Redington ltd - Software continues to deliver - Company Update

We maintain Buy with revised target price at Rs 380. Redington delivered a strong topline growth led by robust performance in the SSG segment along ESG on the back of refresh cycle seen in PCs. TSG saw some de-growth on the back of large deals and slower demand in on-prem to cloud. Mobility continued to deliver on the back of premiumization trend and strong numbers from Apple. Working capital days were at 28 days, 5 days lower YoY. Losses for Arena were lower at Rs 2.2 Bn and it was EBITDA positive for the first time. We model 15.3% revenue growth over FY25–28E, backed by strong tailwinds seen across SSG, MSG and ESG.

SSG & ESG to continue its strength:

SSG delivered yet another 40%+ growth quarter on the back of strong demand seen in cloud, cybersecurity and managed services. ESG delivered 21%+ growth on the back refresh cycle seen in PCs along with component shortage which led to inventory stocking by channel partners. TSG was sluggish on the back of large deals, and we expect this trend to continue for a few quarters. MSG continues its impressive growth on the back of market share gains for Apple amid subdued growth in Android.

Operationally solid quarter:

Working capital days were at 28 vs 33 YoY. ROCE stood at 22.1% vs company average of 18% on the back of larger share of SSG & better working capital management. Losses from Arena narrowed qoq and we expect Arena to be PAT positive by Q1FY27e. Interest cost and factoring costs have also come down YoY, which boost PAT margins by 14 bps. Large deals in TSG dampened gross margins along with some business slippage seen due to Arena. We expect EBITDA margins to improve by 15-20 bps over the few quarters.

Outlook:

Redington continues to be the leader in the distribution space in India and middle east. We expect the company to continue growing at 15% over the next few quarters given the tailwind it is seeing across SSG, ESG and MSG. Data centers is a large opportunity and could drive revenue growth over the next few years albeit putting some pressure on margins. Operationally we expect 18%+ return ratios with industry leading cash flow generation and working capital management.

Valuations, view & risks:

We are factoring in 15.3%/16.7%/24.3% Revenue/EBITDA/PAT over FY25-FY28E, and value the company at 14x Q3FY28 PE, resulting in a TP of Rs 380. We have upgraded our revenue estimates by 4%, while cutting our EPS by 6% CAGR over FY27/28e on the back of lower margins due to large deals in TSG. Our base case estimates do not factor any acquisitions.

Key risks: vendor concentration (Apple, HP, AWS, Microsoft), sudden dip in component prices leading to inventory pile up, increase in losses from Arena.

Company website: https://redingtongroup.com/

*CMP is as per report published date

Click to download the full Redington Ltd Q3FY26 Company Update

Analyst:

• Vinay Menon - Senior Research Analyst, Institutional Equities (NISM-201600112117)
• Miloni Mehta - Research Associate, Institutional Equities (NISM-201800127664)

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FAQs on Redington Ltd Q3FY26 Company Update

Here are quick answers to common investor questions about the Redington investment opportunity, including entry levels, targets and key risks.

1. What is the ideal buying range for Redington?

Traders can consider accumulating the stock near the ₹250–275 zone based on current price action and support levels.

2. What stop loss should traders maintain?

A stop loss below ₹220 on a closing basis is recommended to manage downside risk.

3. What factors support the bullish outlook?

Strong growth in cloud and cybersecurity (SSG), PC refresh demand (ESG), premiumization in mobility led by Apple, and improving return ratios support positive sentiment.

4. What are the key risks to this trade?

Vendor concentration risk, inventory fluctuations due to price changes, margin pressure from large deals, or higher losses from the Arena business could impact performance.

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