,767
362
36,365
39,795
2014E
797
19,014
19,811
11
24,217
1,424
45,463
5,603
2,359
3,244
0
68,793
24,137
29,587
4,948
10,122
27,187
26,760
426
41,606
45,463
2015E
797
23,214
24,011
11
24,717
1,723
50,462
6,558
2,912
3,646
0
77,943
28,186
34,551
4,295
10,911
31,739
31,242
498
46,204
50,463
35,337
47,983
9,829
15,833
18,164
18,703
5,826
4,806
1,519
8,642
11,694
18,594
11,090
17,973
604
621
23,644
29,389
24,646
32,130
for treasury stocks
27

Redington India
Financials and Valuation
Ratios
Y/E March
Basic (INR) *
EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x) *
P/E
Cash P/E
P/BV
EV/Sales
EV/EBITDA
Dividend Yield (%)
Return Ratios (%)
RoE
RoCE
Working Capital Ratios
Asset Turnover (x)
Inventory (Days)
Debtor (Days)
Leverage Ratio (x)
Current Ratio
Debt/Equity
* Adjusted for treasury stocks
2010
4.7
5.3
27.4
1.0
21.9
2011
5.7
6.3
31.7
1.1
19.3
2012
7.3
8.1
33.2
0.4
6.0
2013E
8.5
9.5
40.9
0.7
9.0
2014E
10.6
11.7
49.7
1.5
15.7
2015E
12.6
14.0
60.2
1.8
15.7
10.8
9.8
2.4
0.2
7.8
0.5
9.3
8.4
1.9
0.2
7.1
0.9
7.5
6.8
1.6
0.2
6.2
1.9
6.3
5.7
1.3
0.2
5.4
2.3
17.7
16.3
19.4
18.4
22.7
19.7
23.1
18.7
23.3
19.7
23.0
20.7
5.6
26.1
48
5.2
34.6
41
6.0
29.3
38
6.1
31.0
38
6.3
31.0
38
6.6
31.0
38
3.0
1.1
2.6
1.3
2.6
1.6
2.6
1.4
2.5
1.2
2.5
1.0
Cash Flow Statement
Y/E March
Oper. Profit/(Loss) before Tax
Interest/Dividends Recd.
Depreciation
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
EO expense
CF from Operating incl EO
(inc)/dec in FA
(Pur)/Sale of Investments
CF from investments
Issue of Shares
(Inc)/Dec in Debt
Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
2010
3,225
664
234
590
-2,460
409
0
409
-323
0
-174
-961
1,656
-664
-465
-433
-198
6,024
5,826
2011
4,499
1,177
246
815
-7,275
-3,346
-4
-3,351
-1,409
0
-1,267
642
4,642
-1,177
-509
3,598
-1,020
5,826
4,806
2012
5,902
1,689
310
1,041
-2,642
2,529
1
2,530
-619
0
-401
-4,998
4,789
-1,689
-204
-2,101
28
4,806
4,834
2013E
6,530
1,837
387
1,273
-4,117
1,527
184
1,711
-763
0
-563
0
1,400
-1,837
-326
-764
384
4,834
5,218
(INR Million)
2014E
7,869
1,931
467
1,684
-5,511
1,141
0
1,141
-895
0
-681
0
1,900
-1,931
-700
-731
-270
5,218
4,948
2015E
9,269
1,982
553
2,204
-5,250
2,368
0
2,368
-955
0
-700
0
500
-1,982
-839
-2,321
-839
4,948
4,108
25 January 2013
28

Redington India
N O T E S
25 January 2013
29

Disclosures
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Redington India
No
No
No
No
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