I valued Redington (India) for the second time in May after the release of their FY21 numbers. I was already holding the stock then and the new numbers still found the stock to be undervalued. I continued to hold the stock and it had a stellar bull run the last 3 months. They released their Q1 numbers this past week and I took another look at their valuation while keeping my story the same.
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 = 9.04%
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 ₹394.64, about 14% higher than the last traded price of ₹346.45.