Redington Ltd Q4 FY2025-26 Earnings Conference Call

0:01 Ladies and gentlemen, good day and welcome to Redington Limited Q4 FY26 earnings call. As a reminder, this conference call will contain forward-looking statements about the company which are based on the beliefs, opinions, and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. All participant lines are in the listen-only mode and there'll be an opportunity for you to ask questions after the presentation concludes.

0:39 Should you need assistance during this conference call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. B.S. Hariharan, MD and Group CEO. Thank you and over to you, sir. Thank you. A very good morning, everyone. I'm pleased to share with you our results for Q4 '26 and full year FY26.

1:11 This has been our best quarter so far from both revenue and profit perspective. We recorded 33,269 crores of revenue, a growth of 25% year-on-year. The quarterly profit at console level, excluding exceptional items, was 467 crores at 1.4%. Our best profit performance so far. We closed the year at 119,347 crores, nearly 13.5 billion dollars, marking a YOY growth of 20% on revenue.

1:44 A full year PAT growth, excluding exceptional items, was 17% and PAT margin at 1.3%. This has been a strong year for Redington, reflecting sustained momentum across our core markets and continued progress progress on our strategic priorities. It is a continuing story of profitable growth across business segments and geographies. It is also a performance coming on back of several geopolitical challenges like the West Asia crisis that we saw during the quarter.

2:16 Our performance was driven by resilience and defined by discipline. I'll get into a bit of geography and business unit uh perspective. From a geography perspective, India had a fantastic quarter. The business grew top line by 50% and the profit after tax by 41% during the quarter. The growth in India reflects our ability to conquer and execute in our largest market. Within India, we had growth across all business units. There was a good uptick in the PC business driven by demand due to anticipated component shortage uh as well as large deals.

2:53 There was a strong demand in mobility with continued momentum in the premium segment. Um and with the cloud security, cybersecurity, and IT infra investments in India paved way for higher growth in the quarter as well as contribution from uh both the SSC side of the business and data center deals with new cloud operators. There was continued traction in upcountry expansion initiatives. We grew 45% in the upcountry part of the business and strong adoption of digital and platform led distribution.

3:28 In Middle East, the geopolitical tensions during the last month of the quarter pulled down the performance in March. However, we did see a demand spike for cloud and cybersecurity both from government and enterprise segments. Africa continues to see encouraging momentum driven by expanding IT adoption and increased contributions from solution led business, particularly SSC. Now, moving on to quarterly performance by business units, most of the business units contributed well to this growth.

3:59 Mobility grew 19% year-on-year. It's about 33% of the top line now for this quarter, driven by strong demand in the premium segment, and strong execution in the direct retail segment in India during the quarter. While this segment remains volume-driven, it continues to play a critical role for Redington in driving scale and partner engagement. Many new initiatives on mid-market, enterprise segment reach, development of IR channel are underway to create uh future growth.

4:32 On the endpoint solutions group, uh primarily marked by PCs, uh this group grew by 20 grew at 28% year-on-year, contributing to 30% of the top line. PC demand was strong, partially uh driven by the component shortage, as I mentioned before, and anticipated larger price increases, as well as large deals during the quarter of nearly 15,500 crores. Uh again, I repeat, 500 crores. AI PC penetration into the commercial segment continued to grow, with 41% of the revenues in India from AI PC greater than 40 tons.

5:11 TSG, Technology Solutions Group, had a growth of 34% contributing to 19% of top line, driven largely due to timing of large deal executions. We had mentioned in the previous earnings calls part of these deals moved from Q3 to Q4. Some of them got recorded uh this quarter. Uh in TSG, all cylinders fired, data centers, networking, server storage, uh and achieved the highest revenue ever. We did large deals of more than 1,100 crores in TSG during the quarter.

5:44 Now, coming to SSC, Software Solutions Group, continued to have good momentum grew by 31%. It contributes to 17% of top line now. For the full year, SSC contributed to 17% of the top line as well versus 15% in fiscal year 25. SSC now represents a strong and growing share of our business and a higher quality earning stream. Continue to deliver higher gross margin and PAT compared to the group. We continue to expand partnerships with tier one OEMs and hyperscalers increasing our solution intensity in go-to-market and build joint business plans to drive wallet share.

6:26 During the quarter, I wanted to call out we have building a lot of capability building initiatives and several of these got rolled out that will realize future potential. Our next version of CrowdQuarks platform, we call it 2.0 internally, has been rolled out this quarter. It has the capabilities for digital life cycle management of customers with analytics. We are also executing automated platforms for renewals of subscriptions supported by customer success teams.

6:57 On the AI front, many areas of progress. We founded AI lab, our capability center at Chennai headquarter. Deploying solutions for both internal and external use cases. We launched an AI exchange, which is like a marketplace with over 200 AI agents that brings ISVs and I AI innovators and our customers through our partner ecosystem together. This has the potential to accelerate the adoption of AI agents by industry vertical through a distribution approach. We've also rolled out this quarter five AI learning centers in tier two cities through our CSR program to create more AI human capacity in the country.

7:37 Our professional services team in India scope and approach has been shaped to provide a range of product-led services around the customer life cycle. So, that's for some of the capability building initiatives. Moving on to operations, efficient manager working capital and higher mix towards mobility solutions led to the overall lowering of working capital days to 30 days. ROCE was at 22%. Despite the investments we're making in the growth areas, opex control continues to be good and grew slower than revenue growth giving us operating leverage.

8:11 During Q4, there was a slight uptick on opex, combination of factors, certain war-related premiums on both insurance and freight. Um one off AR provisions in Geos. Uh all these led to a higher opex during the quarter. On a full year basis, opex to revenue declined by 17%. Now, coming to our subsidiary Arena. From a Q4 performance perspective, there was a loss of 44 crores, Redington portion being 22 crores related to exit costs from the Leda business.

8:41 The company's holding on subsidiary Redington Gulf carried out an impairment of the trade name classified as an intangible uh asset arising from its investment in its subsidiary in Turkey, Arena. Based on the assessment taking into account challenging economic conditions in Turkey and revised future projections, an impairment loss has been recognized and disclosed as an exceptional item in the financial results. The impact on the group PAT after minority interest is 75.2 crores.

9:11 In the previous year, exceptional item represents gain on divestment of Paynet, our step-down subsidiary. To summarize, FY26 has been a year of strong growth, transformation, and disciplined execution. We've scaled our core business, strengthened our solution capabilities, maintained capital discipline. Our core markets continue to deliver, our solution business scaling rapidly, we're making the right investments for the future. While we remain mindful of macro challenges, we are confident in our diversified presence, our evolving business mix, and our ability to deliver sustainable long-term value.

9:51 I'd like to reinforce that Harrington strength lies in the human capital, uh partners and vendors. The current quarter is a testimony to it. Spellbound performance in India, risk management and business continuity in the Middle East, despite the risks and dangers in building long-term avenues of uh growth in Africa through SSC. Following the onset of West Asia conflict on 28th February 2026, our Middle East operations were conducted under significant constraints.

10:23 You'll be pleased to know while the quarter was impacted by software demand, supply chain disruptions, the withdrawal of war risk insurance coverage, inventory challenges, delays in receivables, uh our teams in the ground demonstrated strong resilience, ensuring business continuity after multiple data center attacks where we had our own customers and partners as well. Sustaining our operations, we had initiatives uh that started yesterday such as Tech Citadel, which is an alternative to physical face-to-face events between OEMs and partner customers.

10:57 We're also seeing increased demand for cybersecurity and cloud products, and uh we'll continue to look for opportunities and upsides uh in these tough moments uh while we continue to manage business continuity and downsides in these markets. The board has also declared rupees six per share of dividend for the year ended 31st March 2026, which is 30% of profits. We are very sensitive to our shareholder needs. We have additional capital needs for growth opportunities, and are cautious about the evolving geopolitical uncertainty.

11:31 Thank you for your continued support. We look forward to your questions. Thank you very much. We now begin with the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles.

12:10 The first question is from the line of Nitin Padmanabhan from Investec. Please go ahead. Hi, good morning. Thanks for the opportunity. And congrats on a very solid performance in a very tough environment. Now, I had a couple of questions. The first is if you think about all the challenges and the way things have evolved this year, how are you thinking, how should one sort of think about the next year considering that India has been very solid this year.

12:48 We possibly benefited from some pre-buying and all of that this year. So, that's on one side and well, on the other side you have had the rest of the world business be relatively weak. Do you think the growth sort of flips between from an India to ROW with ROW sort of improving a lot more next year? And maybe India's sort of growth sort of tipping down. So, that's the first one.

13:18 The second is in the context of the large deals and the pipeline, how is that sort of how how was the sort of the shortage the price increases sort of impacting that and is that sort of you do you think that has higher sort of impact from a margin perspective or how do you manage that? And finally on the software solutions group this business has scaled extremely well now 17% of business.

13:50 Do you think that this level growth sort of blows or there are certain capability sets that we have been adding which would help sort of sustain the growth as we go forward. Yeah, thank you. Thanks Nithin. I will try and give some answers and Kristen please jump in if I miss something. So let me start with the growth perspective. So Nithin if you looked at this year and the previous quarters our India business grew very well but we also grew very well in Middle East and Africa for the first 11 months of the year. And the previous three quarters clearly we recorded good growth in UAE and GCC we call it in those regions and Africa too.

14:34 It is the crisis and the disruption in supply chain and a little bit of softening of demand in the third month of the quarter that led to a slower growth in Middle East. Obviously we don't know when the West Asia crisis will resolve. Right now ceasefire. And so to give a little bit of perspective on the coming year clearly we continue to see good momentum and growth in India. We we will see a little bit of softness for the first quarter. We expect the first two quarters in the Middle East region Africa continues to be strong.

15:11 And as soon as the crisis is out of the way based on I mean some of us were in Dubai last week and we got a first hand feel for the market as well. Clearly the government is coming out of a lot of initiatives to sort of spur back demand and uh there are many initiatives locally. And uh we do expect both consumer demand and some of the projects and enterprise deals that got delayed to come back. Uh but none of us know when the crisis will be completely out of the way. Uh so we definitely see some softness this quarter and maybe a bit next quarter and if it gets resolved soon, we do expect to see Middle East coming back to the bank.

15:50 In terms of business units, uh we all know and this has been shared due to component shortage uh we have uh gaps in supply. We have gaps in supply on the smartphone side. We have gaps in supply on the PC side. And uh on the uh GPUs as well. And uh the demand is still very strong in many markets. And so um that will somewhat drive uh our numbers and ability to fulfill numbers. Uh first half of the year that we have visibility to, uh the demand in India is strong and the demand in uh Africa strong. Middle East again will depend on the supply chain disruption.

16:30 So I can just give you a high level of how we look at the uh year out. In terms of large deals uh and the pipeline, uh you know, the data center market in India is 1.5 gigawatt and it's going to 7.5 in a few years. So clearly, there's a lot of pent-up demand there. And uh that is one part of it. Uh even on the on-prem, the co-location, the the whole space is got a lot of demand. It's a question of uh how much we want to play uh at what margin, at what ROI, and uh we've talked about it in the last few quarters. So we'll continue to make those calls as long as they meet our requirement metrics, how much risk we take. Uh is the demand there? Obviously, it's very strong. And in fact, some of the deals that have got closed the previous quarter will show up this quarter and they are significantly more than the numbers I talked about in terms of the size of the deals last quarter. So clearly we see a good pipeline there but it's a question of appropriating and the getting into deals that make sense for us from a profitability and ROCE perspective.

17:40 SSG tremendous room for growth still and I will go part by part. The cloud and the software business has actually been growing above average. When we say 31% SSG, both cloud part of the business and the software is growing greater than 30%. The security part of the business is growing slower for us. And we need to have catch up there both on market share, wallet share. So we will drive security much harder in the coming quarters.

18:09 But within cloud itself we have great headroom for growth. Number of hyperscalers getting into the picture and their growth when we see in the direct business that they are working on. Clearly on a D time the distribution time perspective cloud has good upside and so does SAS. With AI agents in the picture we do start seeing some traction on the AI exchange I talked about. We've been sharing that it's got launched in the middle of March and we'll start seeing revenues on the AI part of the business sometime during the year and that will also start ramping up. So the SSG business we are still positive to sustain that momentum if not grow faster than that.

18:54 Very helpful. Just one quick follow up. During the COVID period when there were shortages obviously working capital intensity went down, velocity of business went up. Right and ROCE went through the roof. You think that happens this time or it's it's different. It is different. Um but partially because one uh see there is also a an AI trend happening in the market. Uh the low end of there was a uniform shortage of supply.

19:32 Um here you're getting entry-level PCs and entry-level servers not being available and more higher-priced products available. Um we're also seeing an uptick in end-user demand, but not at the same pace that partners are stocking up etc. So there is a combination of things happening there. So it will be a bit different. Uh we also don't know how long this demand cycle will last and when the price increases will stop. So something we're not clear even from the OEMs and the vendors. So in two to three quarters I mean the the supply issue is probably going to last for 12 to 18 months from what we hear, but in two to three quarters as people pull forward their buying patterns, there could be a change, but we don't know. We cannot call it right now. What is the biggest difference between COVID and now?

20:31 COVID while there was shortage there was pent-up demand. There was a high demand on account of work from home, learn from home, etc. Today while supply is short, the corresponding demand spike is not something that we generally see. But having said that, there are actually two I mean two sets of customers. Since the prices are going up quite substantially, there are some set of customers who say, "No, no, I would want to buy now and avoid higher price increase in the next couple of quarters. So, there is an increased demand in that segment.

21:13 Another set of customer group which just want to wait for say another three, four, five quarters and then want wants the price to get corrected, normalized, and then buy. So, overall net net, the demand environment is okay. But, in COVID, the demand environment was on the higher side. That also resulted in while you haven't asked, I just want to touch upon that resulted in higher gross margin in in the in the COVID period. Lower working capital in the COVID period.

21:44 As we speak now, we don't think that could be visible in the current scheme of things. That's our current assessment. While revenue growth will be there, but again because of higher ASPs, not units, because of the price rise. And, of course, the gross margin we think we'll be able to maintain and working capital could stay where it is or maybe it could go up because we may have to give more credit as Harry said, or we may have to stock excess just to avoid stock out situation.

22:17 Very helpful. Thank you so much and all the very best. Thank you. Thank you. Next question is from the line of Deepak Lalwani from Unify Capital. Please, go ahead. Uh yeah, hi team. Congrats on the results. Uh first of all, the first question is, can you please break up the receivable and inventory provisionings across India and rest of the world separately for the quarter and full year? And how we should look at it for FY27?

22:51 Uh see, overall inventory provision is well under control. And for the full year, we have had an inventory provision situation of about three bits this what has been our long term average at about five to six bits. AR for the current quarter is on the higher side as Hari explained. There had been certain one off provisions we had to take in example Saudi Arabia in India because there are some government receivables which has taken some time etc. These are These are cautionary provisions.

23:28 We are still confident of recovery but it's going to take some time. It had already taken a bit of a time. So overall AR provisions are on the higher side this is our long term average and inventory on the other hand has been lower than what it was in the past. Understood sir and could you just call out how should we think about both these line items for FY27? You know again to what we have seen in Saudi Arabia and your provisioning style there in the earlier quarters.

24:00 Do you expect some of this to reverse maybe in the first half or is it more second half led? We think AR provision may get normalized. Some part of it could come back. We are unable to estimate when these collections could happen because it has already taken some time. Inventory provision I think we should be able to maintain. We don't foresee any big challenge on the inventory provision. AR for the ensuing year as a percentage it could come down.

24:33 Noted sir. Sir my second question is specifically on the mobility segment where we have seen that India has grown extremely well and premiumization continues but mobility even if you adjust for XO photo phone you know if you knock out that element in the rest of the world has has not grown as as fast as as India is growing. Could you explain how we should think about the mobility aspect? Okay. See, there are two two three things happening here.

25:05 Firstly, India is a smartphone market, but within the smartphone segment and the premium smartphone segment, if I take for example the Apple brand perspective, Pro Pro Max mix is not as high in India as it will be overseas. So, um one of the reasons mobility has been not growing as fast in the overseas is the demand for Pro Pro Max in some of the Middle Middle East customer segments is is far higher. And that has been unconstrained.

25:42 And as that gets normalized, we do see the premium segment growing as fast and coming back strongly because if you look at UAE and KSA, there are a lot of premium customers who want to buy the most premium model of both Apple and Android. So, that's one of the phenomenon that will really change. We expect that to get somewhat normalized during the year. But, uh having said that, the component shortage will play a role in the premium phone segment as well.

26:12 And we'll have to continue to just fulfill demand based on the supply available. But, we do see overseas can pick up. May not be Q1, but Q2 onwards. And there has also been some short supply in terms of supply from the brands. And on top of it, March played a factor in Middle East where we couldn't uh function in the in the normal pace, even though we did make some alternate arrangements in terms of importing into Ireland, Netherlands, Bombay, but still we couldn't catch up with what we would have otherwise done.

26:55 Understood. Uh sir, my third question is on the OPEC which has been a little more elevated uh because of the one-off of receivable and it's still on the higher side. So, could you just comment about OPEC uh what has been some of the factoring cost here as well? Uh and you know, employee costs are also in that same breath as has again gone up. So, could you comment on the OPEC and the employee line item? And then, sir, could you speak a little bit about the dividend because the dividend this time has been a little low. Is this a direct signal that we're going to be using the cash flows for higher growth for '27 and '28?

27:34 Okay. First on the OPEC uh See, uh yeah, employee cost has gone up and uh as we discussed in the past, mainly it's because of certain investments that we are making uh this that I mean that we are making uh towards capability building and that we think is important for future growth and more particularly the enterprise segment. So, that part of the increase will keep uh I mean, it'll keep happening. Uh there was also some element of increase on account of FX rate.

28:07 As you know, uh everything we need to convert into Indian rupees and uh 88 becoming 94 had advantage across, also had a disadvantage on account of uh OPEC. So, that's that's one another factor that that contributed to the increase. Third uh is the increase which we think is is more short-term on account of what's happening in Middle East. We saw some increase in cost and mainly on account of insurance, transportation, etc.

28:38 Uh so, the so, the cost of doing business in Middle East is up. Uh and then, fourth is uh is on account of technology-related investments which again like uh the the mean the compensation we think is is is going to be on the higher side as we move into the future also because of the capability of the same building. So overall we are in control because the revenue is going up quite interestingly but optics as an absolute amount we think some part of it is more towards investment is not mean it's not the normal optics.

29:15 Factoring has actually has come down in in Arena what would normally I I'm I'm just reading out the numbers. For Q4 last year it was 22 crores which moved down to 18 crores in in Q3 which is last quarter is now down to 2 crores. So the amount of factoring has considerably come down and that has resulted in some advantage in the optics overall but I mean it is it is more than interest cost increase as we discussed in the past.

29:55 Uh Nitesh could you speak about the dividend and growth aspirations of Redington for 27 and 28? Sure. So we we we have received inputs from shareholders in the past as well meetings both one-on-one and group meetings that definitely if there are growth opportunities both inorganic and organic we should look at them. So as we have signaled before we are exploring inorganic opportunities especially in the professional services area on cloud and security. And we are actively going through the discussion on what types of targets etc. So we clearly considering growth opportunities there that can embellish and complement what we're trying to do with regards to SSC.

30:46 And we will be directly in the area of professional services and that was one of the reasons we also felt that can we conserve some of the capital for these growth opportunities. Obviously the Middle East Asia crisis uh is a something to watch out the short term for the next one or two quarters and you should be conserved cash for that as well. So those are the two driving factors. But clearly we have many growth opportunities in our radar that we want to look at.

31:14 Just to follow up on the There are also expectations of higher working capital requirement because of the intended large deals we expect that's going to be more than what we had seen in the current year. Plus because of RAM shortage as I have said maybe we may have to be prepared for higher inventory or higher AR days. So we just want to conserve the cash to make sure all this are seamlessly handled.

31:45 Thank you. Deepak, I'll request you to come back for a follow-up question, please. Thank you. Next question is from the line of Vijay Menon from Monarch Network Capital. Please go ahead. Hi sir. I thank you for the opportunity and congratulations on a good set of numbers. A couple of questions from my side. One, what kind of impact are you seeing on SSC and SEG due to this, you know, AI disruption with Anthropic and others coming up in cybersecurity. Are you seeing the subscription model, you know, coming under threat and what kind of guidance can you give there?

32:21 Okay. Again, we have not clearly seen any specific The way we look at any all of these models that are evolving is one step one, people beginning to use them uh for creating AI agents uh that will complement uh um what companies want to do, enterprises want to do. And that's what I mentioned about this AI exchange that we have created where we have 200 plus agents from our ISVs.

32:52 But has it have a has it had a direct impact on uh subscription models and the SaaS products we sell? Um so if I break them into three parts, clearly cloud continues to be on its momentum. Specific SaaS products that we sell, uh whole range of infra software, design software products, we have not seen any let up on the demand of on subscription of these products. Uh clearly uh continues to have the momentum that it's had, but uh there are new products that uh Anthropic has launched recently and we expect the other uh providers also to launch where they are, you know, they are real-time uh threat detection and fixing. Uh we'll have to see how much of these are standalone products or how much of these get incorporated into the SaaS and subscription products. It's too early to call uh or see anything in terms of softening of demand. Um long-term, clearly we see there will be a place for SaaS, software as a service, and a place for AI agents, which is service as software. And that's why we are dabbling with both so that uh if there is any softening in the first one, uh we are able to take advantage with uh AI agents. Uh but short-term, we don't see any impact.

34:09 Okay. That that helps. So and and can we look at these frontier models as potentially OEMs going ahead? Like if they come up with products eventually, can can they also be tie-ups which you can look at in the future? Can you uh clarify a little bit more when you talk about frontier? Because uh there are many definitions of frontier markets. Yeah, yeah. So basically uh looking at anybody like an Anthropic or Claude, you know, if if eventually they come up with models which are standard products, can can we look at them as, you know, new tie-ups in the future like we have, you know, we have already working with us in these areas?

34:44 Absolutely. Absolutely, bang on. We already do it this with Microsoft with Copilot, and there is a lot of movement on how we market Copilot and how we reach mid-market customers and how they can use that platform to create AI agents and and the whole office automation movement with Microsoft Copilot and is a is a case in itself. Clearly, we will continue to explore the other LLMs and the other AI providers in terms of tie-ups. We've already in discussion. We cannot talk about it yet with a number of these, but you will see some of these announcements and we definitely we see that as a great area to focus on and grow.

35:33 Okay. That helps. And this quarter and going ahead, like can you call out what would be the ASC led growth and volume led? Because you know, ASCs are, you know, quite high and you know, like they are looking to sustain also going ahead. So, what could be the mix in terms of ASC growth and volume growth? See, it's difficult to mention. I'm just making a guess. A significant part of the increase would be on account of ASC, and the marginal increase will be on account of units.

36:09 Okay. And we see this trend sustaining for the next few quarters? Yes, that's the expectation. Okay. Okay. Any kind of guidance on large deals for '27? Uh How are we looking at large deals and what kind of participation you You see there? Let me let me tell you the past numbers. While for the quarter the total quantum of large deals are about 1,600 plus crores. For the full year it's about 2,500 [clears throat] crores, close to 2,500 crores. So, you can see what it was in 9 months and what it is in Q4.

36:45 And believe me, where we see the first two quarters of the current year, definitely this can only keep going up. It's a very interesting space and that's why one of the reasons why they said we want to conserve cash is to have sufficient capital to to fuel opportunities like this. Okay, and margins there could be only like maybe 20, 30% lower to, you know, core business or how how does it work?

37:16 See, I don't think in any way we can compare margins in the large deals with service the core business. We have said this. The two metrics you need to keep that in mind. It's an incremental business and hence there will be an incremental [clears throat] profits. Second, we are very particular on return on capital employed, no compromise on return on capital employed. Maybe gross margin could be lower, working capital could be lower, higher, all those are fine.

37:45 But no compromise on return on capital employed. These two are the metric, but in terms of margins, it's it's much lower. I mean, it cannot get compared with the regular business. Okay. Thank you. Thank you so much. Thank you. All right. Thank you. I request all the participants kindly limit yourself to two questions per participant and rejoin the queue for a follow-up question. Next question is from the line of Hitendran Pradhan from Axis Securities. Please go ahead.

38:18 Yeah, hi sir. I hope I'm audible. So, sir, my question is uh with regards to the war situation. If you can like, you know, give us what is our revenue exposure on the, you know, main markets, main impacted markets? And you know, any color on consumer versus enterprise exposure? See, uh Middle East, as you know, has has been a large part of our business. And uh uh we are present in quite a lot of countries. And this time, it's just not one or two countries. It's the region that is impacted.

38:56 Uh in terms of revenue and and profits, about 30 to 35% of our business happens from this from this market. And sir, but you mentioned earlier that, you know, there have been incremental orders on the from the government and uh the enterprise side, especially from DC, even in this situation. Is that correct or That is That is more to do from the security and the cloud-related part. Because right now, when there are challenges in terms of IT security, obviously that part of the demand has been more. But overall, there is a logistics impact and and the and the core business to that extent has got impacted. That's what Hari also mentioned in this initial brief. Yeah. The SEC part of the business, just to add we see an uptick from the government and enterprise segment in the Middle East. Uh but the uh hardware part of the business will be soft till the crisis gets over and we recover.

40:04 Okay, sir. Sir, the second question is you know, with regards to follow up to, you know, our earlier discussion on the uh growth of in this investment environment. I mean, sir, uh correct me if I'm wrong. I mean, in this environment, you mentioned like uh now the prices are increasing and there has been some shortages. So, it is natural to assume that at least in the short term there will be, you know, the ASP growth would be higher and you know, that would benefit our growth and our margins as well. And you know, especially on consumer businesses and all. So, so but you mentioned that you are tentative about the growth sustaining unlike you know, what happened in COVID situation.

40:47 So sir, like at least in the short term, can I expect any uptick in terms of growth? And that could taper off in the medium term or you know, how do you think about it if you can just you know, elaborate on that. Jitendra, sorry. I think I haven't communicated that rightly. We haven't said we are worried about the growth. We are positive about the growth and we think this ASP increase, the price increase is going to be a uh, good tailwind for the business. And the classic case is what you have seen as as part of the Q4 numbers.

41:21 What I was clarifying was we may not see a margin uptick. Uh, vis-a-vis the comparison was with COVID because in COVID we also had while on one hand shortage, on the other hand higher demand enabled us as a distributor for us to make more money. That situation, at least in the short term, we don't foresee. That was the point. Thank you. Jitendra, I'll request you to come back for a follow-up question.

41:52 Participants, kindly limit yourself to two questions per participant. Next question is from the line of Mr. From Unique PMS, please go ahead. Uh, yeah. Hi. Thank you for the opportunity. My first question is on Arena. So, we mentioned we had some exit losses also in Q4 and earlier also we mentioned that we would have these kind of losses. Going forward, how do you see Arena panning out? We've also taken some impairment, so secondly, how much investment is there in the balance sheet related to Arena? Only the 8 million that is left?

42:31 Let me just give a perspective on Arena how we see going forward. So, if you see what we've done over the last few quarters, we exited from the Lira phone business. We also exited from the other Lira mixed business and we should have exited from all of these by the end of this fiscal year. So, starting next year, our focus will be primarily on IT, which is PC servers and of course cloud as well. There is a good cloud business that's evolving in Arena.

43:04 So, in that sense, if I look at these businesses, we're positive and they're largely US dollar based business. The problem of course in Turkey is the the conditions continue to be challenging. While the inflation has gone down, the interest rates are going down, but given the Middle East crisis and the West Asia crisis, we do see softening of demand further in in Turkey. And so, the conditions are not going to be less challenging. We'll have to do our best and we have a smaller size cleaner US dollar focused business.

43:41 Kishan, you want to add color on balance sheet? See, this impairment we have explained the rationale. It is more to do with what we saw in the last few quarters. There have been continuous losses. The business performance is not in line with what what we had expected. The economic situation has already set. Continues to be challenging in that market and accentuated by the the recent Middle East war and oil price increase. So, uh we have to do what we can do. So, uh uh we have been uh exiting from the businesses that are not uh uh attractive, uh which depends on the local currency uh for for borrowing, where the interest rates are still uh at about 42 45%.

44:34 So, those actions are taken, but uh since there is no clarity in terms of uh an immediate turnaround, I think it's important we need to uh take a critical view uh about uh the investment that gets carried in the in the books, and hence the requirement we have taken. Like you said, we still have about 8 million in the books, and uh since it's a listed company, uh if you speak now, the market value is about $75 million. If If there are any uh any significant corrections, it may call for the the investment of current uh uh uh I mean, book value also.

45:21 Uh And which we will we will we will take a view as we as we close every quarter, but a significant part of it had been taken in the in the current quarter. Got it. So, So, going forward, since we have only the USD business left, do we see these losses coming down? I mean, uh So, my question is a lot of this uh loss in this quarter is because of the exit costs, or do we see continuing loss in USD business also?

45:54 There is a business loss. There are also some uh one-offs on account of exits. The business related loss while uh I mean, not that uh even the IT business makes uh good good profit. Uh I mean, really the environment is difficult. You can see, but I mean, between last year and current year, the business is down by half and majorly because of our own conscious call, what was a billion dollar is now half a billion dollar. So, we expect [clears throat] this loss to continue. The quantum would keep coming down.

46:32 Initially, our our expectation was maybe uh towards the end of uh the current year, we will see profits. I think next year we will we will see loss, but maybe at a at a reduced level. And the real turnaround in terms of profitability we expect in the subsequent year. Got it, sir. Uh so, my second question is on the TSG business. So, earlier we mentioned about some competition. We we, you know, won large deals and uh we are doing good on that part. So, how do you see this space evolving now? How is the competition and um how do you foresee it for the next 1 to 2 years?

47:13 See, uh TSG has many dimensions, uh Naman. So, uh one is obviously the on-prem servers that we uh sell to enterprise and government customers uh with the big brands. Uh second is the data center the where uh you have neo cloud operators jumping into the picture. There is also an evolution of uh other kinds of data centers. We call it the edge DCs and AI factories, etc. Uh clearly, uh the the data center part is a new business. The existing business uh we continue to have a competition from existing distribution players. But in the neo cloud and the data data center, uh we are also new to the picture and we're actually uh I would say doing better than a lot of our competitors.

48:03 But it's a matter of like what Krishna said, getting the right deals with the right rosé and the right risk levels etc. But we see the the data center part of the business is the one that will be a huge upside and getting our strategy around it first is obviously the hardware. Then you have opportunities to work on power systems, cooling system adjacencies. There's an opportunity to work on fulfilling the capacity of these data centers for co-location and managed services. So there are many opportunities around the data center area and right now we're constructing a plan on how to go after it, which part of it makes sense and how to invest around it. But that will be our work in the next cut out in the next few quarters.

48:52 Thank you and all the best. Thank you. Thank you. Participants kindly limit yourself to two questions per participant. Next question is from the line of Sahil Doshi from Think Wise. Please go ahead. Hi, good morning and thank you for the opportunity. Just firstly just wanted some clarity again on the Turkey and the Arena business. So essentially this quarter what number we have seen in terms of revenue, is that the new normal base or we should see further decline from here and in terms of factoring also, would this stabilize at this?

49:29 That's my first question. And second question was related to the impact of the war, the Middle East impact. So we've stated in the press release that we did see some softening in March. So do we think some further impact in this quarter to play out or you don't really any expect any material impact because of the same? Okay, see Arena the current revenue is the new normal.

50:00 We hope the current factory will be the new normal. We are we are working towards it and we will do whatever it takes. But the banking environment [clears throat] in that in that world is not easy. So I don't want to commit anything here. Middle East Middle East impact has been there for >> [clears throat] >> has been there for 1 month. And incidentally that 1 month is about peak month for the year. So it hit I mean it did had an impact in terms of lower revenue and accordingly the lower gross margin.

50:39 And incremental cost. So this is what has impacted our profitability for the month of March. And as as Hari has mentioned up front, we think the situation will continue for maybe Q1 to an extent in Q2. All depends on how things gets resolved and life coming back to normalcy. It's going to take some time. And just to add the trajectory seems similar compared to March. It's not getting worse or it's not getting better.

51:11 In the coming in the this coming in this quarter. Sure, that helps. Secondly on the cost structure Krishna sir, you did call out the excess you know the increased expenses because of investments as well as the impact of the rupee on employee cost to an extent. But would it be possible to you know try and quantify how much is this which is a front-loaded or something of that sort? And where do we expect at what levels in the following year as because Uh, the absence of improvement in gross margin, large part of the growth seems to be eaten away by this investment. So, I'm just trying to understand how should we think about uh, you know, the sustainable profitable number in that sense.

52:02 Good question, Abhilash. Uh, I think we had already mentioned this. Uh, the opex uh, and more particularly because we want to create required capabilities in the uh, technology space in SSG business is going to be more for some time. And that need to be looked at more as an investment uh, than as part of the regular uh, uh, I mean, cost of doing the business. So, that elevated opex for uh, next couple of quarters, maybe one or two years, would continue is our expectation.

52:43 Uh, forex related thing may not happen. The uh, AR provision, incremental AR provision may not happen. Incremental incidence of transportation cost on account of ME related challenge, that may not happen. All those will get normalized in due course. But, the the the capability building technology investment, in our view, we should not uh, uh, we should not be conservative, miss this opportunity. And uh, this investment will continue.

53:14 How should we see the profitability? Uh, see, uh, in our view, we should be able to maintain our operating profit. We should be able to maintain our return on capital employed quite strongly. That we are confident. Uh, that's that's one on account of the growth in the rest of the business. And while SSG uh, the there is a capability building cost which is there, for some time the profitability could be subdued, but uh over a medium to long time, you will see SSG profitability being quite interesting.

53:52 So, uh operating profit and return on on capital employed are the are the two metrics. In our view, outside of Arena, uh about about 2.2, 2.3, 2.4% is what we expect as uh EBITDA subject to whatever is the composition of the large deal. And we are quite confident in terms of uh the return on capital employed being maintained above 18% as we speak. Now, it's closer to uh I mean, it's closer to 20%. And these two are the important metrics, I think.

54:26 Sure. That really helps, and thank you so much for your uh you know, detailed answer. Thank you. Thank you. Next question is from the line of Amit Khetan from Laburnum Capital. Please go ahead. Uh hi, good morning. Thank you for taking my question. Uh my first question is on the Middle East business. Uh what is the sort of uh inventory risk we have here? Is this fully covered by insurance, and are they distributed across multiple locations?

54:57 It is. Uh you had you had asked a very interesting question. This is something which uh we would want to uh explain this clearly. Uh We we normally take insurance policies for whatever risk that we foresee, all insurable risks. Similarly, we have taken war insurance for uh I mean, as part of our policies. But as the war started, the insurance companies joined together with 7 days notice removed this risk coverage. And it was a unilateral decision. So, uh we had to we had to manage. We We did manage in the form of getting some additional cover from other insurance companies.

55:43 Also, we did transfer of this thing identification of new warehouses in the in the same same location, moved some part of the stocks from one place to the other in order to avoid the open open coverage. So, there are a lot of things that had happened. I mean, full kudos to the team logistics team there. In spite of the the missiles going all around the place this thing place. So, we we had managed it well.

56:14 As we speak now, we think we have the proper coverage and we don't foresee a challenge, but in between the war period, yes, there was some increased tension. Understood. Understood. And my second question is, I think in the SSG segment in the previous quarters you've called out gross margins being around 5 to 6%. If you could give some rough sense of how these gross margins differ between the different sub segments of you know, cloud, software, and cybersecurity. And overall for the segment, how do you see margins evolving over the medium term?

56:47 The gross margins. Let Let me attempt the first part. It's harder to give a split on this, but the overall SSG segment we are expecting and tracking about 5.5% gross margin. And this can only get better as we get more into professional services. The cloud see the normal work that we do on cloud security and software is resale. And there will continue to be pressure on just the resale portion of the business, but as we do more and more professional services and create more stickiness and more additional gross margins. Harder to give a split between the three.

57:30 Over a period of time going forward, we would like to maintain between 5.5 and 6 is our intent and plan and we are tracking so far. Understood. Thank you. Thank you. Next question is from the line of Deepak Lalwani from Unifi Capital. Please go ahead. Yeah. Uh, hi, sir. Sir, could you uh, Crystal, sir, could you please help me triangulate three numbers?

58:01 Uh, number one is 467 crores of profit that you have, uh, you know, reported in the PPT. Uh, point number two, sir, is the reported profit which shows in the, uh, in the financial disclosures of, uh, you know, 281 crores. And third is the number, uh, which, you know, we have reported post minority as 391. So, can you please help me triangulate all these three numbers, sir?

58:32 Okay. It's a very difficult question on me. 467, okay. 467 does not include uh, arena related impairment, which is classified in the financials as an exceptional expense. I'll tell you the logic. If you recollect, same quarter last year, we have had an upside in the form of payment sale. That was again classified as an exceptional income.

59:04 This time, it is an exceptional expense. If you go back to all of our, uh, all of our decks and the explanations, we haven't included that as as as part of our reported back because it was completely a one-off on the positive side. Similarly, uh, we have eliminated the impairment, uh, uh, I mean impairment loss from this and that leads us to 467 crores. This 391 crores is including Arena impairment.

59:38 Uh because the the impairment amount is about 75 crores for Redington. 81 crore, where do you see this 281? Are you talking about 287? Uh yes, sir. Profit for the quarter Yes, sir. Yes, sir. Sorry, 287. That is before That is before minority interest. That became 391 because a part of the loss that we have taken in Arena that owes to the rest of the shareholders uh of of Arena. If you adjust for it, that 287 becomes 391.

60:17 Okay, sir. I'll probably take the maths from you once again offline. Uh Krishnan, sir, could you just also call out about that, you know, uh earlier in the Turkey we had the 20 million receivable of which we had taken 8 million. Uh the 12 million was still uh at at at exposure. So, could you speak a little bit about that 12 million there and if there is any need for uh creating provisions on that on that bucket?

60:46 As we speak now, no. There are some collections. Uh uh but but definitely the pace of collections could be better. We don't We don't foresee any need for any additional provision at this point in time. We are quite okay. But we can be better in terms of collections. Understood. And so, just the final thing is could you call out given the the the wide uh range of uh you know, revenues and verticals across the Middle East uh as a cluster, Saudi, GCC, and and and the others, could you just call out how you're looking at the demand environment in 2017, probably vertical wise and region wise if you can, please?

61:30 Okay. I will try and answer that Deepak. So, let me go. There are four geographies in Middle East Africa. Four clusters we call them. So, one is UAE, one is KSA, Kingdom of Saudi Arabia, GCCL which has some of the GCC countries like Iraq, Kuwait and there's also the Levant countries. And the fourth cluster is Africa. Um the UAE cluster is the biggest and has been has seen the most impact due to the West Asia crisis.

62:01 Um and that's where we see good recovery once the West Asia crisis is out of the way. It was growing at around 20% if you remember the last year and the previous year. Uh now within that let's talk about the verticals. Actually, all business units are firing there. Um starting with SSC and PSC software and technology solutions. Uh and followed by mobility, followed by PC demand short term because of the component shortage. Uh the next would be GCCL where there is a big opportunity with our focus on individual countries there.

62:38 Uh surprisingly despite the West Asia crisis that area we have still seen growth good growth and that's probably a combination of some virgin territory that we've not been playing in. The SSC business was quite raw and it has improved. Uh all of that and we saw through March and even as we speak we can see good demand there. And the upsides there are on SSC and PSC. Uh and the mobility in that part of the region is also doing well.

63:07 Uh so, that's the second. Africa is the third. Africa has been been doing considerably well. This year has been a very good year for us in Africa. Again, the star performers there are SSC and PST. Uh and in the past, both on PCs and phones, we've been quite flatish because of arbitrage logistics that uh we compete with unorganized players. And fourth is Saudi. Uh we talked about Saudi having a reprioritization by the government on investments, initiatives, etc. Which actually created problems on growth. If you remember, year before last we were 2 years in a row we were growing at about 25-30%, but the last few quarters have been challenged and we expect some of that to continue because Saudi as a country is trying to juggle with all the different initiatives, priorities, Vision 2030, and really what are the focus priorities. And as we look at the IT part of the business, uh we do see a little bit of a softer demand in Saudi.

64:14 Uh we're trying to do best, retain our market share, which we have done. Uh but that's the order. Is GCCL and Africa we see continued growth. UAE will depend on how fast we recover from the crisis. Saudi will take some more time once we understand the IT priorities. Understood. And so on the smaller countries like Qatar and Bahrain, where do you really classify them as a part of GCCL or UAE? GCCL. GCCL. Understood. So those smaller territories are also where we've been gaining a lot of share is is helping us, right?

64:51 That's correct. And also some of the Levant countries, yeah. If I can give the growth percentage, it could be even more clear. UAE for the full year we grew at 22%. Uh for the quarter we grew at 6% and as Harish said, this is mainly on account of the March impact, the Middle East war. GCCL for the full year we grew at 33% full year. For the quarter we grew at 51% in spite of the war, which is the market share that he talked about.

65:26 In KSA for the full year the growth was 5% subdued growth but for the quarter it's a de-growth of 12%. It's it's an account of the the Middle East war in March. Africa for the full year the growth is 13% for the quarter is 26%. So, that's that's quite strong. Understood, sir. Thank you and all the best. Thank you. Thank you very much. Ladies and gentlemen, we'll take that as the last question.

65:59 I'll now hand the conference over to the management for closing comments. Thank you so much for all your questions and just wanted to emphasize that uh uh we we feel we have really weathered through a very good quarter despite all the challenges we've had and kudos to the team the brands we work with and the partners. Uh in terms of Q1 Q1 is normally a lower seasonality quarter for us, but we are committed and we want to definitely sustain good momentum.

66:31 Uh but having said that it is the lowest seasonality quarter for Redington normally, but we'll do our best. Thank you and look forward. Thank you. Thank you very much. On behalf of Redington Limited that concludes this conference. Thank you for joining us and you may now disconnect the line. Thank you.