Redington India : Strong Performance history, re-rating candidate

(Bheeshma Sanghani) #21

inventory & receivables account for 90% of redington’s assets. Working capital will always be a major drag on its cash flows because of the kind of business its in. They will never have sufficient excess cash profit for any kind of growth. Its kind of stuck in a weird spiral. Apple is its major supplier , and as apple grows redington will have no other choice but to grow or lose the apple business. But if it grows then it will lose more cash than before. This kind of forced growth over which you have no control is very harmful for the company. Look at its working capital growth . WC has compounded at 17.28% over the last 10 yrs while sales has compounded at 13.18%. Imagine a situation where you have truckloads of inventory at your warehouse ( Inventory) or truckloads of inventory at your customers warehouse ( receivables ) and that inventory has to move out mega-fast before it becomes obsolete AND that is 90% of what you do - distribute gadgets before they lose their value. 90% of your business is permanently at risk at all times. that not good for your sleep. I would avoid redington. I dont like its business model, its too risky

(Alphin) #22

What you have said ia completely true. But despite this the company has managed to grow. There are only few companies in this field due to your mentioned hardships.

This also acts as a barrier to entry. Now I am not saying that this company will be a multibagger but It has strong operation skills and the growth in revenue will come from servicing and logistics.

Disc: invested a small amount for opportunistic play on Gst, apple and pixel distribution and also it’s logistics and servicing division.

(Kumar Saurabh) #23

A investor’s delight should not be only a growing company but a growing company which can generate good incremental cash on per Rs investment at appropriate valuation. Personally, am sure that there are much better business models available

(Bheeshma Sanghani) #24

To cut a long story short, Apple has Redington by its b***s. Its painful for redington but to avoid further pain, redington will do what apple & others tell it to do even if it is harmful to the company & its investors. Yes its certainly a barrier to entry but its not a barrier that redington would ideally want. Its stuck in a bad marriage.

(divan91) #25
  1. Can anyone help in clarifying the business model of a distribution business?

  2. In Redington’s case, why is it so capital-intensive and with such a low OPM?


Hi @bheeshma , what are your thoughts on Redington India now after this quarter where they had positive free cash flow.

Also, now with logistics getting infrastructure status, their warehousing and logistics arm will also benefit to some extent.



Disclosure: Taken a small position.

(Bheeshma Sanghani) #28

Hi @uab59,

I am not tracking the company. A couple of investors i know seem to be positive about the prospects though. However, since its into a low margin trading business , the PE seems to be what it should be.