I came across Redington as I was searching for companies that would indirectly benefit by increased penetration of Apple in the Indian market.
Numbers and Narratives
Redington (India) is a leader in IT product distribution business. It operates primarily in India, Middle East and Africa. I expect the company to continue its robust growth due to the proliferaion of digital devices in the emerging geographies. I expect the margins to decrease to 1.5% as competiton increases.
The core numbers that I arrive at based on the story are
- Compounded revenue growth for next 5 years = 10% (10% historical)
- EBIT margin in year 10 = 1.5% (~2% historical)
- Initial cost of capital = 11.15%
Valuation
I’ve used the above numbers along with the financial information to compute my DCF valuation for Redington (India) as seen below.
As you can see, the valuation price came out to ₹326.06, about 86% higher than the last traded price of ₹174.75.