Companies & Sectors
Redington reports in-line Q2 results; strong growth outlook for H2
Redington management’s guidance implies significant growth in around 35%-40% range in H2FY12F for the India business, says Nomura Equity Research in its Quick Note
 
According to Nomura Equity Research in its Quick Note, Redington India’s Q2 results were broadly in line with estimates at the EBITDA level, but the key positive that emerged from the conference call was a solid outlook of “12-15%” growth at the consolidated level for FY13 (the brokerage estimates 11.9% growth for FY13F currently). The management’s guidance, implies significant growth in around 35%-40% range in H2FY12F for the India business, driven mainly by: 1) iPhone sign up with Apple, where it expects to do around Rs11,000 million in the second half; 2) a pick-up in government orders (the company has a UID-Aadhar project in Q3 which will get executed over the next 2-3 quarters) in the IT business; and 3) a pickup in the Blackberry business, boosted by the launch of Blackberry 10 in January 2013.
 
Redington’s consolidated sales at Rs58,597 million (y-y growth of 12.9%) were 7% ahead of Nomura’s expectations driven by solid 21% growth in the overseas business (constant currency growth of 9%) and the result of strong performances at Lenovo, Toshiba and Acer in the Middle Eastern markets. This offset a muted topline in the India business which declined by 3.9% in the quarter (while the IT business grew at 2%, non-IT declined by 16% owing to a 40% decline in Blackberry sales.
 
EBITDA including other income (which is a better metric than EBITDA before other income, as other income includes discounts that Redington gets from vendors) was Rs1.553 million, in line with Nomura’s expectations ofRs1,575 million. EBITDA margin at 2.65% was lower than the brokerage’s expectation of 2.85% owing to relatively lower margins in the India business (the miss was owing to a decline in the higher margin Blackberry business).
 
Profit before tax for the second quarter at Rs1,014 million was in line with Nomura’s estimate of Rs1,019 million. Net income at Rs729 million was ahead of its expectation of Rs66.7 million primarily owing to a lower tax rate of 23.8% compared to Nomura’s expectation of 30%.
 
At the lower end of the management guidance of 12-15% sales growth for FY13 would imply 14-20% growth in H2 (H1FY13 sales growth was 10.3% y-o-y), said Nomura. The management has indicated that India’s contribution in H2 will be around 52% against 46% in H1. Nomura believes the management is suggesting a significant pickup in growth in the India business in the second half (implied growth of around 35-40%) driven by:
Incremental contribution of Rs11,000 million from Apple in the next five months owing to the addition of iPhone (around 35-40% of its distribution agreement with Redington). While this is lower margin than Blackberry, returns are expected to be higher on account of low working capital days (receivable days are around 15 while they get a credit of around 30 days). This essentially suggests that they the company expects the ex-Apple business in India to growth between 11-18%.
Blackberry sales per month picked up from a run-rate of 60,000-70,000 in Q2 as per management to 80,000-90,000 in October. The management is also positive about an expected substantial pick up post the Blackberry 10 launch in January 2013. This, according to Nomura, could mean that the decline will taper off in the second half (ex of a big pick-up in sales post Blackberry 10, current run-rate would suggest a decline of around 18%).
The management indicated that they have a large UID-Aadhar project in Q3 which will get executed over the next 2-3 quarters and should benefit the IT business. Nomura expects the IT business to grow at 15%+ in 2HFY13F.
The implied growth rate for the international business for 2HFY12F is in the range of -3% to 2%, to which Nomura sees upside potential given that the Samsung sales ramp up will be visible in the second half plus Redington has witnessed solid momentum in the Middle Eastern business on the back of strong performances at Lenovo, Toshiba and Acer.
 
Nomura estimates that working capital days came down by at least two days to around 44 days in 1HFY13 versus 1HFY12, driven primarily by a decrease in receivable days by around 11 days. Free cash flow improved significantly in 1HFY13 as it was negative Rs340 million versus negative Rs2,490 million in 1HFY12. Management guided for net debt to come down
or stabilize at around Rs17,000 million (current level at Rs1,8260 million, translates to a net debt/equity of around 1.23x; this is expected to come down to around Rs15,127 million by end-FY13F).
 
Nomura believes that on the back of these numbers, consensus EPS FY13F estimates will likely move up by around 5% and inch towards our estimates, which are currently slightly higher than consensus.
 
The brokerage reiterates its ‘Buy’ rating on India’s largest distributor of IT and electronic products. The potential of the Indian market should be seen in the context of a doubling of the middle-class population in the next 10 years (source: Dell), which is likely to mean increasing average disposable income and should drive IT/electronic penetration rates in
India, said Nomura. The company has end-to-end coverage of the distribution value chain (procurement, warehousing, non-banking financial corporation’s (NBFC) and after-sales services). It has impressive processes in place and a strong conservative management team. 
 
The company has a credible history of managing inventory and credit risk, which the brokerage considers key to success in the distribution business. Average provisions for inventory and receivables were 0.04% and 0.1% over FY08-FY12 for India and overseas business over the same period, respectively. 
 
The current valuation at 7.1x FY14F EPS (8.95x FY13F EPS) is a 39% discount (23% discount on FY13F) to its discount to its six-year average of 11.7x and is an attractive entry point, says Nomura.
 

User

Weak results of L&T highlight pressure on margins
At net profitability level, L&T was able to make up some of its lost ground due to higher other income and lower tax rate, according to Nomura Equity Research in its Quick Note
 
In its Quick Note on Larsen & Toubro’s (L&T) fourth quarter performance, Nomura Equity Research said that the company’s 4QFY13 earnings missed its as well as the street’s estimates led by weaker-than-expected sales growth as well as EBITDA margins. EBITDA in 4QFY13 came in 9% and 13% lower than estimated, respectively. However, at net profitability level, the company was able to make up some of its lost ground due to higher other income and lower tax rate. The order inflow at Rs279 billion in 4Q was much ahead of its expectations, Nomura added.
 
The order growth of +25% y-o-y in FY13 was ahead of Nomura’s expectations as well as the management’s earlier guidance but nearly 120bps (basis points) decline in E&C margins against the guidance of +/- 50bps margin given in the beginning of the year flags that order wins have come in at the cost of margins over the past few years and will continue to do so in future, according to the brokerage. “These are concerns we have been highlighting in the past. Given that nearly 75% of incremental order growth in FY14F will be coming from the international markets, we believe margins could witness more pressure going forward, as competitive intensity is significantly high in Middle East markets,” Nomura’s analysts said.
 
The L&T stock has reacted negatively on the back of the weak results. Nomura expects further negative reaction to the stock.
 
For FY14, L&T has guided for: 1) order inflow growth of 20% y-y; 2) revenue growth of 15-17% y-o-y and 3) flat E&C margins y-o-y.
 
The order inflow from international markets is expected to nearly double in FY14 from FY13 levels, i.e., from around Rs120 billion to Rs250 billion. This would mean order inflow from domestic markets is expected to grow only around 6% y-y in FY14.
 
Key numbers from L&T’s 4QFY13 results:
4QFY13 revenues at around Rs203 billion (+10%y-y) missed Nomura’s as well as the street’s expectations by 2% and 4% respectively.
Even core EBITDA margin at 12.1% in 4QFY13 missed expectations. The margins were down 180 bps y-o-y. According to Nomura, the lower margin raises concerns that incremental orders are being taken at lower margin.
Engineering & Construction (E&C) segment witnessed significant deterioration in the EBIT margin. It was down to 11.2% in 4QFY13 against 13.6% in previous year (4Q). On full year basis, margin in E&C segment noted a decline of 120 bps to 10.3%.
On the back of weak margin and revenue, core EBITDA at around Rs24.5 billion (-4% y-o-y) came in 9% & 13% lower than expectations, respectively.
Higher other income & lower tax rate boosted the net income, partially offsetting weak growth and EBITDA margins. Other income was at Rs3.74 billion (against Nomura’s expectations of Rs3.35 billion).
Tax rate in 4QFY13 was 23.8% compared to 28.4% in the previous quarter.
Recurring PAT in 4QFY13 at around Rs17.7 billion fell by 6% y-o-y while on full year basis PAT in FY13 has grown by 11% y-o-y.
The momentum in order inflow remained strong at around Rs279 billion in 4QFY13 which was higher than the brokerage’s estimates of Rs210 billion.
In FY13, total order inflow was around Rs880 billion compared to full-year FY13 management guidance of Rs800 billion-Rs840 billion. Nearly 17% of orders in FY13 came in from the international markets.
As of end-March 2013, the company’s order book stands at Rs1,530 billion after adjusting for Rs170 billion of orders which are slow moving. 
Net WC as a percentage of sales moved to 19.3% end-March 2013 from 17.9% as of March 2012.
 
 

User

RTI Judgement Series: UGC asked to investigate a case of providing false information
The PIO of UGC supplied false information to the applicant which prompted the CIC to direct the secretary of UGC to investigate how false information was provided to the appellant. This is the 98th in a series of important judgements given by former Central Information Commissioner Shailesh Gandhi that can be used or quoted in an RTI application
 
The Central Information Commission (CIC) while allowing an appeal directed the secretary of the University Grants Commission (UGC) under the human resources development (HRD) ministry to probe the matter where its Public Information Officer (PIO) was found guilty of providing false information to the applicant under the Right to Information (RTI) Act.
 
While giving this judgement on 2 February 2009, Shailesh Gandhi, the then Central Information Commissioner said, “Just before the hearing, the PIO admitted that Holy Cross College was favoured with financial assistance under the 'Innovative Programme' of the UGC without receiving any proposal from the college. Thus it appears that false information was given to the appellant wilfully, perhaps to cover up an irregularity.”
 
Nagarcoil (Tamil Nadu) resident A Kalaivanan, on 4 August 2008 sought information about the approval of “Innovative Programmes” Teaching and Research in Interdisciplinary and Emerging Area—Under the Tenth Plan. Here is the information he sought under the Right to Information (RTI) Act and the reply given by the PIO...
 
1. As per the guidelines, whether the college were asked to submit the proposal through their respective university.
PIO's Reply: Yes.
 
2. Is there any college from Tamil Nadu which submitted the proposal directly to the UGC?
PIO's Reply: No, The proposal has been received from a college in the state of Tamil Nadu duly forwarded by the affiliated university.
 
3. If yes, kindly give me the list of colleges that have not submitted their proposal through the University.
PIO's Reply: N.A.
 
4. What were the actions taken on the proposals submitted directly to the UGC? (Not through the university.)
PIO's Reply: Proposals received directly from the college/institutes, not forwarded through the respective University, will not be considered for financial assistance under Innovative Programme.
 
5. Provide the copy of the decision (action) as mentioned in 4.
PIO's Reply: A copy of the guidelines of Innovative Programme is enclosed Annexure. 
 
There was no mention of first appeal filed or any order issued by the First Appellate Authority (FAA).
 
A Kalaivanan on 25 November 2008 filed his second appeal before the Commission.
 
During the hearing, it became known that the PIO on 27 January 2009 informed Kalaivanan that Holy Cross College of Nagarcoil had not submitted its proposal through the university, yet it was favoured with the financial assistance under the 'Innovative programme'.
 
Mr Gandhi, the then CIC, noted that it appears that false information was given to the appellant wilfully, perhaps to cover up an irregularity. 
 
While allowing the appeal, he then directed, the secretary of UGC to investigate how the false information came to be given to the appellant on this matter.
 
“He (the secretary of UGC) will submit a report to the Commission and also send a copy of this to the appellant before 25 February 2009. The report will identify the officer guilty for providing the false information against whom penal action under Section 20 (1) will be initiated by the Commission,” the CIC said in its order.
 
 
CENTRAL INFORMATION COMMISSION
 
Decision No. CIC /SG/A/2008/00237/1424
http://rti.india.gov.in/cic_decisions/SG-02022009-02.pdf
Appeal No. CIC/SG/A/2008/00237/
 
 
 
Appellant                 :          A Kalaivanan,
                                               Nagercoil, Tamil Nadu - 629004
 
Respondent 1          :          AK Parate, 
                                              Jt. Secretary & PIO
                                              University Grant Commission,
                                              Ministry of HRD,
                                              Bahadur Shah Zafar Marg,
                                              New Delhi - 110002
 

User

We are listening!

Solve the equation and enter in the Captcha field.
  Loading...
Close

To continue


Please
Sign Up or Sign In
with

Email
Close

To continue


Please
Sign Up or Sign In
with

Email

BUY NOW

The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)