3 factors driving Redington’s recent rally. What should investors do now?

The counter settled at Rs 280 on Thursday, gaining over 3 per cent.

Redington provides end-to-end supply chain solutions for all categories of information technology, telecom, lifestyle, healthcare and solar products. There are multiple reasons behind the sudden rally on the counter.

Reasons for the rally

Analysts say the stock has been gaining momentum lately on the back of three prime reasons. First, the company posted healthy results for the March quarter, with net profits surging over 150 per cent.

Secondly, the company has become a distributor of Apple products in India. The vendors of Apple have been on a hiring spree, which offers a positive outlook for the company. Moreover, ‘unlocking’ of shops and malls in various states has been a major boost for the company.

Thirdly, the company is likely to be an indirect beneficiary of the Centre’s PLI scheme for electronics manufacturing, as it will reduce imports and the company will distribute more homemade products. Thus, its margins are likely to improve in the coming months.

Financial Performance

Net profit of

rose 153.78 per cent to Rs 302.51 crore in the quarter ended on March 31, 2021 against Rs 119.20 crore reported for the year-ago quarter ended March 2020.

During the Q4FY21, the company’s sales surged 22.40 per cent to Rs 15,503 crore from Rs 12,666 crore year on year.

For the full financial year 2020-21, net profit surged 46.81 per cent to Rs 756.39 crore from Rs 515.21 crore in the previous financial year. Sales rose 10.65 per cent to Rs 56,945.86 crore in the year ended March 2021.

What do the brokerages say?

After robust results in the recent quarter, analysts have been bullish on the counter. According to market watchers, Redington India should outperform its industry peers.

In its recent report, brokerage firm Prabhudas Lilladher said Redington delivered strong numbers for Q4FY21 led by strong growth in its India business. In India, there is strong demand for security, collaboration, mobility and cloud.

Echoing similar views, brokerage Firm Edelweiss said despite a 22 per cent YoY revenue spurt, working capital remained all-time low, leading to FY21 ROCE of 36.5 per cent and a net cash balance sheet.

“Redington is riding the digitalisation wave, leading to higher demand for IT and mobility products, while supply remains steady. A shift in consumer preference to stronger brands is helping it capture market share. We believe this trend is likely to sustain for the next 2-3 years,” the brokerage said.

The company has a vast presence in India, West Asia and Africa and the Singapore regiond and it enables it to provide customers with global capabilities and international expertise.

What should investors do?

Analysts are swearing by the strong performance of the company. Both Edelweiss and Prabhudas Lilladher have ‘buy’ ratings on the stock.

Ashis Biswas of CapitalVia Global Research said, “The stock has been trading in an entirely new territory. The stock is expected to cross Rs 300 level in the short term and our medium-term target is at Rs 427. For traders, the recommended stop loss would be Rs 237,” he said.