H1 FY27 PAT (ex-exceptionals): INR 1,067 crores, a 61% YoY growth.
Gross Margin: Reported at approximately 5.13% when excluding large deals, described as similar to the previous quarter and the year-ago period.
Operating Expenses: Increased by 40%, which is a lower rate than the 48% revenue growth, indicating operating leverage.
Working Capital: Stood at 35 days, at the lower end of the company's 35-40 day guidance range.
Return on Equity (ROE): Improved to 21.6%.
Net Return on Capital Employed (ROCE): Improved to 22.7%.
ROE/ROCE excluding Arena: 24.4% and 28.0%, respectively.
Arena Subsidiary Loss (Redington's share): INR 115 crores for the quarter. This comprised a business loss, a transition loss related to exiting the Lira business, and an exceptional impairment of intangibles of INR 40 crores.
Provisioning: Receivable provisioning for the quarter was INR 213 crores (INR 67 crores in SISA region and INR 135 crores in Arena). Inventory provisioning was noted as not significant.
Debt-to-Equity: Stood at 0.5x-0.6x, which management stated is comfortable for a distribution business and below the global benchmark of 0.6x-0.8x.
Business Segment Performance (Q2 FY27)
Mobility (34% of revenue): Grew 40% YoY. Driven by premiumization in India, new product launches, and selective price increases. The SISA geography (South India, Sri Lanka, ASEAN) grew 70%.
Endpoint Solutions (30% of revenue): Grew 38% YoY. Driven by higher average selling prices (ASPs) and a sequential increase in commercial PC volumes.
Technology Solutions Group - TSG (20% of revenue): Grew 91% YoY. A standout performance driven by demand for AI servers and GPUs with configurations that have ASPs up to 4x traditional servers. Large deals (above INR 100 crores) accounted for INR 3,800 crores (approx. 9% of group revenue). Excluding large deals, TSG growth was 33%.
Software Solutions Group - SSG (15% of revenue): Grew 39% YoY. All sub-business units grew, with strong performance in cybersecurity and cloud. Gross margin for SSG was reported above 6%.
GCCL (GCC countries and Levant outside UAE/Saudi): Grew 121%.
UAE: Grew 39%.
Africa: Grew 35%.
Middle East (Overall): Grew 41% despite geopolitical uncertainty.
Strategic and Operational Highlights
AI Focus: AI is a common thread across businesses. Initiatives like the 'AI Exchange' platform and the launch of an AI Center of Excellence (COE) in Singapore are moving from concept to commercial activity.
Cloud Platform: The new CloudQuarks 2.0 platform has been rolled out across Middle East and Africa. Cloud lifecycle management tools (TrackMyCloud, Reonix) are seeing better adoption.
Opex Increase: The 40% increase in operating expenses was attributed to three factors: AR-related provisioning, investments in SSG-related capabilities, and increased costs in the Middle East (e.g., insurance) due to the war-related situation. A sustainable quarterly opex run-rate was indicated to be between INR 950-1,000 crores.
Vendor Performance: Google entered the company's top 5 vendors for H1 FY27, driven by growth in both smartphones and cloud/office products.
Arena Subsidiary Update
The subsidiary exited its VDF contract and resized its Turkey operations, exiting the Lira-denominated business.
A new management team is in place. Priorities are restructuring the portfolio and developing Turkey-specific, dollar-denominated growth avenues.
The Q2 loss of INR 115 crores included provisions for supporting customer relationships during the business exit and the impairment.
Outlook and Commentary
Management expects growth in H2 FY27 to be "north of 25%" overall.
Geographies: India, GCCL, and Africa are expected to be strong growth drivers. Growth in UAE and KSA is contingent on the geopolitical situation.
Segments: TSG and SSG (value segments) are expected to be the strongest growth drivers in H2. Caution is expressed for ESG and Mobility due to potential demand softening from price increases.
Risks: Key caveats to the outlook are potential demand contraction due to high prices (especially post-Diwali for consumer segments) and the impact of the West Asia geopolitical crisis.
Capital: The company is managing growth with debt but indicated that if strong growth continues, a capital raise could become a requirement in the future. Levers include additional debt, moderating dividends, or raising equity.
Neo Cloud/Data Centers: Management cited a 4-year industry opportunity of INR 150,000 crores in India. The company sees its role in hardware sourcing, solution stitching, and ecosystem orchestration for these projects, which offer good ROCE due to minimal funded capital requirements.
Q&A Session Key Points
Gross Margins: Were similar QoQ. The margin pressure is attributed to the mix including lower-margin large deals and the absence of Arena's former high-margin Lira business.
Volume vs. Price: Growth in PCs and smartphones is largely driven by significant price increases (30-50% YoY) with unit volumes being flat to declining, especially in the consumer segment.
AI PC Adoption: Over 40% in commercial PCs versus around 10% in consumer PCs.
Seasonality: H2 is traditionally stronger, but this year some demand was pulled forward into H1 due to shortages and price increases, potentially flattening the seasonality.
Inventory: Channel inventory for Endpoint Solutions remains "a little bit more than a comfortable level" as channels hold stock anticipating further price hikes.
