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Edited Transcript of REDINGTON.NSE earnings conference call or presentation 22-May-19 12:00pm GMT

Q4 2019 Redington (India) Ltd Earnings Call

Guindy, Chennai Jun 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Redington (India) Ltd earnings conference call or presentation Wednesday, May 22, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Raj Shankar

Redington (India) Limited - MD & Director

* S. V. Krishnan

Redington (India) Limited - CFO & Whole Time Director

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Conference Call Participants

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* Deepak Agrawal

* Nitin Padmanabhan

Investec Bank plc, Research Division - Analyst

* Pranav Kshatriya

Edelweiss Securities Ltd., Research Division - Research Analyst

* Rishabh Chudgar

* Vishal Desai

Axis Capital Limited, Research Division - Assistant VP of IT Services

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Presentation

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Operator [1]

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Ladies and gentlemen, good day and welcome to the Redington (India) Limited Q4 FY '19 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. (Operator Instructions) Please note this conference is being recorded.

I now hand the conference over to Mr. Raj Shankar, Managing Director, Redington (India) Limited. Thank you. And over to you, sir.

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Raj Shankar, Redington (India) Limited - MD & Director [2]

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Thank you, Vikram. Good evening to everyone on the call. I am very delighted to share the results for Q4 FY '19 at a consolidated level. As all of you would have seen, our revenue has grown by double digit at 16%, EBITDA at 15% and our profit after tax by 18%. What is particularly interesting about Q4 is that both in India as well as outside India, our revenue and EBITDA grew by double digit. In India, the revenue grew at 24% and EBITDA at 17%. As far as profit is concerned, our profit in India grew by 6% and overseas by 23%.

I just want to make a small mention here that we had introduced an SAR program, and therefore, since the share price is well below the offer price of the SAR, yet we are compelled to take a charge in our P&L. If we, therefore, for a brief moment exclude the SAR charge, then our EBITDA growth would have been 21% as against 17% in India and 11% profit after tax as against 6%.

Now the other interesting part is, now when you look at both in overseas, both META, which is Middle East, Turkey, Africa, as well as Singapore, South Asia, both have grown their profits considerably at 22% in META and 28% growth in Singapore, South Asia. Overall, from a contribution point of view, 74% of the total profits that was delivered in Q4 came outside India.

The other interesting aspect of this quarter is that every line of business grew. IT grew by 14% at a consolidated level, with 22% growth in India and 9% growth overseas. Mobility grew at 17% at a consolidated level, with 28% growth in India and 13% growth overseas.

Now with regard to IT, that again is very interserting that in India, in particular, the enterprise business grew by 22% and the consumer business grew by 22% again. From a mobility standpoint, both India and overseas had a strong growth. As mentioned, India was 28%, overseas 13%, consolidated being 17%.

Now in spite of the fact that there was a currency depreciation in Turkish lira in Turkey by 6%, Arena still managed to deliver decent set of numbers, though I must confess that from 31st March 2019 until today, the currency has depreciated by 9%. So this is something that we have to manage and we will take it 1 quarter at a time.

What we are particularly pleased about Q4 performance is the reduction in the working capital. Overall, for the quarter at a consolidated level, we have managed to bring down the working capital by a good 7 days, almost about 13 days coming out of India in terms of reduction from 53 to 40 and by 4 days overseas from 34 to 30.

Now the other highlight of this Q4 is the free cash flow. So I am very delighted to share with all of you that at a consolidated level, the total free cash flow positive is INR 1,143 crores. This is approximately about INR 744 crores coming out of India, INR 398 crores coming out of overseas. Given a strong performance on the working capital, our ROCE also has improved to 18.1% at a consolidated level for the quarter and the return on equity at a little shy of 18%. All this has been done on the back of a strong financial discipline where our gross debt to equity -- to gross equity is about 0.3, our net debt-to-equity is 0.1.

Now the -- in terms of inventory provision, at a consolidated level, it is 0.19%. It was higher than normal than in India, though overseas was range bound. The reason for the inventory provision being high in India is attributed to a higher provision required for networking products, where we expected some of this inventory to have got sold out in Q4, but between having to sell it at a lower price and compromising margin and having to therefore carry inventory and suffer inventory carrying costs, we decided to do the latter, and hence this has resulted in the inventory provision being higher in India.

As far as bad debt is concerned, I am sure some of you, it may be fresh in your memory that about 2, 3 quarters ago, we had an impact on ECL. And we did tell you at that time that within a quarter or 2, we will be able to bring it back to about 14, 15 bps. I am pleased to share with you, for now 2 quarters in a row, we have again managed to keep our bad debt provision in India at about 0.13%. Overseas continues to be a very strong performance at only 0.03% provision.

With regard to ProConnect, the performance continues to be strong. We had a 16% growth in revenue, 8% growth in EBITDA. I just want to again sort of make a mention here that because we did an acquisition, which we had announced in the month of March, of Auroma, which is a company which is particularly strong in the warehousing and transportation business for consumer durable products, that in -- we were forced to incur certain M&A cost. If for a minute we keep that out of the equation, the revenue growth would have been 16% and the EBITDA growth, instead of 8%, would have been 19%. We are, of course, very delighted with the acquisition of Auroma. And we believe that this should certainly augur well in terms of our foothold into consumer durable which we wanted to make a foray into.

In terms of Ensure, our EBITDA margins are at 8% and our profit after tax at 4%. Now for a brief moment, if we look at the full year picture, again, as all of you would have seen these numbers, very quickly, the revenue growth was 12%, EBITDA growth at 12%, profit after tax growth of 5%. If all of you would recall that we had an impairment charge on account of the serious depreciation of Turkish lira in Q3 of FY '19, where, just to jog your memory, we took a INR 45 crore hit. If for a moment we consider that as one-off, then the PBT -- the PAT growth for the full year at a consolidated level would have been 11% instead of 5%. Now here, again, if you look at India grew by 13% on the top line; overseas grew at 11%; and from a profit after tax point of view, India de-grew by 14%, overseas grew by 19%. The -- from a profit contribution, overseas contributed to 68% for the full year. And from a revenue point of view, overseas contributed to about 63%.

In terms of business, IT, mobility and services all grew quite strongly. IT grew at 9% at a consolidated level; mobility at 13%; and services at 22%. I hasten to add that on services, the services profit contribution to FY '19 profit in India was 28%. Last year, that is FY '18, services profit contribution to the overall profit was 20%.

In terms of India, the IT business again grew by 13%, mobility at 7%, services at 32% growth. Overseas likewise grew at 7% IT; 15% mobility; and 7% on services. Again, if you break down IT between enterprise and consumer, I'm pleased to share that both have delivered a double-digit growth of 11% and 16%, respectively, in India. Overseas, IT enterprise has been strong at 25% growth, but IT consumer de-grew by 2%. The mobility business in India, overseas and consolidated was 7%, 15% and 13%, respectively.

Now here again, when you look at the working capital on a full year basis, we managed to bring down the total consolidated working capital by 7 days from 44 to 37. In India, we brought it down by a good 8 days from 55 to 47 and by 6 days in overseas from 37 to 31. So you would have seen that we have taken upon ourselves an important mandate to bring down our working capital in India and overseas and at a consolidated level. I'm pleased to share with all of you that we've been able to deliver that during FY '19.

The other good news on a full year basis is that we have delivered free cash flow of INR 732 crores at a consolidated level with INR 629 crores coming from overseas and INR 103 crores of positive free cash flow coming from India. The ROCE at a consolidated level was 16.5% and ROE shy of 14%. Again, the gross debt to equity and the net debt to equity is similar for the quarter at 0.3 and 0.1, respectively.

I just want to make a brief mention that some of you would recall that I had said at the start of the year, financial year, when we had the Q4 FY '18 call, I said that FY '19, we believe, will grow both revenue and profit than what we delivered in FY '18. I'm pleased to share with you that actually, if you look at it without the impairment, our revenue growth was 12% at a consolidated level, EBITDA growth 12% and a PAT growth of 11%. And you would also recall that after we had a difficult Q1 and Q2 quarters in FY '19, I also said with you that our H1 will tend to be a little slow, but we will certainly rebound in H2. So I just thought, true to what we said, if you did a comparison of H2 over FY '19 over H2 of FY '18, at a consolidated level, we grew revenue 14%; EBITDA 22%; profit after tax 16%. And for a brief moment, if you look at it sequentially, the growth of -- in H2 FY '19 over H1 FY '19, our -- at a consolidated level, our revenue grew by 18%; EBITDA by (inaudible); and profit after tax by 62%.

So I just wanted to sort of quickly add these 2 points because we had sort of said in our earlier earnings call that certain estimates and forward-looking so-called statements or indications, so we have delivered on that.

As far as ProConnect is concerned, we grew 26% on revenue for the full year and 13% on profit after tax.

Then with regard to the -- if for a minute we take away the one-off costs, then the growth would have been approximately about 2% to 3% higher on profit after tax compared to what we delivered in FY '19 -- in FY '18. I'm sorry, for a brief moment, for the last 3, 4 minutes, the lights have gone off in this room, so sorry in case you find -- there's a little disruption here. As far as Ensure is concerned, EBITDA margin was 7% and profit after tax margin for the full year was 4%.

So in summary, very quickly. Both Q4 in terms of all parameters, particularly working capital, free cash flow, we have delivered some very strong numbers. And likewise, when you look at on a full year basis, across all parameters, across all theaters and across all lines of businesses, we have delivered strong set of numbers.

Thank you. Over to you for your set of questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have the first question from the line of Nitin Padmanabhan from Investec India.

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Nitin Padmanabhan, Investec Bank plc, Research Division - Analyst [2]

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Congratulations on a very solid quarter. Just wanted to ask you a couple of questions. The first one being that if we look at the market, there's a lot of talk by a lot of companies about the liquidity tightness that's out there. And in that context, our very solid 24% kind of growth in India, is that a function of we being better placed -- significantly better placed than competition in this low liquidity scenario where we have a very solid balance sheet? Or -- so how do we really read the India growth? Or alternatively, is it primarily driven by the in low base in the previous year?

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Raj Shankar, Redington (India) Limited - MD & Director [3]

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Yes. Thank you, Nitin, for your question. So the first point I would like to make is, this growth that you see in India of 24% is across all lines of businesses. So IT, as I said, grew by 22%, mobility by 28%, services by 15%. So it is not -- it has got very little or nothing to do with the liquidity challenge or crisis that other companies could be facing. So that's certainly not the case. And even within IT, if you recall, I mentioned both enterprise and consumer both grew by a solid 22%. So it's really not to do also with the low base of the previous year because I just want to draw your attention that even the previous year, our revenue grew by 4%, but that -- sorry, for the quarter. I stand corrected, Nitin. Yes, I thought for the year, I knew we grew revenue, but for the quarter, we de-grew by 4%.

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Nitin Padmanabhan, Investec Bank plc, Research Division - Analyst [4]

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Right, right. Now second is on the ProConnect business after this acquisition that you have done, how would the different segments look like in terms of what -- in terms of how it would add in terms of warehousing and transportation? So from a revenue and margin profile, if you could split the Rajprotim, ProConnect and the Auroma business. How would this sort of add in terms of capability and the overall strength in the business?

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Raj Shankar, Redington (India) Limited - MD & Director [5]

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Okay. So first is as far as Auroma is concerned, we didn't even have 1 full month. So whatever we could consolidate was not so material for FY -- for Q4. But to your point about (inaudible) if for a minute we look at without RCS and without Auroma, our revenue growth would have been 23%. But with RCS and Auroma, our growth was 16%. So first, I want to add that our core business, as far as ProConnect is concerned, continues to be pretty strong. Did that answers your question, Nitin?

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Nitin Padmanabhan, Investec Bank plc, Research Division - Analyst [6]

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Yes. So I think RCS has been sort of soft for some time. So do you see that coming back, and how do you see that? And the second on the Auroma side of things, are margins better than RCS?

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Raj Shankar, Redington (India) Limited - MD & Director [7]

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They are similar. You're right. The margins are pretty similar. Just to give you a overall sense. Our EBITDA margin is about 15%. Our PAT margin overall at a consolidated level is about 7%. And when you look at RCS, in particular, it would be at probably a little shy of 6%. So to that extent, yes, it's lower than what we are able to make in ProConnect. To your earlier question about the revenue contribution from various lines of businesses within ProConnect, rough and ready, about 50% of the total revenue for FY '19 would come out of warehousing, about 1/3 would come out of transportation and the balance would be other services including value-added services. Does that help you, Nitin?

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Nitin Padmanabhan, Investec Bank plc, Research Division - Analyst [8]

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Yes, sure. So I was actually trying to understand how Auroma sort of strengthens the overall business in terms of the portfolio? So if it's 50% warehousing today, where does that go with Auroma and as the overall proportion? And how Auroma's margins are versus the rest of the business? So is Auroma more comparable to ProConnect margins or more comparable to RCS margin?

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Raj Shankar, Redington (India) Limited - MD & Director [9]

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Great. So quickly, so first of all, we think it's going to be an additive business with Auroma coming into the frame, one. We have absolutely new set of clients, which is certainly something that we want to -- we are excited about. Three, this -- their margins would compare more with PCS, more in line with PCS from a profit after tax point of view. And last but not the least, this would give us an additional about 24 warehouses at about 1 million square feet of warehouse space. Does that help?

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Nitin Padmanabhan, Investec Bank plc, Research Division - Analyst [10]

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Yes, that helps a lot. Just one last question, if I may. Now looking out after this year, if you look forward into next year, how would you think of what the business is in terms of how you would see your priorities for next year, and how you would see growth for both the segments, which is India and overseas?

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Raj Shankar, Redington (India) Limited - MD & Director [11]

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So we see the potential to grow would be possible in both the regions in India and overseas. The only point that we have to keep in mind is, if there is any black swan event, like what happened in the case of Arena, on the fateful day of 14th of August when the Turkish lira depreciated by 70%, and you would also recall that in Q3 of FY '19, if my memory still serves right, because of the huge depreciation of the Turkish lira, we had a 660% effective tax rate. Now some of those can completely disrupt or change the perspective. Notwithstanding some of these serious aberrations or any such tsunami effect, we would like to believe that for FY '19, both regions should offer us a good growth opportunity. We particularly want to focus more on the hygiene of the business in terms of managing working capital, managing -- making sure that our earnings growth tend to be a double digit notwithstanding exactly whatever is the top line growth that comes with it.

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Operator [12]

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We have next question from the line of Pranav Kshatriya from Edelweiss.

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Pranav Kshatriya, Edelweiss Securities Ltd., Research Division - Research Analyst [13]

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Congratulations on a good set of numbers. Sir, my first question is regarding this account receivable and inventory provisioning. For FY '19, I mean, it was expected that it was higher in the first half, so it will normalize in the second half. I mean, so I was expecting that for FY '19 as a whole, we should see this in the similar range, but the account receivable at 14 basis point and inventory at 12 basis point is possibly highest in the last 5 years. So what exactly is causing that? That is my first question. Secondly, you did allude to the acquisition of Auroma, but I just wanted to understand what sort of growth you can see because of that because in the press release, which was released, it showed a very insignificant growth in FY '18. How this business has grown in FY '19, some color on that will be helpful? And lastly, tax rate has been volatile, partly can be attributed to Turkey. But what is the reason for a reasonably low tax rate in this quarter as well as the last quarter, and how should we see this going forward?

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Raj Shankar, Redington (India) Limited - MD & Director [14]

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I'll just take the second part of your question and then I'll have hand it over to Krishnan, who will probably give the answer to your first and third question. With regard to Auroma, so for this current year, our sense is that this should definitely give us a good opportunity to bring about anywhere between 15% to 20% in terms of uplift to the top line and something around 15% also an uplift to the bottom line, just to give you a very high sense on this. There's lot more work to be done, while it is -- we are excited with this opportunity, but at this point in time, we are trying to bring in lot of best business and management practices. We're also trying to make sure that some of our warehouse management systems, et cetera, all that interface is done. So the first one quarter, maybe a little more than 1 quarter, we would be busy with integration. But having said all of that, we think this should give us a uplift to the growth of by about 15% to 20% on the top line and about 15% on the bottom line. Krishnan, over to you on the other 2 questions.

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Pranav Kshatriya, Edelweiss Securities Ltd., Research Division - Research Analyst [15]

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Raj, if I can just follow up for a minute. So we're talking about 15% growth on INR 60 crore top line what was reported and margins were almost 7%, PAT margin is what we should take. Is that the base we are talking about or we going to cut the entire ProConnect base?

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Raj Shankar, Redington (India) Limited - MD & Director [16]

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The entire ProConnect base.

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S. V. Krishnan, Redington (India) Limited - CFO & Whole Time Director [17]

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Yes. So with respect to the provision for AR and the inventory, Pranav, see, the Indian provision that had got created in Q1, yes, it will get normalized, but it cannot get normalized immediately. That's why in the first quarter, during the call, we had said we expect for the rest of the year to range between 14 to 15 bps, and we could maintain it within that. But as we move forward, we will start tracking the long-term average. With respect to the provision for inventory, as you may know, the last 2, 3 quarters, we have been talking about some inventory build-up in one part of the business and this -- I mean one of the choice available for us is to liquidate at a lower price or wait for the right time. And where you choose to wait for the right time, it will result in some part of inventory provision to come in into the P&L. So this, again, we think is more a one-off, but as you can see from the performance that there is a bounce back that's happening. So I am sure, as we move forward, this again will get set right. So this is on the provisioning part. Second, with respect to the tax rate. See, on a steady state basis, it will be better to project a tax rate, a weighted average tax rate of between 23% to 25%, because in India, the overall tax still is about 35% to 36%. And in overseas, the biggest variation will come in assessing Arena, where base on the exchange rate, the tax rate undergoes a change. In this quarter, it is lower, which has impacted the tax rate and it had come down by about -- between 3% to 4% for Q4.

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Pranav Kshatriya, Edelweiss Securities Ltd., Research Division - Research Analyst [18]

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Okay. If I can just follow up, please. So on account receivable, the 13 basis point should be the new normal or we expect -- because I was under impression that, that excess provisioning which was done in the first 2 quarters will be reversed as the collections will come in. So just wanted to say that -- is 13 basis point is the new normal for the next few quarters, or we can work with a lower number? And on inventory again, this inventory -- how much of the inventory is already written off and hence, you will not need to or it will keep coming because there will be new inventory, which will get added in this segment, so some color on that will be helpful.

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S. V. Krishnan, Redington (India) Limited - CFO & Whole Time Director [19]

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Okay. With respect to provision for doubtful debt, it will come back, as I've said, to the long-term average as we move forward. But you need not take this 13 or 14 bps as a steady state one, it will slowly come down to what we had earlier, which is about 0.1 to 0.12 percentage. With respect to the inventory again, we don't expect any further buildup of inventory. What had got created whenever we are able to liquidate that, it will come back into the system.

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Pranav Kshatriya, Edelweiss Securities Ltd., Research Division - Research Analyst [20]

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So the new normal will be under 10 basis point because that is what you have been reporting earlier out, or there is a possibility of this product some or the other inventory, which will be little near can come again as inventory write off?

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S. V. Krishnan, Redington (India) Limited - CFO & Whole Time Director [21]

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Unlikely, Pranav. I think you can take that the new normal will be the steady state what was there on a historical basis.

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Operator [22]

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We have next question from the line of Vishal Desai from Axis Capital.

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Vishal Desai, Axis Capital Limited, Research Division - Assistant VP of IT Services [23]

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And congratulations on a great performance. Just to delve deeper in terms of the India performance which was very strong in this quarter. Could you throw some light in terms of what exactly drove the pickup in the enterprise segment as well as the mobility segment? And secondly, in terms of outlook, when we talk about both the geographies, that is India and overseas, do you expect this kind of momentum to continue in the enterprise as well as the mobility segment, particularly in India, given that in the past we said that enterprises has seen some amount of offshoots, but not really a very big material uptake. So some kind of commentary on that in terms of details would be helpful.

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Raj Shankar, Redington (India) Limited - MD & Director [24]

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So with regard to the enterprise business in India, so as you know, we grew at 22% for the quarter. And from a full year perspective, we grew at about 11%. So our sense tells us, of course, we had some good wins in terms of participating in certain large deals in Q4. So there are some opportunities that we are very carefully selecting in terms of some large projects, so which have certainly give given us a boost to the growth in the enterprise business. So the way forward, yes, enterprise business should be poised for a double-digit growth. Now I am unable to tell you with a certain amount of surety whether it will be at this kind of a pace, but certainly, we expect the enterprise business to have a double-digit kind of a growth way forward.

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Vishal Desai, Axis Capital Limited, Research Division - Assistant VP of IT Services [25]

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Sure. And on the mobility side, if we could have some sense in terms of how the quarter transpired. What led to the strong growth as well as the outlook going forward in terms of sustainability of the moment?

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Raj Shankar, Redington (India) Limited - MD & Director [26]

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Yes. So you would, again, recall that there were some changes to the distribution landscape in the mobility business. So that came into play in Q4. So that certainly helped us to be able to pick up a bigger share and a bigger slice of the opportunity. So this growth was, of course, a very strong growth of 28% in the mobility space in India for Q4. And when you look at the full year, it was at about 7%. Our sense is that we think a good amount of growth opportunity, again, a double-digit growth opportunity should be possible in the mobility business. We see there is a good amount of traction, there is a good amount of demand. So we think as this continues, we should be able to at least deliver on a double-digit growth notwithstanding at what level it may be a weak or a strong double digit.

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Vishal Desai, Axis Capital Limited, Research Division - Assistant VP of IT Services [27]

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Sure. Great. Krishnan, just one small clarification. Our EBITDA margin during the quarter, the EBITDA stood at, I think, around 2% in -- at a consol level versus Q4 FY '18, which was at around 2.1%. Any reason to that, was it related to the SRA charge or -- SAR charge or was there something else to that?

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S. V. Krishnan, Redington (India) Limited - CFO & Whole Time Director [28]

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Yes. Definitely SRA (sic) [SAR] is one of the factor.

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Raj Shankar, Redington (India) Limited - MD & Director [29]

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SAR.

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S. V. Krishnan, Redington (India) Limited - CFO & Whole Time Director [30]

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SAR is one of the factor why the EBITDA has got impact -- EBITDA percentage has got impacted in the current year.

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Vishal Desai, Axis Capital Limited, Research Division - Assistant VP of IT Services [31]

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So ex of this, would it be fair to assume that margin would have probably recorded a growth in terms of year-on-year?

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S. V. Krishnan, Redington (India) Limited - CFO & Whole Time Director [32]

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So growth, yes. The percentage, I will just check and confirm.

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Operator [33]

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(Operator Instructions) We have a next question from the line of Deepak Agrawal from Impetus Advisors.

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Deepak Agrawal, [34]

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I may have missed it earlier, I joined it late. I just want to understand briefly what led to this 360-degree turnaround in the working capital or free cash flow situation from Q3 to Q4?

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Raj Shankar, Redington (India) Limited - MD & Director [35]

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Okay. So I just want to give you a sense that when you look at 4 quarters in a row, there has been a consistent improvement in both India, overseas and consolidated. So to give you a sense, our Q1 net working capital was 44; Q2, 41; Q3, 41; and Q4, 33. So there has been sort of an improvement quarter-on-quarter, though there has been a sharp improvement from Q3 to Q4. Now specific to your question, we managed to bring down our inventory by about 5 days, so this 8 days difference that you see between Q3 and Q4, that is 41 to 33, almost about 5 days is coming out of inventory. And this reduction in inventory is largely in India. Again, to give a color to that. The inventory in India in Q3 was 44 days, came down to 32 by about a good 12 days. In overseas, it was 29 and came down by 1 day to 28. So in summary, this reduction is largely attributed to higher sellout and hence lower inventory.

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Deepak Agrawal, [36]

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Okay. But if I look at the absolute amount of inventory on a consolidated basis, it's same at the end of Q3 and also at the end of Q4 and our revenues are also same. So where is the reduction? I don't see any reduction there.

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Raj Shankar, Redington (India) Limited - MD & Director [37]

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Sorry, what's your question? So I am not very clear with your question, but you're saying you're not able to see reduction of 5 days inventory between Q3 and Q4?

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Deepak Agrawal, [38]

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Yes. Because our revenues are same as well as our inventories are also -- both inventory as well as the revenue are the same level in Q3 and Q4 end. The reduction, that seems to have come only in trade payables. I mean there is an increase in trade payables, so that contributes to the improved working capital, but the receivables and the inventory are at the same level.

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Raj Shankar, Redington (India) Limited - MD & Director [39]

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Allow me to check because the data I have in front of me very clearly says that Q3, the inventory days was 44, which has come down by 12 days to 32 in Q4. Allow me to check that since you're making that point, so in the meantime, you can go on with your next question because give us a little time to circle back.

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Deepak Agrawal, [40]

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Yes. Just one more question I had was, what was an impact of -- on Apple locking its store in India or on you?

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Raj Shankar, Redington (India) Limited - MD & Director [41]

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Honestly, whatever that you read in the newspaper is the same information that we have, though at this point in time, there is nothing that has opened yet. But whatever that you hear and whatever is published in the news is what we also know.

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Deepak Agrawal, [42]

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No, no. If they open, then what will be the impact on you? If...

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Raj Shankar, Redington (India) Limited - MD & Director [43]

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Sorry. Okay. My apologies, I didn't get your question. So in fact, we have shared this before that we believe if a vendor would open their own, what we call as the experience store, this is only going to bring more customers and therefore, it will actually be a catalyst to the distribution business. Oftentimes, people think otherwise. And going by the examples in other countries where we find that every time when the vendor would open any kind of a new store, this really raises the total demand and the interest of the consumers, and hence, it has a positive effect to distribution business as well.

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Deepak Agrawal, [44]

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But now whatever the sales were at that store, it will not be routed through you, that will be directly, right?

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Raj Shankar, Redington (India) Limited - MD & Director [45]

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No, no. So without getting into too much of details, in some of the other markets where we distribute, where the vendor also has closed their own stores, now our experience tells us, in fact, in some places, they don't even have 1, 2, they have 3, and yet our business has not suffered, in fact, it has only raised the number of people interested in the product. So there is a overall increase in demand. Yes, that particular sale that happens in the store will not be routed through a distributor. But I think the larger point I am making is that our experience tells us, every time a vendor should open a store, the demand goes up.

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S. V. Krishnan, Redington (India) Limited - CFO & Whole Time Director [46]

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For the earlier point, with respect to the inventory days, in fact, the inventory value between end December and end March has come down, which is why this reduction in terms of number of days from 34 to 29. But because...

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Deepak Agrawal, [47]

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Fine, fine. Sorry. I was comparing it with September. Fine, yes.

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Operator [48]

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We have next question from the line of Rishabh from Enam Holdings.

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Rishabh Chudgar, [49]

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Sir, congratulations on a good set of numbers. Sir, I just -- taking forward the working capital question a little bit forward. Since you have reduced the working capital across India and overseas, are these days sustainable going into FY '20, or do you see them increasing going forward, or is it going to be the new normal in the business?

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Raj Shankar, Redington (India) Limited - MD & Director [50]

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Okay. So I would like to say that, yes, what we have delivered in Q4 is definitely of a very high order. To have delivered it at consolidated level of 40 days would represent about 9 working capital turns. I just want to draw your attention that in the past we have indicated that in our business if you are able to do about 7.75 to 8 working capital turns, which is about 45 to 48 days, that could be more like being normal. This is something which is exceptionally good. So I am not, for a minute, trying to say that we will relax the norms. We will continue to work hard and play hard to make sure that we try and keep it at good levels, but indicative working capital turns is about 7.75 to 8.

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Rishabh Chudgar, [51]

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Okay. And sir, just coming for the growth outlook for FY '20. I know, do you still see overseas business like outgrowing India business? Or say, like this year, you have India definitely grown higher by overseas. But say, going into FY '20, do you see a similar kind of growth momentum for India and then for overseas, or do you see overseas outdoing India?

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Raj Shankar, Redington (India) Limited - MD & Director [52]

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Okay. See, overseas, more importantly for us, when you start to see the kind of -- to answer your question, both regions are likely to demonstrate good performance. But again, I just want to once again caution or add by saying that there are always some black swan that can completely upset the whole equation. So notwithstanding what would happen in Turkey or probably even in some of the other markets in Africa, we believe the propensity for growth is stronger in India than the propensity for growth overseas. But we expect both regions to do well.

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Rishabh Chudgar, [53]

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Okay. And sir, you know this is just a bookkeeping question. Can you share with me the net worth and the gross debt and the capital employed for the India and the overseas business?

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Raj Shankar, Redington (India) Limited - MD & Director [54]

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Okay. So while Krishnan is just looking at it, I will quickly read out. In India, it is INR 1,114 crores of net worth, with about INR 2,054 crores of capital employed; overseas, INR 2,792 crores of net worth, with INR 3,504 crores of capital employed. And hence, at a consolidated level, it is about INR 3,906 crores of net worth at INR 5,558 crores of capital employed.

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Rishabh Chudgar, [55]

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Okay. And this doesn't -- this is including factoring or excluding factoring?

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Raj Shankar, Redington (India) Limited - MD & Director [56]

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Excluding factoring.

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Operator [57]

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We have a next question from the line of [Rajesh Khanna] from -- individual investor.

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Unidentified Participant, [58]

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Sir, I have 3 questions. One is on the Ensure business. Like is there any scope to improve the business performance because the business does not seem to be performing too well? So that is the first question. The second question is on the Turkey investment. Like we keep hearing in so many con calls that Turkey and Arena there is a drag and there are so many black swan events, which keep happening there, okay. So like what exactly is the return on investment since the beginning in Arena? Can you highlight that?

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Raj Shankar, Redington (India) Limited - MD & Director [59]

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Okay. So...

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S. V. Krishnan, Redington (India) Limited - CFO & Whole Time Director [60]

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So one was Turkey and Ensure.

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Raj Shankar, Redington (India) Limited - MD & Director [61]

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Ensure, good. So very quickly, as far as Ensure business is concerned, our whole business model has undergone a change. For last many years, the whole business focus was on, what we would call, as the warranty support services or the break/fix services. But we have then completely decided to reposition this company and move up the services food chain by trying to position ourselves as, let's say, a managed security service provider or a managed service provider on the cloud. Now I must confess that it's work in progress. So on one hand, we are slowly been focusing on the traditional business of our repair services, while on the other hand, we are trying to build capability, skill sets and competency around moving into security and cloud services. So in the interim, you are seeing that this business has been sort of performing in a subdued fashion.

Now with regard to Turkey. To your question, I don't have a very candid answer in term -- or a sharp answer in terms of what is the total return we have made on our investment. But suffice it to say that we have probably had high single-digit return on that particular business, if one had to look at total return, including the dividend, yield, et cetera. Now the point here as far as Turkey Arena is concerned is, yes, because of the fact that on one hand Turkish lira depreciation has a serious impact to the demand on one hand, and on the other because our functional currency for Arena is U.S. dollar and the way the tax is computed, so oftentimes, when you look at at EBITDA level, they seem to be doing well, but at a PAT level, there would always be some surprises where because of the effective tax rate, which can completely go up or down, so the resultant performance does not look good. But just for a minute, if we were to look at Arena for the quarter gone by, that is in Q4, just at a high level, the EBITDA growth -- revenue growth was 6%, EBITDA growth was 41%. So just leaving that as a point. So -- and if you look at again -- but for the full year, if you look at it, the revenue de-grew by 7%, because once the currency depreciates, then it also has impact when you do all the translation to U.S. dollar. And when you look at profit after tax, of course, we have grown, but largely, it all depends on what the tax rate is. I don't know if that answers your question.

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Unidentified Participant, [62]

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Yes. That's fine, sir. And just one more question on the emerging businesses, like solar, medical and 3D. Like when can we expect any contribution from these businesses, including 3D printing, medical and the solar distribution business?

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Raj Shankar, Redington (India) Limited - MD & Director [63]

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Okay. So of all the businesses the way we are now reprioritizing, for us, cloud is very clearly the number one, and that is growing at a breakneck speed. So we are extremely delighted with the way that quarter after quarter, we've been able to grow double digit as far as the cloud business is concerned. And even there, we are trying to extend and expand the scope of the business beyond the cloud retail opportunity, and therefore, in the way forward, it will start to become margin interesting as well. And in terms of the second area of business, digital print is doing very well for us. Last year turned out to be a good year where we, again, grew double digit on top and bottom line. So that's doing well and that's our second priority. And the other priority that we have is the health and medical equipment, which may have had a delayed start. And now in the last few quarters, we can see there is a strong ramp up happening. That has also grown by a very high double digit though on a low base. So this is how we are trying to reprioritize some of our emerging businesses.

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Unidentified Participant, [64]

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So sir, should we expect the returns from these businesses in another 3 to 4 year time, or like in what time frame will they contribute significantly to the consol business?

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Raj Shankar, Redington (India) Limited - MD & Director [65]

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Okay. So will they start to contribute to the bottom line? Yes, it will be starting this year, FY '20. The word significant is something that would take a little time. Now just on a side note, as you would know, which I said on the call today, about 28% of the total profits of the company comes from services, which includes, of course, ProConnect, includes cloud, it includes the digital print services, et cetera, so -- and Ensure. So that has contributed to 28%. Now with regard to health and medical equipment, as I said, it will start to deliver some profits this year. But now once the ramp-up in terms of scale happens, it will also become interesting.

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Operator [66]

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We have next question from the line of Vishal Desai from Axis Capital.

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Vishal Desai, Axis Capital Limited, Research Division - Assistant VP of IT Services [67]

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Just quickly if I could understand, whether you're talking about a strong double-digit growth outlook, at least, for FY '20 in both the geographies, just wanted to get a sense if we are expecting this momentum to continue in the enterprise segment, which typically is margin-rich. Is it fair to assume that margins on a consolidated basis as well will move up from the 2%, which we are seeing currently? And if so, what would be the key drivers, if any, further than this that could drive margin performance upwards?

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Raj Shankar, Redington (India) Limited - MD & Director [68]

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Just wanted to make a small a sort of, not a correction, but an amendment. In terms of the strong double-digit growth that you talked about in both the geos, I just wanted to mention, whenever we are talking about the way forward and we are saying, yes, we want to deliver a double-digit growth, for us, it is about earnings growth, which is the one that we are focusing because top line is something which depends on many factors. So sometimes we may take a conscious call not to participate in certain business opportunities, but we are very clearly focused on making sure that the bottom line, that is the earnings growth, it tends to be double digit. So this is one point. The -- to your question, can the margins in terms of percentage get better with this shift? The answer is, with higher contribution coming from the services part of the business, there are -- this is certainly going to help in 2 ways: one, the margin percentage and hence the margin should get rich in terms of both at a gross margin level as well as at an operating income level; at the same time, it will also require relatively lower working capital and hence it should make the ROCE also interesting.

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Operator [69]

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We have next question from the line of Pranav Kshatriya from Edelweiss Capital.

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Pranav Kshatriya, Edelweiss Securities Ltd., Research Division - Research Analyst [70]

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Sir, just wanted some color on the outlook what you just mentioned. So if what we are seeing overall in the economy is that there is a bit of slowdown and the volume growth for most of the segment is dipping down. You think that to play out on the enterprise growth at all? I mean is there any hint of that happening already or will that impact going forward?

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Raj Shankar, Redington (India) Limited - MD & Director [71]

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I'm a bit -- it's very wrong, while you asked the question and I owe you a response, I completely forgot to mention during my opening remarks that we decided or the Board has decided to offer a 25% dividend, and this would mean approximately INR 3.30 per share. The reason why we are doing 25% though historically you would recall that 20% on the profits of the company is what we normally declare, the reason is having completed 25 years of Redington since inception, we thought -- we felt this will be a good milestone. And therefore, to commemorate this 25 years of our business and entrepreneurship, we thought we should do this. I am sorry, Pranav, I am using this opportunity to convey this message. I should have done it at the opening. I got so carried away with the rest of the highlights that I forgot to mention this. And in bargain, I forgotten your question now, you may have to repeat.

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Pranav Kshatriya, Edelweiss Securities Ltd., Research Division - Research Analyst [72]

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No problem, sir. Sir, I was just trying to understand that, so are you baking in some sort of a slowdown in the economy what we are seeing, especially the volume growth for many industries is slowing down. In that context, is it -- I mean is there a risk in the enterprise business slowing down, given the challenges in the macroeconomic environment, sir? So that is ...

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Raj Shankar, Redington (India) Limited - MD & Director [73]

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Yes. So great question, Pranav. So that is one of the reason why I was being a little cautious. The couple of times when I am not talking about the top line growth purely for that reason that, yes, there are opportunities, there is also this general slowdown. And our own sense tells us that probably for a couple of quarters, there may be a certain amount of slowdown in the economy. This is just our own internal view. And therefore, yes, we have baked that into our numbers. So this is the reason why I keep oftentimes reminding that, for us, the growth is more about the earnings growth in terms of double-digit growth and not so much about the top line growth.

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Operator [74]

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

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Raj Shankar, Redington (India) Limited - MD & Director [75]

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Thank you, Vikram. Thanks to each and every one who participated on the call today. I once again apologize for not having really said at the outset in the opening remark. I am actually very happy and excited to share with all of you that the Board has declared a 25% dividend, which would represent about INR 3.30 per share, and this is to commemorate the 25 years since Redington came into existence. On the other concluding remarks, Q4 has been an exceptionally good quarter, not only that we grew all the parameters and financial ratios on a double-digit basis, we also managed to bring down our working capital, generated positive free cash flow, both in India as well as outside India. And this is true for the full year as well. So we are extremely happy that we managed to finish the year on a very high note, though we had a slow beginning in Q1 and Q2. And we look at the way forward with a sense of optimism, though we expect maybe a quarter or 2 to be a little slow and sluggish, but once again, the momentum should pick up in the latter part of the year. Thanks to everyone once again.

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Operator [76]

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Thank you very much, sir. Ladies and gentlemen, on behalf of Redington (India) Limited, that concludes this conference call. Thank you for joining with us. You may now disconnect your lines.