Redington India In an interview to CNBC-TV18, SV Krishnan, CFO of Redington India says that he expects better performance in
the second quarter going forward.
Redington India is upbeat on better performances in the second half of the fiscal (H2FY14). SV Krishnan, its CFO is hopeful of maintaining its improved margins going forward. The supply chain management major is also looking to sell its NBFC (non banking financial corporation) Easyaccess. “The company has not garnered the desired return on investment from the arm”, Krishnan tells CNBC-TV18. The book value of the firm stands at Rs 286 crore and the company is looking to close the sale in 60-90 days, he adds.
Below is the edited transcript of his interview to CNBC-TV18.
Q: The first half is over. What is the outlook for second half?
A: If you see for the H1 and particularly for Q2, we have grown our revenue and profits. All the geographies have shown an interesting growth. We think while the environment looks dull, we should still be doing better than H1. Normally, our H2 is a very big quarter compared to H1.
Q: We do understand the board has approved to sell either a part or wholly owned investment in Easyaccess Financial Services. Can you just take us through what Easyaccess does? What is the valuation you would possibly be working with and when will the deal close?
A: If you remember in the year 2008 we started a Non-Banking Financial Company (NBFC). The whole purpose of starting an NBFC was three business verticals. We wanted to do factoring of Redington 's receivables. We wanted to do the channel finance for the IT customers, which includes Redington customers and the outside business. Being a Foreign Direct Investment (FDI) company, we had to invest about USD 50 million at that point in time about Rs 220 crore of capital in this NBFC. It was growing, but the challenge was basically if you look at one of the business vertical which is factoring from beginning of last year when Reserve Bank of India (RBI) came out with a new factoring act a generic NBFC cannot do factoring business going forward. So that business is going off. Second, on the channel finance business the growth would be broadly in line with the growth in the IT industry which is Redington's growth. So that would be of one-time. It cannot take the book size to a very large volume in a short time. The third which is outside business, there was one view is this the core business of Redington? Should we need to accelerate this business beyond a percentage? Because of all this our book size for the last one-one and half year is hovering between Rs 250-300 crore. It is very lowly geared. It is about 1.2 times. If you look at all the NBFCs they are geared about 6-7 times. This has restricted the return from the investment in Easyaccess and that is the reason why we thought we should sell. The board yesterday decided in terms of disposing this of. This will not be less than the book value. We are sure and we think in next 60-90 days we should close this.
Q: How much money are we talking about here?
A: Their book value as of September is about Rs 286 crore.
Q: So you are saying that it will not be less than Rs 286 crore, but it will be somewhere around the book value mark, so somewhere around Rs 300 crore. That would be a ballpark number.
A: It will be around the book value mark.
Q: The other issue which we want to focus on is what is happening in India. The growth this time around has really come from Apple. What the likely growth trajectory for that in the second half? Are you looking to add any more products in your portfolio?
A: Adding new products is a very constant phenomenon as far as a distributor is concerned. We keep on adding new brands. In the smartphone space we today have Apple, BlackBerry, Huawei. We want to add more brands and the efforts are consistently on. We are quite confident as we move forward. If you see in IT if you take PC we deal with HP, Dell, Lenovo, Toshiba, Acer. You can name the brand, we have relationship with them. Likewise, we want to convert even the non-IT and smartphone portfolio in that space which should happen over a period of time.