Redington Limited (REDINGTON) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the Reading the Limited Q1 FY27 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions at the end of today's presentation. Should you need assistance during the conference call, please signal an operator by press star 10-0 on your touchtone 4. Please note that this conference is being recorded. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions, and expectations of the company as of the date of this call. These statements are not the guarantees of future performance and may involve risks and uncertainties that are difficult to predict. I would now like to hand the conference over to Mr. V.S. Hariharan, Managing Director and Group Chief Executive Officer. Thank you, and over to you, sir.

Thank you. Good morning, everyone, and thank you for joining us. Q1 FY27 has been an exceptional quarter for Reddington and a strong start to the new financial year, both from a revenue and a profitability perspective. Technology continues to accelerate dramatically. At the same time, geopolitical instability, regional conflicts, supply chain shifts, and economic uncertainty continues to create new pressures across markets. Our resilience combined with disciplined execution was instrumental in a good set of results this quarter. During the quarter, we recorded consolidated revenue of 34,966 crores, reflecting a growth of 34% year-on-year. EBITDA stood at 751 crores, a growth of 67% year-on-year, and PATS stood at 486 crores, a growth of 77% year-on-year. The profit growth significantly outpays the revenue growth, reflecting strong revenue momentum as well as significant operating leverage in the business. Considering it is the first quarter, which normally happens to be a low seasonality quarter, combined with the West Asia crisis, continuing to pose some business and supply chain challenges, the results really make us proud. Excluding Arena, the revenue grew 41% year-on-year at $33,794 crores and a profit of $517 crores, the best ever. This quarter reinforces the continuing story of profitable growth across our business. It also reflects the strength of our diversified model, our ability to scale with discipline, and continued progress on the strategic priorities we have been articulating over the last several quarters. From a geography perspective, India business grew top line by 63% and pat by 60% during the quarter. Clearly, the star geography for us. All the business units in India, mobility, endpoint solutions, technology solutions, software solutions, all fired with strong double-digit growth. There was continued strong traction in the upcountry business, good amount of data center deals from Neocloud operators. Professional services business grew triple digits this quarter. Digital platform adoption also grew. We deepened our penetration in our very unique routes to market like direct-to-retail, regional large-format retail, even GTMs like QuickCommerce gave us some scale. In Middle East, the geopolitical tensions continued through the entire quarter. However, we did see stronger growth in the value NPC categories. Middle East Africa region grew by 15% despite the crisis there during the quarter, largely on the back of strong growth in the GCC and the Levant region at 95% and Africa at 39%, driven by greater IT adoption, mobility, and increased contribution from software solutions group. UAE and Kingdom of Saudi Arabia were flat to a small degrowth. Where we expect to see recovery as the West Asia crisis gets to resolution. Now, moving on to quarterly performance by business units. The breadth of our business gives us resilience, relevance with vendors and partners and multiple engines for future growth. All the BUs this quarter contributed very well. Starting with mobility, it grew 21% year on year, contributing to 35% of the top line, driven by strong demand in the premium segment. And continued strong execution in the direct retail segment in India during the quarter and entry into new geographies in the Middle East region aided this performance. The performance here could have been better if the product supply supported demand. Endpoint solutions grew 35% year-on-year, contributing to 29% of the top line. The growth here was led largely by component shortage-induced price increases. AIPC penetration into the commercial segment continued to grow with 36% of the revenues in India from AIPCs, which are greater than 40 tops definition. The technology solutions group had a growth of 50%, contributing to 17% of the top line. All product categories, servers, storage, and networking fired well this quarter. There was a good chunk from large deals of nearly 1,000 quotes during the quarter, most of these being in India in the data center category, with the visibility of strong deal pipeline for the rest of the year. Now, coming to Software Solutions Group, we maintained our momentum of growth. We grew by 52%, the highest across the business units, contributing to 17% of the top line. We continue to grow our partnerships with the Tier 1 OEMs and hyperscalers and many new brands, as in getting access to the market for adding many new brands as well. We are also making sure that we are adding existing brands in some of the geographies where we did not have these brands. We're increasing our solution intensity in the go-to-market, building joint business plans with key brands to drive wallet share. Also, this quarter, we saw a rollout of many new capabilities we've been talking about in our platform CQ. We rolled out a Rheonix capability, a proprietary subscription renewal automation platform, TrackMyCloud, a cloud usage and optimization tool integrated with Cloud Quarks. We had also rolled out an AI exchange we had mentioned in the previous call, a marketplace for AI agent catalog for vertical and horizontal use case, which is beginning to generate revenues and momentum in the GTM. We had conducted during the quarter an SSG day where we shared our software solutions group strategy as well as the capabilities we are building. I'm also delighted to announce that Reddington has earned the Microsoft's Frontier Partner designation an honor reserved for a select group of partners globally. The recognition underscores our readiness for the AI era and our ability to help customers harness the power of AI through innovative solutions and services. Now, coming to our OEM partners, the top 10 brands contributed to a significant chunk of the business this quarter, 75%, registering strong double-digit growth. Each of the brands in our top 10 had a double-digit growth. The top ten now has a good balance of hardware, software, and networking brands. This was one of the questions I remember about four, five quarters back, the results, and now we have a good balance of all of these categories. Moving on to operations. Our working capital discipline remains an important area of focus. Working capital days improved to 32 days in Q127 from 37 in Q126. Rossi was at 22%. Our OPEX control continues to be very good, slower than revenue growth, giving us significant operating leverage. Now, coming to Arena. From a Q1 perspective, there was a loss of 64 crores, Reddington portion being 31. The continued losses are due to the lower revenue after exiting the mobility business in Arena and also the divestment of Paynet. And there's also a gross margin compression in the existing IT business now. To bring in the operating leverage, we have to restructure the business, focusing on Turkey-specific growth levers in a dollar-denominated business. So there is work to do here to getting the Turkey business to the right direction. To summarize, Q127 has been a quarter of very strong growth, with all businesses and most geographies firing. Strong resilience, disciplined execution. We have started the year with a healthy momentum and revenue EBITDA and PATH, but continuing to improve working capital efficiency and maintaining strong return ratios. More importantly, the business continues to move in the direction we had envisioned, scaling our core, strengthening our value business, both SSD and TSG, investing in cloud cybersecurity and AI, and building technology-enabled routes to market for the future. We continue to remain entrenched in the top 10 tech distribution players globally, not being present in US, Europe, and China. Based on the information published by the Omidia Group, we continue to retain a strong number one position in India and Middle East Africa region as well, in addition to being in the top 10. What does this mean to us? This clearly provides us many advantages. We get a preferred partner status with large vendors, better economics through scale. Access to best resellers and customers in the market, ability to shape ecosystems, attract new vendors, stronger credit and financing platform, platform expansion opportunities. It clearly provides a strategic relevance in the AI era as AI solutions become more complex. Customers need orchestration across multiple categories and brands, and we are in a position to bring that, and we are working also on enhancing all the capabilities for us to be able to be relevant as an orchestrator. Finally, it is only appropriate that we take the opportunity to recognize our teams, the Reddingtonians, who continuously put their best foot forward to achieve good results quarter after quarter. What to specifically recognize are people serving in sensitive and conflict-affected regions in different parts of the world. Their dedication, courage, and professionalism have ensured business continuity and strengthened our relationships under very challenging circumstances. While we remain mindful of macroeconomic and market uncertainties, we remain confident about our evolving business mix and our ability to deliver sustainable long-term value. Technology adoption across continues to create meaningful opportunities for Eddington. Thank you for your continued support. We look forward to your questions.

Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch-toe telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. We have a first question from the line of Deepak from Unify Capital. Please go ahead.

Hi, SPK. Hi. Good morning, and congrats on a phenomenal quarter of execution. A couple of questions. The first one is, of course, you know, the chip debt pricing around the world has been a reality. To that extent, Hari, do you reckon there's been a lot of pre-buying that the channel might have taken anticipating a price hike? And the price hike is actually a real phenomenon. So, you know, that's the first question. And if that's how you can quantify how much of our phenomenal performance in Q1 has actually been driven by pre-buying. And as a corollary, Hari, what is your sense of the channel sales in terms of has inventory level gone up significantly? And is there any one particular hardware refresh cycle that is kind of driving this kind of momentum? So yeah, three questions, one little to one, I'll come back for the little.

So are you there?

Yeah, you're there.

Can you hear us? Yeah, yeah, yeah. Sorry, sorry, sorry. Thanks, Deepak, for the question. I'll restart the answer. We will mute it for a few seconds. So, if I were to answer the question, I think largely the phenomena is really focused on ESG, the endpoint solutions group, because in the case of software solutions, this does not impact price increases. Mobility, while there is price increases, it's a velocity business. So there is very little stocking, and it just moves through the channel. Similar in technology solutions, you can say, because a lot of the orders are back-to-back. So it was largely a phenomenon on stock and sell for the PC business in Endpoint Solutions Group. Clearly, if you look at the numbers, the unit growth has been more or less flat to a single-digit growth. The revenue is large, as you can see, as I shared, and that's driven by the average selling price. And clearly, there is a stocking up of channels that is happening. Our tier two is stocking up in view of the demand and also trying to make some money at the moment in terms of stocking up as the prices continue to go up. And we're closely watching it. We believe there is about two to three months of inventory in the channel. And we're watching it closely so that we remain healthy at all times. But that is definitely a phenomenon on the ESG business alone on the stock and sell side.

We can also add This inventory buildup is across the channel, just not at the customer level. Also with the distributors because you need to ensure that there is adequate product availability. Otherwise, on-demand products are not available from the OEMs.

Sir, my follow-up to that, you know, if there has been a good demand from the TSG side, if you can quantify, you said 1,000 crores of large deals. So, what's the outlook on the large deals? That is one. And the mobile business seems to be growing at a very fast rate, past the two quarters. So, what is really leading to this? And do you think the momentum, you know, given your distribution efforts? Seems to be a more consistent and an ongoing one for a few more quarters. So, if you can share your view on the India business, especially the TSG and the mobile side.

So, let me break up the, let me start. Taking a little bit of deeper dive on the large deal. So the good news is there has been good momentum on the run rate, small deal kind of business, but we've also had a good chunk of data center deals. I mentioned 1,000 crores. About 700 odd crores comes from the India side of the business and the data center part of the business. But the funnel actually on the data center side looks pretty, pretty good. Even many multiples of the 1,000 crores for the next few quarters. So definitely it looks very promising, the data center business and the backlog we have as well as the funnel we have. So that will continue. And clearly, you can see with the disruption in the West Asia, there is a maxing out of data center capacity in Europe. With all of that and the tax holiday that Indian government has announced, there is a movement of a lot of customers wanting to host in India. And that's driving a lot of neocloud operators trying to set up and access that opportunity. So that you will continue to see, and we will take our fair portion and our share of that business. Now, coming to mobility, it's a very interesting phenomenon that has happened over the last year. If you look at the last year's number on smartphones in India, there has been a 1% growth on overall smartphones, but the premium part has grown many multiples, 8x. And you can clearly see people who are playing in the premium phones, the premium phone category, the brands in the premium phone category have gained share. So we have actually got advantage of that because three brands that we carry and distribute are all in the premium category. Now, having said that, the price increases are definitely having an impact and slowing down the demand and the consumer purchase. So we have to watch closely. To continue to see, because there are clearly people who are in the price-sensitive categories who are jumping up one or two categories to buying a premium phone. And as the premium phone price increases and getting out of reach, will that demand continue or not, we are seeing. Clearly, we can see one more quarter of that kind of demand continuing, but beyond this quarter, will that price changes, price hikes? Will we get the same kind of demand? We don't know. So we'll have to watch and see.

Sure. That's encouraging to hear, sir. Sir, I'll go on to the Middle East side. So, in UAE and Saudi, you had mentioned that the sales were flat this quarter, and we had started with a 20% drop. So, I just wanted to understand the demand situation in these two countries currently. So, how has July started, and what's the outlook on these two geographies? And with specific to the supply chain, you know, given the closure of the street, are we able to get supplies with consistency? And also the freight related to the supplies, are we able to pass on the freight costs to our end customers as well?

Okay, let me answer two out of the three, and I will request Christian to answer the first part of it. So, I think we have largely been able to manage the supply chain. There is a delay. So, we'll have to plan better, because we are getting the product in through both combination of air and sea. And sea, we are getting to ports which are not going through the states of Hormuz, like Jabal Ali, for example. We are going through paper spaces like Pujera and others. So, largely supply chain problem, getting product to the customers in UAE and in Saudi is happening. There may be a delay of 30 days, and we're just factoring that into our overall equation. There is a cost increase, clearly, both on freight and warehousing. I'll just request questions. Some of it we pass on to customers. Some of it we have to pick up, and there are specific cost increases which are captured in our OPEX this quarter. Now, in terms of demand, clearly, there is some softening of demand. There has been a minus 3% or 4% decline in the UAE business and a slightly larger decline in the Saudi business this quarter. And I said flat because it's close to 0%, minus 3%, etc. And we have good demand on software solutions. We are still getting some decent amount of... Pick up on technology solutions. Mobility, we were constrained by capacity, and we also got the price increase, that advantage. But if you look at government buying, if you look at corporate buying, the ones that started are continuing, but the new projects are being pushed out and postponed until things settle. So clearly, we're seeing some softening, but not to the extent of what we thought it could be a 20% decline. It's better than that, but we are definitely... Seeing the softening in few sectors. How can I answer your question?

On the cost, like Harihan said, there had been certain one-off costs that had come in. We discussed in the last call too. This is primarily in the transportation and insurance. Pre-war, almost about 85% of our purchases used to be through sea shipments, which all have got converted into air. So, you can imagine the increase in price. And also certain war-related insurance policies got withdrawn. So, we had to take some additional policies. So, lot of increase in cost, about $3 million for the quarter. As Hari said, a good part of it we could recover, but not all. And this is something that we need to be watchful.

Understood. So, last question on your topic. Sorry to interrupt you, Deepak.

Can you please request you to rejoin the queue? Sure. Thank you. We have our next question from the line of Vinay Menon from Monad Capital. Please go ahead.

Hi, sir. Hi. Thanks for the opportunity and congratulations on a great set of numbers. A couple of things on my end. Do you think Lenovo, you know, as a chair, go up, you know, in terms of total contribution, any specific large deal we have cracked there or what would be the reason for that?

It is mainly because as a brand they have done extremely well, and we have also done well in that brand. That's a reason.

Okay. Okay. And any other, like in terms of calling out the number for large deals in Q1, looks like in there we have a couple of large deals. Any update on the?

Okay, I had mentioned this for the previous question. While about 1000 crores is a large deal revenue for the for the thing current quarter majorly from India, the backlog is far more. So that should get executed in the next few quarters.

Okay, okay. And now since ASPs, you know, are at what the level they are, how should we look at seasonality? Because, you know, Q1 is typically a weaker quarter and Q2 is a seemingly strong quarter. But I think now with higher ASPs, that trend might, you know, be a little different. So how should we look at the next few quarters going ahead, sir?

I wish I could answer that question. We also, we were surprised that we pick up this quarter being a low seasonality quarter, but clearly there are many factors in play. See, Q2. Clearly, there is a festive season that will, or it's more like Q3, combination of Q2 and Q3. So, and there is an, see, normally what happens is Q2 is a mobility NPI that happens, which gives us a lot of pickup. And Q3 is the festive season, and Q4 is the end of the year. But this shortage and supply, the data center deals that are happening, they're actually throwing a spin on all of these. We can say that Q2 definitely we expect a good strong quarter. Q3, as we march the festive season, that should be a good pickup, but post-festive season we don't know. So we are playing this now a little bit of a quarter at a time. And see the phenomenon because the price increase in PCs and smartphones will clearly at some point have a dampening effect on consumer buying and consumer demand. Maybe commercial buying may still continue because that's mandatory for people to refresh cycles, etc. So we are not able to exactly play it out. We have some guesses, but we can't strongly with conviction say this is what is going to happen for the rest of the year.

Okay, perfect. And last thing, in MSG, you know, in the ROW part, Q2, are we expecting some recovery? Because Q2 is generally a strong part of MSG. So, what are your thoughts on that?

Again, this depends very much on the NPI. We normally get a good NPI lift this quarter, but still we know that this NPI is confirmed and the product, there is a lot of speculation on. The range of SKUs and products that will be in the NPI. And so that will drive it. Clearly, if the NPI happens this quarter, and there is a good spread of SKUs, we will have a good bump up. But if it is only high-end SKUs, then the Middle East Africa region will get a bump up. But India is typically, they have the, they accept the low.

Yes, yes. Just one last thing on SSG, you know, 53% kind of growth, anything and like what are the drivers and what kind of numbers can we look for for a full year? Thank you.

So, if you know the different parts of the SSG business, the cloud is continuing to do well and is our strongest growth driver, followed by software. So, within software, we have Infra software, we have verticals like Autodesk, and so that software part of the business also grew well. Security did well, but we expect a lot more. We want to gain share of the wallet there, and that's probably a little bit slower growth compared to the other two. And services, as I mentioned earlier, did fantastic. We almost double our business. This quarter on service professional services. We continue to ramp that in many directions, both working with large companies like the SIs, like the data centers to be able to work on joint initiatives and professional services, as well as creating productized services. So that part of the business is growing. So clearly, cloud software and services. Are the three areas that are really creating momentum for us and security we need to become?

On the cloud, previously this used to get reported, we have seen overall a 67% year-on-year growth, 45% in SESA and 80% in rest of the world. So, you can see a significant spike is happening in that segment.

Thank you. Thank you. I'll get back in line for my question.

Thank you. We have our next question from the line of Pratik Kothari from Unique PMS. Please go ahead.

I wouldn't mind.

I'm sorry to interrupt you Pratik, but your audio is breaking. It's better, sorry.

You're breaking up a little bit, but getting better.

Yeah, hi, good morning. No, first of all, congratulations. I mean, excellent set of delivery and numbers. So, first question, our pain point arena, right? So, despite almost getting out of this Lira-based business, I mean, the business also has half, but the absolute losses there kind of still continues at this 60, 70 odd crores. So, one, what is this effort that we took over the last year, why are we still seeing this, what needs to be solved, what are the gaps there?

See, like Hari had mentioned, a lot of challenges still continue to plog arena performance. Consciously, we dropped the revenue. Revenue has become almost half of what it used to be in the past. But the margins are also dropping. It is a very hyper competitive environment in Turkey in this business now. So whatever upside that we see in other place, nothing of that is visible. And we have been tracking even the competitors number. So the gross margin is also, I mean, compressed. But at the same time, OPEX, even though we don't increase the real OPEX. And because of 35-40% inflation, there is an increase in OPEX that we see. So it is actually multiple factors which is impacting them. We are trying to solve, but in our view, I think the current year, we might have this loss continuing. We will try to do our best, but there is still some challenge.

So, here the end goal or plan would be what?

End goal is multiple factors. Hari had mentioned in his opening remark, we are trying to see strategically what we should do. It requires a structural change, but options are limited. But at the same time, we also need to see how to revive the business. So, both are happening in parallel. If the strategic choices happens, I think that would be our preferred choice.

Just to add, our original thesis was... And the Lira business was the most challenged part because of the Lira interest rates and the working capital needed to execute in that business. And we said exiting that will clean up our dollar business and focus on IT, which is actually the right direction. But having said that, two things happened. If you see the market right now, the hardware business continues to get compressed, and it's a much smaller size than before. The software solutions business, the cloud business in Turkey is larger than the hardware business. That is one thing. Second, it's hyper competitive, as Christian mentioned. Second, the compression of gross margin was unexpected, but it is also getting compressed. And so we'll have to do, we have to approach it very differently strategically in terms of how do we restructure the business to get the profitability at these sizes. So that's the big question. We have a few ideas, and we are working through it, but not an easy problem to solve, and we will keep you updated as we progress here.

From a debt perspective in Arena, what used to be a $120, $130 million has now come down to $90 million, and that's because of the exits from the local business that we did. Even the interest cost, there is a sizable reduction. So, interest including factoring what used to be 69 crores last year Q1 is down to 37 crores this year Q1. So, these are some of the steps taken, but unfortunately, we are where we are.

It's fair enough. So, second on working capital, I mean, positively surprised by the reduction there. I mean, this is despite MSG share coming down, the others growing. So, I mean, large deals also being present this quarter. What is driving this drop in working capital?

Okay, there are multiple factors. So, very clearly, as we had said, inventory days are going up across the board in the market, and that is true for us. Fortunately, we had some advantage in terms of the payable days, and more particularly, in Middle East, because of our situation, we could get some additional credit from the vendor, which has helped us. So, overall, I think we could manage it better, but during the quarter, there were some spikes, but I think broadly, it's very well the same controlled with this last Q1.

Fair enough. And last, if we can break this India growth or overall growth down to volume versus price, and I think it's tough because segment five, but this broad sense, how much of this is price ASP driven and how much of this would be volume?

If you really look at what has happened in SST, TST, and MST, those are largely non-price driven. I mean, MST, we would have got a little bit of bump up on the Android side because the price has increased. But Apple did not increase prices till the last quarter. So most of the bump-up is price-driven, is only on the ESG side. And if I take stock and sell as 67, I don't know, about 2,000 of the business, you would have got about 2,000 of the endpoint solutions group because of the price bump-up. Everything else is a natural demand phenomenon.

Fair enough. Thank you and all the best. Congratulations again.

Thank you, Pratik. Thank you. Ladies and gentlemen, in order to ensure that the management is able to take questions from all participants in the conference, please limit your questions to two per participant. Should you have a follow-up question, we request you to rejoin the queue. We have our next question from the line of Samay Sabdis from Helios Capital. Please go ahead.

Yeah, thanks for the opportunity and congrats for the great set of numbers. Also, my first question is when you see the list of your top five vendors, I see Samsung has made way for Microsoft. Could you share some color on this?

It is a very small chain. Samsung used to be a close number six before, and that is, I mean, Microsoft has grown faster than the Samsung for us, so hence this shift, but it's not a significant shift.

Yeah, but I just want to add some color as well. Clearly, the cloud business of Microsoft is doing well for us. And as the cloud business grows, you will, and we had mentioned in one of the earlier quarters during the earnings call, do we see, we see now three software players, software brands in the top 10 for us. And that's clearly showing up. The cloud growth, the software growth is enabling that to happen.

Right, and just another of the last thing on bookkeeping question. So basically, I see your finance cost.

See, there is a significant increase in the revenue, and like I had mentioned, the inventory days also have gone up in the industry. That's why there is an increase in interest cost. First, interest rate, there is a marginal increase. While it was coming down, officially the respective central banks have not raised the rates, but in the market interest rates are forming up. That also has resulted in higher interest cost compared to Q4. On a steady state basis, you can take this as the quarterly numbers into the future.

Thank you. Thanks. That was helpful in this class. You've got a tax refund of 147 crores this quarter, so could you shed some colour on that again?

Can you repeat your question, please? Not audible for me.

You've got a tax refund of 147 crores this quarter, so could you shed some colour on that?

No, that relates to the past years we had got... See, some of this were demands that got raised, which we knew is contestable. We contested, we won the case, we got the money back. So, I mean, we are, we are, we are quite keen, I mean, clean on that. So, not an issue.

Oh, yeah, thank you. That was all from my side.

Thank you.

Thank you. We have a next question from the line of Sahil Doshi from ThinkWide. Please go ahead.

Hi, good morning, and congratulations on a fantastic set of numbers. So just the first question was on the AR provisioning. You know, we had seen some kind of an impact in Saudi in the last quarter, and even if I see versus the normal average, even for this quarter, it's slightly elevated. So could you just talk about aid, the provisioning in the Middle East, Saudi as well, and what caused this, and how do you see the environment to be?

In the current environment, Sahil, we want to be very cautious and we would want to make sure if there are delays more than what we expect, we had to better provide for it. So these are more from that approach. Can there be collections out of this in future? Very good chance.

And just in the annual report, you know, you all had highlighted in terms of the Android, there's a direct retail strategy which has helped us increase our revenue share from 1.3% to 10% over the last five years. Could you talk a little more on this and, you know, is there an increase in the number of OEMs or the offerings or the product portfolio here?

Okay. We don't specifically talk about the brands, but I'll give a little bit more detail about this premium smartphone brand for which this was done. Their original go-to market was through the typical LFRs and the online retail segments. But given their diverse portfolio, one of the... Areas we focused on about four, five years back, and this was a India team-led approach to create dedicated premium retail channels across the country. And we work closely with this OEM to build now almost 6,000 outlets that are specifically selling their product. And this involves everything from supply chain automation to getting these products to in-store promoters to area sales managers to building a full go-to-market machine, you know, getting EMIs, getting a whole lot of things together. The strategy has worked very well because it's a very focused channel selling this brand's products, and that has clearly got both revenue and margin momentum for the OEM and for us. And so, it's a very good business that we put effort closely working with the brand. This is the kind of business where you create lots of value between us and the brand. And very proud of what the India team has done on this. And it's clearly given us a headway into something unique that we built.

Sure, that really helped. Thank you. And just finally, a few keeping questions. One, if you can call out what is the factoring number for this quarter? And second, if I see, you know, the other income is roughly become 200 odd crores in FY26, you know, and there's not too much of details even the annual report provides on the components of this other income. So just to understand how much of it is recurring and what's really, you know, the larger portion, if you can just give us some sense of it and how do we think about it.

On the factoring for the current quarter, it's about eight crores. The service in Q1 of last year, about 31 crores. Other income, there are multiple components, but two key aspects will be interest that we collect from channel partners for the delayed payment. Second, any excess money that we have, If we deposit, there is an interest that we get. So these are the two main aspects in the other income. These are business related. Whatever is a float is what we use it for depositing. Otherwise, as you know, we have, I mean, we have got net debt all the time. Is it consistent? It will be consistent, but of course, to the extent of actual, actual excess balance that we carry, it could vary. But you will also see a corresponding impact on the interest cost. So ideally some of this you should net it off with the interest cost and then see. Third, very specific to this quarter, as it was pointed out in the earlier question, some income tax refund that we got and there is a connected interest also had come in as part of other income. Sure, sir.

That helps. And just finally, if I may, in the Middle East, is it correct that you called out there was a 20-25% decline in Q1, and incrementally we should be close to flattish our growth? I just wanted some clarity on that.

No, no. So, the 20-25% is what was estimated when we talked about the crisis, but overall Middle East Africa grew 15% this quarter. And that was Middle East Africa includes four clusters, UAE, Saudi, the GCC, Levant region, and Africa. The GCC, Levant region, and Africa had strong double-digit growth. The UAE declined small, about 3%, and then Saudi declined small, also single-digit, 7%.

Thank you. A reminder to all participants, please limit yourself to only two questions per participant. Should you have a follow-up question, we request you to rejoin the queue. We have our next question from the line of Haithi Inder Pradhan from Maximum Capital. Please go ahead.

Hi, sir. Am I audible? Yeah, thanks for the opportunity. So my first question is related to the TSC segment. So many of our global peers are calling out the supply chain constraints and the growth has been robust, but there might be some kind of moderation depending on how the situation evolves. So, how are we positioned for our customers? Because I think that, you know, in terms of the AI cycle, that we are not, you know, a big part of that for our customers. So, how do you think the growth can pan out for TSE? And especially, like, is the sales velocity or the margin that we are generating is, you know, value accretive in terms of the higher working capital that is required in TSE segment? That's my first question. Okay.

I'm not really sure where your question is headed. So if I look at AI, if you look at AI in a large way, from a hardware perspective, a lot of the growth has come from the AI GPUs that have been shipped. And clearly, everything is becoming GPU-centric in the world of technology solutions. To me, the numbers will continue to grow up. But on a smaller base of AI, the growth is high today. But all the server storage that is going forward will all be AI, firstly. Secondly, the data center piece of the business, which is important, is going to be huge. And as we said, our backlog is already multiple X of what we have done this quarter. It's only going to get larger. So I don't see that tapering off at least for the next four, five, six quarters. On the PC side of the house, we actually see a lot more happening. Today, the AI PC growth, we talked about commercial having a good penetration rate of 36%. With the announcement from NVIDIA on the RTX chip-based PCs, towards the end of the year, early part of next year, we see much stronger AI PCs coming out. So that part of the business is going to take off. The question still remains, the entry-level PCs with the high-end PCs versus the AI PCs, which will grow and how it will grow, we'll have to watch and see. But I don't see an AI hardware business tapering off. At least in the next four, five, six quarters. I mean, all parts of the portfolio, as they move into AI, there's just going to be more and more refresh cycles there. The shape of the PC market and the different mix of SKUs, entry-level, mid-range, high-end will change. And the shape of the server storage market between NeoCloud operators, the on-prem servers, in-house, the mix might change. But clearly, we don't see a tapering off.

Understood, sir. Yeah, that's what I wanted to understand. The second question is on the SSD. We discussed about the servicing component and how that is going to be an incremental focus. So, what is the share of the revenue which is coming from the servicing component in the HSE segment, and the new deal, if you can throw some color, like with Microsoft, are we tied with them in order to roll out the new enterprise solutions, or, you know, what can you expect from the new deal from MS? Thank you.

No, so there is not a new deal with Microsoft. Basically, what we said was Microsoft is giving this frontier channel partner nomenclature for people who are organizing themselves and being at the forefront of executing AI-related moves. It does not mean that we are getting access to it. We have access to all of the Microsoft solutions today. What we clearly see momentum is in the specific verticals, because if you look at cloud, within cloud, we do sell AI solutions from all the hyperscalers. Within security, all the partnerships we have, they have their own AI solutions. We sell the AI solutions. There are dedicated AI solutions that we are bringing to the market, which are cross-category SSG. This is what we call as AI exchange. So we have productized all the AI agents that our ISVs are spitting out into a marketplace. We have over 250 agents on it, and we are finding a go-to market for that. And then within the professional services organization, we do traditional stuff like migration, modernization, MSSP security solutions. We are also doing agentic AI and other AI solutions. So, the way I look at, if I have to answer your question, we are selling solutions from vendors around their fast products and AI products, and we are selling horizontal AI agentic solutions. We are finding what are the right products to sell, and what is the right go-to market.

Thank you, sir. Understood. SSG contribute 17% to our total revenue. Q1 of last year, it was 15% and services in our overall revenue, it's about 2.5% for the quarter.

Thank you, sir. Thank you.

We have our next question from the line of Pia Rohira from MK Global. Please go ahead.

Yeah, hi. Thanks for taking my question. I was more relating to the ecosystem we are seeing where there are supply-related challenges, and we have seen Apple increasing prices. Any conversations with other OEMs or the price increase, and how far do you see this given the supply chain conundrum which has got broken?

I mean, pretty much, to answer your question, pretty much most OEMs in the PC world have increased prices. And in the smartphone, Apple was the last, and pretty much all the Android devices and Apple have increased prices. The server storage segment clearly has moved to GPUs that's also at a higher price. So I don't think there are any others left to increase prices. We just have to now see... Customers have to get the right productivity, right efficiency, right ROI in deploying these devices in the commercial segment, and the consumer segment needs to absorb this shock, and there will be some demand waning as we go along. Clearly, those will happen. But I think we're dealt with most of the price increases, I believe. And I don't think there are any specific conversations beyond this. We just have to really see the impact of the price increase and how the unit volume versus value plays out in the next few quarters and for us to add this to that new reality.

Sure. So just to follow on there, you know, in this quarter, what would have been the effective price hike we would have experienced? And just to some direction, because this could have been only half a quarter, right?

I don't know this quarter specifically. If you just take the last two, three quarters, I think PC prices have increased anywhere between 25 to 50 percent. Some SKUs are 50%, some SKUs are less, but anywhere between 25 and 50, that has definitely contributed to ASP increase and the value increase, and as I mentioned earlier in my starting note, that our unit volume we saw in PCs is single-digit growth, and I think that is the phenomenon right now.

And Q3 onwards, we should start seeing sub-stabilization, right?

I mean, if I, maybe Q3, but you don't know, but as of now, what we foresee is at least the prices will stabilize at least prices.

But, Priya, this component shortage is definitely a multi-quarter issue from what we understand. So, this will not die down that fast.

No, I am saying more from the point that in this year, this year, full year, we would have the positive effect of price hikes, right?

Yeah. In a way, yes. Yes.

Yes, because volumes will come with a lag, but nonetheless, the value of price composition will play a high weightage to revenue growth.

But it is also to do with how much increase in price the customers can absorb, right? So that's a big question mark, but I think we remain positive. Let's wait and see. Sure.

Yeah, that's it from my side. Thanks for the elaborate presentation.

Thank you. We have our next question from the line of Amit Khaitan from Lebanon Capital. Please go ahead.

Hi, good morning, and congratulations on a great quarter. Now, you've called out a very strong growth in the cloud segment. Our understanding is the large public cloud deals, only about less than 10% globally goes to distributors like Reddington. Is that true for India as well, and is there any reason why that might be different for India?

So let me make sure the definition of cloud is right here. So when we say cloud business, we are actually talking about reselling. AWS, Microsoft, Google Cloud Services. And there, really, we are not talking about hardware. We are talking about selling to mid-market and enterprises, workloads into the cloud. And that's what was talked about. There is the other part, which is a data center business, which is from NeoCloud operators, but also being set up for the same purpose. There, it's large deals, where we are actually selling hardware and selling the ecosystem around it. We sell a hardware, then we sell, you know, adjacent solutions and software and managed services, etc. Which one are you referring to when you ask this question?

So, I'm talking about basically the AWS, the first part you mentioned, right? The AWS Azure services being sold to corporates. Does that go through distributors or for large enterprises, does that happen directly?

Both. Combination of both. So they do both direct and go through distribution. Increasingly, distribution is being relied on because both for the mid-market and small enterprise, the hyperscalers find it very convenient because distributors like us, we just don't do just resell because we do a lot of value around it. We do, you know, driving. It will let them to drive workloads to the cloud. We do migration, modernization, professional services. So, we do a combination of things, you know, how to sell AI, how to sell platforms into the… So, increasing reliance on distribution, but they do direct as well, combination.

Got it. And is this portion higher in India where it goes through distribution versus how it happens in the West?

You could say that. I think that's fair. If you look at U.S. versus India, the mix of direct versus distribution, direct would be more in the U.S.

Rightly, because we have more big market enterprises compared to, say, larger enterprises in the U.S.?

That's absolutely right. Both a combination of that, access, collections of money, value-added services, the expectation from customers, all of that is different as well in a place like India.

Got it. That's helpful. My second question is, you know, we have a couple of platforms. The Reddington Online and Cloud Quops, some of our global peers also have built similar sort of platforms. When we compare our platforms with them, are there gaps that we need to close? And over the long term, how do you expect, you know, these to contribute in terms of, you know, costs or working capital? Are these expected to contribute to profitability, or is this just the new reality where everyone needs to build these platforms?

Yeah, so I'll dissect that question to two parts. So there are two digital platforms we have. We have one for cloud and software business. We call it the Cloud Quarks. And then we have one for the hardware business. We call that the digital platform. So I'll take the first question. Cloud Quarks, quite an important and a critical investment because, as you know, when it's non-physical, everything can be digitally transacted. So, it is more and more important to have that as the right platform. We are constantly evolving our platform. As I mentioned in one of the earnings call, I think, last quarter or previous, our CloudFox 1.0 is now migrating to 2.0, where we have added the customer persona. We have added the vendor persona. We are also building hooks for a marketplace. There is analytics there. And you'll see it has a very, very key platform. I talked about some of the enhancements we made this quarter. on the renewal platform as well as the track my cloud platform all built into it. So clearly, this is a very important platform for our partners to even work with the customers and to for them to access This is the, uh, On this platform, not just cloud, but it will be software as a service, AI-agentic service, many other services. So we're building this out. We think we have something really good, and our vision is to be best in class in the next one to two years, and we're putting all our might and investment on this to be best in class. This is going to be a differentiator for us. On the digital platform for hardware, it's a little bit of a different approach. We do transact in many ways with large partners for hardware in a combination of manual and automated fashion. The digital platform comes of use for long tail, smaller partners that cannot get access to a salesperson, so they use digital platform. But it also becomes of use for large managed partners. For them to be able to see what are they not selling that Reddington offers, how can they get online best data from Reddington on what they're selling, what is the outstanding, what are the rebates and margins. So the digital platform and hardware really becomes a better customer experience working with our partners, whereas in the software solutions, the Cloud Quarks is going to be the differentiator.

And Amir, in addition, The customers can log in on weekends, holidays, any time, no problem, and their requirements will get. While there are some upfront investment, adoption of digital platform more and more with the customers is going to help us to reduce the cost of servicing the customers.

Understood. But my question is, is this going to be differentiated versus what some of our global peers have, or is this something that everyone needs to build and, you know, that sort of gets passed on to the customers or to the vendors?

We are building a differentiated platform, Amit. So, we want this to be best in class, as I mentioned, in both cases. We are investing, when you talk about investing in platforms and ecosystems, this is actually our significant number one investment.

All the best for the coming quarters. Thank you.

Thank you. We have our next question from the line of Aegis Lakhani from Unify AMC. Please go ahead.

Yeah. Congratulations, management team, for really a stellar quarter of execution. I think the management team has remained steadfast across a difficult period and has been delivering. So, credit to you and the entire team. So, I have just one question. So, Harisa, you mentioned that the velocity of large ticket deals is likely to increase, and, you know, the stock and sell model that you earlier referred to, you know, was a bit of a help for us in this quarter. So, given that, how should we effectively think about gross and EBITDA margins for the rest of the year? If you could give some color on that, it would be very helpful. Thank you.

The edges we discussed this before. Right now, the quantum of large deal in the total scheme of things is marginal. So we don't separate it out. We talk overall. If it becomes in any period significant, we will call out and give you the number separately. Believe me, no way the large deal profitability can match our normal profitability. So if you get called out. Overall, what you will see is a dilution of the margin percentage. That's why in the past we had said very clearly, our single most objective in the large deal is no compromise on return on capital employed. Plus, there are other factors, but those are secondary. So, you will find return on capital employed is not compromised, but the margin compromise will be there most likely.

Thank you. We have our next question from Lino. Lakshmi Narayana from Tunga Investments. Please go ahead.

Yeah, thank you. I have a question related to the Software Solutions Group. You know, what I understand is that that is another way of selling, which is through the Microsoft marketplace. And I was told that that is the moment of some clients towards this Microsoft marketplace. So just want to understand whether that is like a kind of a threat or is this something which is like it's on the fringes?

So, to answer your question on marketplaces, yes, the key hyperscalers are creating their own marketplaces, and we are going to be participating in those marketplaces as well. So, just like hardware world has evolved to be an omni-channel world, so there will be an omni-channel evolution, the software solutions group, where there will be hyperscaler marketplaces, which will go directories of some partners, and we will participate there, and we will create our own marketplaces. And we'll have to bring the best value-added services for us to win overall. So, clearly, Reddington is working on multiple ways to win in our own way in these marketplaces.

Is it like a threat or is it like a kind of an opportunity? I mean, I didn't quite... Sorry to interrupt you.

It's definitely an opportunity more than a threat.

Okay. Okay. Thank you.

Thank you. Ladies and gentlemen, that was the last question for the day, and I now hand the confidence over to the management for closing comments.

Thank you so much for all your questions, and thank you for all the feedback as well, and we look forward to having another good quarter in Q2, and we'll come back to you. Thank you.

Thank you. Thank you so much, sir. On behalf of Radio Intel Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.