I valued Redington (India) in August last year after the release of their annual report. 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 has been an ambivalent last 6 months. They released their Q3 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 = 10.32%
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 ₹187.97, about 17% higher than the last traded price of ₹159.70.