| Redington Limited | ||||||
| Ratings reaffirmed at 'Crisil AA+/Stable/Crisil A1+' | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on Crisil Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale Crisil Ratings has reaffirmed its ‘Crisil AA+/Stable/Crisil A1+’ ratings on the bank facilities and commercial paper of Redington Limited (REDIL; formerly, Redington (India) Ltd).
The ratings continue to reflect the strong business risk profile of REDIL, backed by its solid and established market position in the information technology (IT) and mobility products distribution business, improving product and geographical diversification in revenue from the domestic and international markets, and strong risk management practices. The ratings also factor in the company's healthy financial risk profile and strong liquidity. These strengths are partially offset by modest operating margin and large working capital requirement in the distribution business.
During the first nine months of fiscal 2025, REDIL registered revenue growth of 9%, driven by healthy demand from the Indian mobility solutions group (MSG) and enterprise solutions group (ESG), which together contribute more than 50% to the company’s revenue. While steady demand for IT products from the enterprise segment, supported by higher deal wins from corporate and government post-elections, benefitted the ESG segment, addition of new vendors in the mobility segment, along with the premiumisation trend aided growth in the MSG segment. REDIL is likely to register healthy revenue growth of 8-10% over the near to medium term, supported by robust trends in Technical Solutions Group (TSG), driven by higher investments by corporates and the government in IT infrastructure, accelerated cloud spending, cybersecurity, and AI (artificial intelligence) integration. High growth potential in the MSG segment due to shift towards 5G and premiumisation will also aid revenue growth. This will help REDIL solidify its established market position in these product segments, where it is among the market leaders. In fiscal 2024, REDIL registered healthy revenue growth of 13% supported by growth in the ESG and MSG segments.
The company’s operating margin declined to 2.2% in the nine months of fiscal 2025 from 2.5% in of corresponding period previous fiscal due to change in product mix, steady increase in investments to develop digital capabilities and other risk mitigation initiatives. This, along with postponement of few corporate and government orders in the first two quarters of fiscal 2025 due to elections, has also impacted the profitability. However, on a quarter-on-quarter basis, profitability has improved from 1.96% (second quarter of fiscal 2025) to 2.52% (third quarter) with gradual resumption of order inflow from corporates and government both in India and the overseas markets. The operating margin is expected to sustain at 2.3-2.4% over the near to medium term due to increased share of revenue from high-margin IT enterprise segments and cloud services, along with benefits of operating leverage and cost efficiencies implemented over the past few years.
REDIL has a strong financial risk profile, as reflected in sizeable networth of over Rs 8,000 crore as on December 31, 2024, and comfortable gearing of ~0.4 time. To meet its large working capital needs, the company avails of working capital facilities from banks, as well as commercial paper. Besides, REDIL undertakes non-recourse factoring of receivables, especially in the overseas markets of Turkey and the Middle East. Interest coverage ratio improved to ~4.0 times during the nine months of fiscal 2025 from 3.15 times in the corresponding period previous fiscal despite decline in absolute EBITDA (earnings before interest, taxes, depreciation, and amortisation) mainly due to decline in interest cost is on account of lower average utilisation of 60% of cash credit limit during the nine months ended December 31, 2024, against 75% in the corresponding period previous fiscal for REDIL India; and gradual reduction of inflation in Turkey (from ~ 60% in December 2023 to ~ 40 %4% in December 2024) and resultant reduction in interest rates. REDIL continues to focus on managing its working capital prudently, as reflected in net working capital days (Q3 closing) improving to 36 days(9m fiscal 2025) from 37 days(9m fiscal 2024) despite overall increase in scale of operations.
Crisil Ratings also notes the completion of the transaction pertaining to divestment of 100% of the equity/ownership interest in the fintech payments business, Paynet Odeme Hizmetler AS (Paynet), to lyzi Payment and Electronic Money Services Inc, Turkey (lyzic) during February 2025 upon the mutual fulfillment of the conditions outlined in the definitive agreement signed on May 6, 2024. Paynet is a wholly owned subsidiary of Arena Bilgisayar Sanayi ve Ticaret AS (Arena), a stepdown subsidiary of REDIL listed in Istanbul, Turkey. The divestment of Paynet has been completed upon receipt of requisite approvals, for consideration of Rs.~763 Crores ($89.29 million). The post-tax impact of this gain is Rs.~537 Crores ($63.49 million) and Rs.~265 Crores ($31 .37 million) on the Consolidated Profit after tax (PAT) of the Company before and after Non-controlling interests respectively and the same has been utilized for repayment of existing debt.
Debt reduction in Turkish subsidiary along with gradual reduction in inflation and interest rates in Turkey is expected to result in further reduction in interest cost going forward ensuring sustenance of Interest cover of above 4 times over the near to medium term. Furthermore, total outside liabilities to tangible networth (TOLTNW) ratio is expected at 1.9-2.1 times over the near to medium term against 2.2-2.3 times in previous fiscals. |
Analytical Approach Crisil Ratings has combined the business and financial risk profiles of REDIL and REDIL’s subsidiaries due to similar business operations. REDIL has also provided need-based financial support to some of its subsidiaries. All these companies have been together referred to as REDIL.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Strong market position in the IT and mobility distribution business: REDIL and Ingram Micro Pvt Ltd (another major player in this industry) have garnered the major share of the market in domestic IT distribution. REDIL emerged as the leading player in the domestic IT distribution market by displacing Ingram Micro on account of steady increase in wallet share from existing clients, addition of brands, and various strategic initiatives.
REDIL is also the market leader in the Middle East and Africa (MEA) markets through its step-down subsidiary, Redington Gulf FZE, while another step-down subsidiary, Arena, is one of the largest players in Turkey. REDIL is one of the few supply chain solutions providers with presence in the major emerging markets around the world. It has strong relationships with leading vendors such as HP, Dell, Samsung, Lenovo, Cisco, and Microsoft in the IT products business, and has consolidated its position as a leading distributor for these vendors over time.
In the mobility business, too, REDIL remains a significant distributor for smartphones. It has tie-ups with leading brands. The company’s market position in both its business segments is underpinned by its ability to rapidly grow its vendor list, diverse product profile, strong distribution infrastructure, and well-entrenched relationships with channel partners. This has enabled it to grow revenue, supported by buoyant demand for IT products and services.
Diversified revenue mix with healthy geographical footprint: REDIL’s revenue stream is highly diversified in terms of the IT, mobility and services business verticals, as well as geographically with presence in 40 markets. The IT consumer segment handles the distribution of personal computers (PCs), laptops and other consumer lifestyle products; while the IT enterprise segment offers networking, software, server storage and cloud services. In the mobility vertical, REDIL focuses on smartphones. The company has gradually enhanced the proportion of mobility revenue in its overall revenue, supported by addition of new brands of smartphones in the domestic as well as overseas markets. Hence, the share of mobility revenue increased to 34% in the nine months of fiscal 2025 from 27% in fiscal 2018. While material ramp up in mobility revenue has been partly affected by change in the go-to-market (GTM) strategy of a major vendor, REDIL has added new vendors to limit loss of revenue.
While the threat of direct to retail models remains, REDIL is better placed to mitigate the situation due to its diverse product portfolio and presence in diverse geographies. Besides, the direct to retail/ecommerce model is unlikely to reduce offline market substantially, as seen in developing countries. REDIL ventured into the cloud business three years ago and offtake has been healthy, with the business recording on-year growth of 43% in 9 months fiscal 2025. While the share of the cloud business remains low, it is expected to grow at a faster rate than overall business, leading to an increase in its revenue share. The services business focusses on warehousing and logistics, support, warranty, infrastructure and AMC services.
Strong risk management practices: This has enabled REDIL to mitigate risks inherent in the distribution business. These include risks arising from vendor concentration, product obsolescence, volatility in exchange rates, and credit risks. The company has a diversified vendor base that reduces the revenue concentration risk from a single vendor. REDIL follows healthy foreign exchange risk mitigation practices, such as hedging on exchange rates that helps minimise foreign currency fluctuation risks. The quick conversion cycle and strong relationship with vendors ensure limited risk arising from product obsolescence. Most of the receivables are credit insured to mitigate default risk. The robust risk management practices have led to average receivables and inventory provision of less than 0.1% of revenue for fiscal 2024
REDIL also has a robust management information system, which helps keep track of the credit history of its channel partners. This will be enhanced with implementation of SAP across all its business locations. Furthermore, the company maintains sizeable cash as a contingency measure to ensure continuation of operations in volatile international markets.
Healthy financial risk profile: REDIL has strong cash-generating ability and prudent working capital management. Sizeable networth of over Rs 8,000 crore as on December 31, 2024, ensures healthy capital structure despite working capital-intensive operations. Adjusted gearing was comfortable at ~0.4 time. The gearing is expected to improve gradually with increase in networth and absence of significant capital spending.
Interest coverage ratio improved to ~4.0 times during the nine months of fiscal 2025 from 3.2 times in the corresponding period previous fiscal despite decline in absolute Ebitda (earnings before interest, taxes, depreciation, and amortisation) mainly due to decline in interest cost on account of lower average utilisation of 60% of cash credit limit during the nine months ended December 31, 2024, against 75% in the corresponding period previous fiscal; and gradual reduction of inflation in Turkey (from ~ 60% in December 2023 to ~ 40% in December 2024) and resultant reduction in interest rates.
Interest coverage ratio had declined to 3.1 times in fiscal 2024 from 4.96 times in fiscal 2023 due to lower operating profitability and an increase in interest costs on factoring of receivables due to steep rise in interest rates in Turkey in fiscal 2024 as result of the hyperinflationary environment in that country. Debt levels at Arena (stepdown subsidiary in Turkey) had risen in 2022 to fund an acquisition.
Crisil Ratings also notes the completion of the transaction pertaining to divestment of 100% of the equity/ownership interest in the fintech payments business, Paynet Odeme Hizmetler AS (Paynet), to lyzi Payment and Electronic Money Services Inc, Turkey (lyzic) during February 2025 for consideration of Rs.~763 Crores ($89.29 million). The post-tax impact of this gain is Rs.~537 Crores ($63.49 million) and Rs.~265 Crores ($31 .37 million) on the Consolidated Profit after tax (PAT) of the Company before and after Non-controlling interests respectively.These proceeds were utilized for repayment of existing debt at Arena. This and stabilisation of interest rates in Turkey, along with expected improvement in operating profitability at REDIL, are expected to ensure above average interest cover over the medium term.
Return on capital employed was healthy at 23.8% in fiscal 2024 because of high profitability and should sustain at over 20% over the medium term. The TOLTNW ratio improved to 2.22 times as on March 31, 2024, from 2.32 times as on March 31, 2023, with steady increase in networth. The TOLTNW ratio is expected at 1.9-2.1 times over the near to medium term.
Weaknesses: Modest, but stable, profitability: The distribution business has low profitability, as reflected in operating margin of 1.9-2.2% during fiscals 2017-2020. Improvement in the profitability was limited by the increasing share of business from mobility products, which had lower margins, compared with traditional IT products. The operating profitability improved to 2.5% in fiscal 2024 (better than pre-Covid levels) driven by higher share of IT products in the revenue mix and better gross margins. During the nine months of fiscal 2025, the margin moderated and normalised to 2.2% due to change in product mix and increase in investments to develop digital capabilities. The operating profitability is expected to stabilise at 2.3-2.4% over the near to medium term, with product mix determining direction of margins.
Working capital-intensive distribution business: The company’s enterprise and consumer division (including software sales, storage, servers, networking) within the IT products segment is working capital intensive. Given the limited number of established competitors in the domestic IT business, REDIL, based on mutual understanding with its vendors, agrees the credit period considering the high lead time involved in such enterprise transactions. This leads to larger working capital requirement in line with ramp-up in operations. However, the impact is partially alleviated as its vendors allow credit to the company on a case-to-case basis. Also, with the share of the low-margin and low working capital intensive mobility business increasing over time, net working capital days have gradually lowered.
Over fiscals 2021 and 2022, the net working capital remained at 14 days due to demand chasing supply. The net working capital increased to 36 days in fiscal 2023 with normalisation of working capital cycle, and improved marginally to 34 days in fiscal 2024. However, net working capital days improved to 36 days during the nine months of fiscal 2025 from 37 days in the corresponding period previous fiscal despite the overall increase in scale of operations, due to prudent working capital management. This is better than net working capital of more than 45 days in the past. |
Liquidity: Strong REDIL enjoys strong liquidity, with cash surplus of about Rs 1,467 crore as on December 31, 2024. However it may be noted that majority of cash is scattered across the subsidiaries with cash largely available at subsidiaries in Singapore, the Middle East, Africa and Arena (Turkey). This will be utilised for the subsidiaries’ own operations as there is no support among the entities in the form of Intercorporate Deposits as per Group Policy; and the treasury operations are managed by respective overseas subsidiaries. Hence, the cash available in the subsidiaries is not normally utilised by Redington India.
REDIL India has additional cushion in the form of bank limit of ~Rs 3,000 crore, which has been utilised at 56% on average (including utilisation of commercial paper, which has been carved from its bank limit) over the 12 months through February 2025. Cash accrual is estimated at Rs. 1,000 - 1,100 crore (post-adjustments for dividend outflow) in fiscal 2025 and is expected to remain healthy and sufficient to meet nominal term loan obligation, capex and incremental working capital requirement.
ESG profile of REDIL Crisil Ratings believes the environment, social, and governance (ESG) profile of REDIL supports its already strong credit risk profile. The IT distribution sector has low impact on the environment owing to its low emission and comparatively low waste generation due to the low energy intensive nature of operations. The sector also has minimal social impact.
REDIL is developing a detailed ESG framework that will mitigate environmental and social risks.
Key ESG highlights:
There is growing importance of ESG among investors and lenders. The commitment of REDIL to ESG principles will play a key role in enhancing stakeholder confidence, given the high share of market borrowing in its overall debt and access to both domestic and foreign capital markets. |
Outlook: Stable Crisil Ratings believes that REDIL’s business risk profile will continue to benefit over the medium term from the diversity in its revenue, established relationships with global IT vendors, sustenance of improving operating margin, and high cash-generating ability. Furthermore, the company is expected to sustain its healthy financial risk profile, supported by prudent working capital management and minimal capital spending. |
Rating sensitivity factors Upward factors:
Downward factors:
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About the Company Set up in 1993, REDIL is a leading distributor of IT hardware and mobility products. The company made its initial public offering in early 2007. It has a diversified holding structure with the largest shareholder, Synnex Technology International Corp, holding 24.1% through its investment arm Synnex Mauritius Ltd, Taiwan. During September 2019, REDIL was classified as a listed entity with no promoters.
REDIL operates in 40 markets across India and META region with a base of ~ 5100 employees. It distributes ~450+ brands through a network of 50,000+ channel partners. While distribution of IT and mobility products accounts for a bulk of its revenue, REDIL is enhancing its presence in the cloud solutions space and logistics business in India and the Gulf region. |
Key Financial Indicators
For the first nine months of fiscal 2025, REDIL recorded a PAT of Rs 903 crore on operating income of Rs 72,894 crore, against Rs 915 crore and Rs 66,912 crore, respectively, during the corresponding period previous fiscal |
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Facilities are interchangeable between fund and non fund based limits |
Annexure – List of Entities Consolidated - Fully consolidated entities (as of March 2024) Direct subsidiaries
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Criteria Details
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