I valued Redington (India) last month and found it to be grossly undervalued. I had bought the stock then and it had been a stellar month for the stock with a growth of about 8%. They had released their Q4 results yesterday which had exceeded expectations and the stock hit the upper circuit today. My story for Redington remains the same as it was last month and I updated my valuation based on the newly released numbers.
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 = 10.33%
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 ₹384.32, about 75% higher than the last traded price of ₹219.75.