Nomura has reiterated 'buy' recommendation on Redington India and increased its target price to Rs 115, an upside of 44 per cent to the current market price.
"Redington is the largest distributor in India and is set, in our view, to be a beneficiary of increase in IT & non-IT spending in India due to under penetration of personal computers, servers, networking equipment, lifestyle electronics and consumer durables, the brokerage says.
The company is likely to benefit from distribution of Apple's iPhones, government's UID - Aadhar project and pick up in sales of Blackberry phones.
"Redington's recent deal with Apple to also distribute iPhones in India is likely to contribute an additional Rs 11 billion of sales in FY13F (five months) even as Apple's other products continue to do well in India. Hence, we expect Apple's sales contribution to increase from ~5 per cent in FY12F to ~23 per cent in FY14F in the domestic business," the report said.
The brokerage expects the company's working capital days to improve as contribution from non-IT products particularly Apple. It is also factoring in relatively weak Blackberry performance in 2Q, along with a pick-up in 2HFY13.
According to the brokerage, Redington's management has indicated it has a large UID-Aadhar project in 3Q, expected to be executed over the next two to three quarters. This along with increase in other IT-related enquiries from the government should benefit its IT business.
"We expect ROCE (average 15.2% over the past 5 years) to improve from 17.3 per cent (FY12) to 18.5 per cent by FY14F. The stock currently trades at 6.7x FY14F EPS, ~34 per cent average discount to its regional peers appears compelling. Our target price is based on 9x one-year forward P/E," the report added.
The brokerage says its revised target price of Rs 115 is based on a one-year forward multiple of 9x.
"We highlight that the stock currently trades at FY13F and FY14F EPS of 8.5x and 6.7x, respectively, which is at a 27 per cent (42% to FY14F multiple) discount to its historical average.
The stock ended at Rs 80.10, up 1.14 per cent, on the BSE. It touched a high of Rs 82 and a low of Rs 79.55 in trade today.