Redington rides the iPhone wave
Nov 30, 2012 (Menafn - Mint - McClatchy-Tribune Information Services via COMTEX) --Shares of Redington India Ltd have risen by over 8% since it announced in end-September that it has added the iPhone to the list of products it will distribute for Apple Inc. in India.
During the same time, the S&P CNX 500 index has risen by only around 3%.
Given the success of iPhones the world over, investors seem to be on target in expecting an outperformance by the company. According to the company, the iPhone distribution business will add Rs.1,100 crore to revenue between October 2012 and March 2013. This doesn't seem much when compared to projected revenue of Rs.24,000 crore for the company for the current fiscal.
But consider this -- Nomura Research expects Apple's contribution to rise from only around 5% of total revenue to 23% in fiscal 2014. It expects revenue from the iPhone to double next year and the growth in other Apple products to remain strong.
Besides, while the demand from the government has been subdued in its domestic IT business, the company has told analysts that it is expected to pick up in the second half. According to Nomura, "The company has received a large UID Aadhaar project, which we expect to be executed over the next two-three quarters, thus benefiting its IT business. Hence, we estimate the IT business to grow at 15% in the second half of FY13." According to the broker, the sluggishness in Blackberry sales is expected to reverse and it expects sales to improve in the second half vis-a-vis the first half, as well as a 9% year-on-year growth in FY14.
Meanwhile, Arena Bilgisayar Sanayi ve Ticaret AS, a distributor of information technology products in Turkey, which the company had acquired two years ago, is turning around and its margins are expected to improve. The net result of all this is that Nomura's estimates of the company's normalized earnings per share has increased by around 14% for both FY13 and FY14.
What's more, valuations are far from high at 6.25 times estimated earnings for FY14. While Apple's growth in India has been restricted so far, the story could be different with iPhones. Having said that, there is also the risk that the distribution rights can be split or can be given to another entity. For instance, HCL Infosystems Ltd had lost its sole distribution rights for Nokia phones some years ago, which affected its financial performance significantly. Perhaps, Redington's low valuations are partly because of this risk.
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