Redington (India) Limited

Business of Redington (India) Limited
Redington is in the business of distribution of IT Products and providers of logistics, supply chain management, and other support services in India, Middle East and Africa. Apart from this Redington has recently commenced distribution of mobile handsets in parts of India and Nigeria.
The IT products that Redington deals in represents peripherals, printers, scanners, plotters, cartridges, PC components like monitors, hard drives, CD writers, CD ROMs, processors and motherboards. The company does not produce these things but sources it from vendors and then is engaged in the distribution of the same. The company also manages logistics and has 53 warehouses spread across 22 states in India as well as access to various markets in Africa and Middle East through its subsidiaries.
The company has been on the growth path as far as revenues are considered with revenues for the period ended September 30 2006 touching Rs. 41,313.82 million and Rs. 67955.46 million in the year 2006 and Rs. 40,542.77 million in the year before. While this represents strong growth the company operates in a highly competitive market and therefore the gross margins are quite low. The net profit after tax of the company for the corresponding periods have been Rs.397.19 million, 719.74 million and 436.54 million which hovers just around and under the 1% mark and makes it a risky bet.
The EPS for the company for fiscal 2006 is Rs.4.79 and the company is offering its share in a price band of Rs 95 – Rs. 113 which translates into a P/E of 19 times lower price and 23 times upper price.
Key Risks
Apart from the low margins that the company has there are other key risks that the company faces namely pending civil and criminal proceedings against it or the directors as well as outstanding contingent liabilities. These risks magnify because of the lower margins of the company and because if any of these do surface up Redington’s bottom line would suffer. Redington also depends on a few number of products to constitute majority of its revenues and the top 5 products contributed 77% of the revenues in the year 2005-06.
While the company is on the growth path and has showed phenomenal growth in its top-line the industry is inherently competitive and to manage its growth profitably would be challenging for Redington. Such an environment makes Redington a  high risk stock.

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