Redington Q1 FY27 earnings call

Redington Limited delivered an exceptional Q1 FY27, with consolidated revenue growing 34% year-on-year to INR34,966 crores. This strong top-line growth translated into even higher profitability, with EBITDA surging 67% year-on-year to INR751 crores and PAT increasing 77% year-on-year to INR486 crores, demonstrating significant operating leverage. Excluding the Arena business, revenue grew 41% year-on-year to INR33,794 crores, and profit reached INR517 crores.

The India business emerged as the star geography, achieving a 63% top-line growth and a 60% PAT growth during the quarter. All business units within India, including Mobility, Endpoint Solutions, Technology Solutions, and Software Solutions, reported strong double-digit growth. This performance was supported by continued traction in the upcountry business, significant data center deals from neocloud operators, and triple-digit growth in professional services.

The Mobility business grew 21% year-on-year, contributing 35% to the top line, driven by strong demand in the premium segment. Endpoint Solutions grew 35% year-on-year, contributing 29% of the top line, primarily due to component shortage-induced price increases, with AI PC penetration reaching 36% of commercial revenues in India. Technology Solutions Group and Software Solutions Group both saw robust growth of 50% and 52% respectively, each contributing 17% to the top line, with TSG benefiting from approximately INR1,000 crores in large data center deals.

Despite overall regional growth of 15% in the Middle East and Africa, specific markets like UAE experienced a 3% to 4% decline, and Saudi Arabia saw a slightly larger decline due to geopolitical tensions and demand softening. The Arena (Turkey) business continued to be a concern, posting a loss of INR64 crores (Redington's portion INR31 crores). This was attributed to lower revenue post-mobility exit and Paynet divestment, gross margin compression, and increased operating expenses due to 35-40% inflation, with losses expected to continue for the current year.

The company demonstrated improved working capital management, with working capital days reducing to 32 days in Q1 FY27 from 37 days in Q1 FY26. Return on Capital Employed (ROCE) stood at 22%. The debt in the Arena business was reduced to $90 million from $120-130 million, leading to a decrease in interest costs (including factoring) to INR37 crores in Q1 FY27 from INR69 crores in Q1 FY26. Finance costs for the quarter were INR89 crores, which management indicated could be a steady-state quarterly run rate.

Redington is strategically investing in cloud, cybersecurity, and AI, earning Microsoft's Frontier Partner designation. The company is developing differentiated digital platforms, including CloudQuarks (for cloud/software) and Digital Platform (for hardware), aiming for 'best-in-class' status within 1-2 years. These platforms are considered significant investments to enhance customer experience, reduce servicing costs, and provide a competitive differentiator in the evolving technology landscape, particularly for AI solutions.