Redington Limited — Q1 FY26 earnings call

Call held 30 Jul 2025

Management summary

Redington delivered its best-ever Q1 from a top-line perspective, driven by robust demand in India, UAE, and Saudi Arabia. While revenue and profit growth remained strong, gross margins faced pressure from a shift toward large-scale technology deals and competitive intensity. The quarter was significantly impacted by macroeconomic stress in Turkey, leading to substantial provisions, though management remains optimistic about maintaining full-year profitability targets.

Highlights

  • Revenue grew by 22% YoY (24% excluding Arena Turkey subsidiary)

  • Overall profits increased by 12% YoY (15% excluding Arena)

  • Gross Margin declined to 5.1% from 5.7% YoY, primarily due to large deals and competition

  • Mobility Solutions Group delivered stellar growth of 44% YoY

  • Cloud Solutions continued strong momentum with 41% top-line growth

  • Working capital cycle improved to 37 days, 2 days lower than Q1 FY25

  • A one-time provision of $8 million+ was taken for bad debts in the Turkey (Arena) business

  • Net debt to equity remains healthy at 0.23x

Concerns

  • Macroeconomic Stress in Turkey

Key financials

  1. Revenue Growth 22% +22%YoY
  2. Gross Margin 5.1% -10.5%YoY
  3. Operating Profit Margin 2.1%
  4. PAT Margin (Ex-Arena) 1.3%
  5. Working Capital Days 37 days -5.1%YoY
  6. Net Debt to Equity 0.23×

What they filed

Q1 FY27: revenue up 34.6%, net profit up 94.4% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue24,896 26,716 26,440 25,952 29,076 +17%30,922 +16%33,213 +26%34,922 +35%
EBITDA458 602 597 400 589 +29%626 +4%614 +3%708 +77%
Net profit283 403 918 233 350 +24%413 +2%288 −69%453 +94%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Mobility Solutions Group
    44% Revenue Growth
  • Cloud Solutions
    41% Revenue Growth
  • Technology Solutions Group
    21% Revenue Growth
  • Endpoint Solutions Group
    3% Revenue Growth
  • India Geography
    24% Revenue Growth
  • UAE Geography
    35% Revenue Growth

Guidance & targets

Margin

  • Operating Profit Margin Margin · FY26 · Medium confidence 2.3% to 2.5%
    Our objective, we have set out -- I mean, set out clearly and have also called it out. We would want to maintain our operating profit between 2.3% to 2.5%

    — S.V. Krishnan, CFO

  • Software Solutions Gross Margin Margin · Ongoing · High confidence 5.7% to 6%
    So the gross margins you can expect in that business is between 5.7% and 6% kind of gross margins.

    — V.S. Hariharan, MD & Group CEO

Profitability

  • PAT Margin Profitability · FY26 · Medium confidence above 1.3%
    and PAT above 1.3%. That is something that we are still focused. We are hopeful. We don't see any challenge there.

    — S.V. Krishnan, CFO

Dividend

  • Dividend Payout Ratio Dividend · Ongoing · High confidence 40%
    With our profitability metrics and a 40% dividend payout and if we are able to retain our working capital days, our growth can be in the range of 10% to 12%.

    — S.V. Krishnan, CFO

Risks & concerns

  • Macroeconomic Stress in Turkey

    high

    Rise in 'concordat' (pre-bankruptcy) cases in Turkey led to an $8M+ provision and $20M in delayed collections.

    Both acknowledged

  • Gross Margin Pressure

    medium

    Increased competition and a shift toward large-scale, low-margin infrastructure deals are compressing margins in the Technology Solutions Group.

    Both deflected

  • Negative Free Cash Flow

    medium

    High growth rates (22-24%) are consuming capital, leading to negative free cash flow in Q1.

    Analyst acknowledged

Areas of evasion (2)

  • Specific timeline for a decision on the Turkey exit
  • Quantifying the exact impact of large deals on future margin floors

Q&A highlights

2 direct
Gross Margin Compression Direct
The balance, which is about between 35 to 40 bps is primarily on account of TSG business. That's where the large deals, I mean, it actually comes into play.

Explains that the majority of the margin drop is structural due to strategic pursuit of large, lower-margin data center and AI deals.

Asked by Nitin, Investec

Turkey (Arena) Strategy and Exit Partial
So as we speak, we are recalibrating our strategy in Turkey. So over the next few months, we are going to see what is the best way for us to do business and continue in Turkey.

Reveals that management is actively considering a strategic shift or potential exit from the troubled Turkish market after recurring issues.

Asked by Sarath Reddy, Unifi AMC

EBITDA Margin Confidence Direct
So the operating profit average, pre and post, is about 2.06%, and we are at 2.09%, better than that... So I don't think you need to be worried. We are definitely in this thing not worried.

Management defends their 2.3% EBITDA target by highlighting that Q1 is seasonally the softest and current performance is already above historical averages.

Asked by Aejas Lakhani, Unifi AMC

2 min read 5 chapters

Detailed narrative

The Turkey Conundrum: Arena's Macro Headwinds

The subsidiary Arena in Turkey faced severe stress due to the local economy, resulting in an $8 million+ provision for bad debts. Management noted that approximately 500 companies per month are applying for 'concordat' (debt restructuring) in Turkey, impacting Redington's collections. While management views this as a one-time hit, they are actively recalibrating their Turkish strategy, with a decision on the future of the business expected in the coming months.

Strategic Margin Trade-offs in Technology Solutions

Gross margins fell to 5.1% from 5.7% a year ago. A significant portion of this (35-40 bps) was attributed to the Technology Solutions Group (TSG), where Redington is pursuing large-scale data center and AI infrastructure deals. These deals carry lower margins but are strategically important for market share. Management emphasized that they will continue to participate in these deals as long as they meet threshold Return on Capital Employed (ROCE) requirements.

Growth Engines: Mobility and Cloud Outperformance

The Mobility Solutions Group was a standout performer, growing 44% YoY, driven by strong demand for premium smartphones in India and the Middle East. Similarly, Cloud Solutions grew 41%, benefiting from the ongoing transition to hyperscalers and AI-enabled digital transformation. These high-growth segments are helping to offset the relative stagnation in the PC business (Endpoint Solutions), which grew only 3%.

Working Capital and Balance Sheet Resilience

Despite the challenges in Turkey, Redington managed to reduce its closing working capital to 37 days, down from 39 days in the previous year. This efficiency, combined with a superior credit rating (AA+), helped reduce overall financing costs (excluding Turkey) by 8%. The company maintains a conservative leverage profile with a net debt to equity ratio of 0.23x, providing headroom for future growth investments.

Software Solutions: The Future Margin Accretive Play

Management highlighted the creation of a dedicated Software Solutions Group, which now accounts for roughly 15% of the business and is growing at 25% YoY. This segment delivers higher gross margins (close to 6%) compared to the hardware-heavy distribution business. Redington plans to double down on security, SaaS, and infrastructure software to counterbalance margin pressures in other segments.

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