Ladies and gentlemen, good morning, and welcome to Redington India Limited Q1 FY 2023 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 after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Rajiv Srivastava, Managing Director, Redington India Limited. Thank you, and over to you, sir.
Hi. Good morning, everyone, and welcome to our call for quarter one. You have seen our numbers that were disseminated yesterday, and we are pleased to report another strong quarter of sales and operating margin growth. Redington achieved record revenue and operating margin for any first quarter of the year as our continued investments in technology capabilities, partner relationships, and our comprehensive breadth of offerings begins to pay off. You would have seen that on a global basis, our revenues have grown by 25%. This is on net accounting basis. On gross, it will be 27%, while our EBITDA has grown 34% and PAT has grown 23%. This actually points to the fact that continuing demand or growing demand for supply chain orchestration is driving strong financial performance across our global business.
We know that tech adoption has been at an accelerated pace across pretty much every segment of the market that you can come across. Though there was a softening of consumer demand this quarter, but apart from that, across enterprises, across MSMEs, mid-market, and government education, tech demand has been fairly robust. We continue to anticipate a reasonable demand environment and expect to sustain strong revenues and margin from our recently implemented operating improvements amidst the backdrop of geopolitical and financial uncertainty. We know that shift to digital has been strong and continuing. In fact, I've said this in the last that shift to digital is a macro great either a growth shift or a survival paradigm for most economy, for most companies right now, including governments.
They improve efficiency, they improve productivity, and they allow you to do much more in your businesses. That's something which is playing out in a very good way, and we are trying to leverage to our advantage as much as we possibly can. Also, the fact that the economic environment in the geographies that we operate in has been fairly all right. Even though the global GDP growth, the global growth was guided down by IMF in this quarter. Between last quarter and this quarter, the growth was guided down from 4.1% to 2.9%. Still, in the economies, in the geographies we are operating in, every country has seen or has been guided a very positive growth, GDP growth for the rest of the year. I think that plays to our advantage.
Also, the fact that in most of the countries that we are operating in, the demand is led by investments by governments, investments by organizations in those countries, and also a huge amount of consumption that is taking place in these countries. I think both of those are playing to our advantage right now, and that's helping and supporting well. Just to let you know, our growth has been fairly broad-based this time. All the regions that we operate in, India, Middle East, Africa, Turkey, and South Asia, every region has pretty much played out in a good way. Every region has contributed to the growth and every product category.
We've had a broad-based growth by region, and we've had a broad-based growth by categories of products, which is IT, whether it is volume or value, mobility and our services portfolios. All of that has turned out to be extremely reasonable in this quarter. Let me step back and stop over here. You've seen the results, and I'm opening up to any questions or any comments that any of you might have right now.
Thank you very much. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touchtone phone. If you wish to remove yourself from the question queue, you may press star and two.
Just so you know, I've also got my Chief Financial Officer, Global Chief Financial Officer, S.V. Krishnan, on the call with me, and our Financial Analyst, Deepika, on the call.
Good morning.
Thank you, sir. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Nitin Padmanabhan from Investec. Please go ahead.
Hi. Good morning. Congrats on the strong quarter. Hi. I have quite a few questions, but I'll just ask two and fall back in the queue.
The first is, Redington has always prioritized risk over growth, right? If you just look at the landscape over the next two to a few quarters, from your lens, do you think that growth trumps risk at this point in time? Is there any change in philosophy in terms of how you manage risk? Right? That was the first question. The second question is on obviously the working capital, which has gone up. If you could give us some breakdown on receivables, inventory, payables and what's led to such a quick sort of shift in working capital days. The broad assumption was that it would be a little gradual, but it's been quite quick. So just wanted to understand the context there as well. Thank you.
Okay. Let me give you a color to both the questions, and I'm gonna be also requesting our Global CFO, Krishnan, to chip in after I'm done that. To your question about risk over growth or growth trumps risk, I think it's always going to be a very balanced sort of portfolio for us. We are a company which is very focused on what's going on in the market. In every single geography, every single country we operate in, we have to always assess the opportunity landscape and what it takes to get to that opportunity landscape and balance the two out. We are never gonna be reckless because that's what has given us growth over the last so many, many years.
We are going to be very outside in and maximize the context of the market opportunities that are coming in. Just to give you one example of that, Nitin. Like I said, it's a great question because it really plays to the way in which we operate as an organization. You know, in the last quarter, we started to see a shift from the work from home and learn from home started to reduce, whereas the consumption in the offices, small and medium enterprises, large customers, government, education, schools and universities all started to go up. We had to shift our model and pivot our model to make sure we capitalize on that. Now, that's a low risk strategy, but it's maximizing the market opportunity from a growth perspective. We are always going to be balanced.
There are countries right now in our portfolio which happen to have a higher risk profile, Nigeria, Kenya, Ghana, Egypt, all of them. Okay. We are making choices to make sure that we stay in the right direction there. Okay. That's from a risk versus growth perspective. We are very balanced, but we are very focused on maximizing the market opportunities in a very good way. The second is working capital has gone up. Clearly, it has gone up. If you recall in the last conference that we had same time a quarter ago, we had guided that our working capital is stuck in the range of 28-35 days. Right there it is, and it's sticking at the early part of that curve.
We know that the global markets right now, whether they're financial markets, geopolitical, economic landscape, all of them, all of those are a little disrupted right now. We do see that interest rates are hardening up. We see inflation going up. We see commodity prices are really high. We see supply chain is disrupted. All of this will contribute. Then there are many footprints which are not getting supplied in time. Your supply and delivery for project orders is gonna get hampered or gonna get constrained a bit. Just the integration is gonna become challenging. Given all of that, we understood that the working capital will go up, it will normalize somewhere, and the way we had guided, it stays exactly right at the early part of that curve right now.
I think we are pleased with the situation, and that's the way it's playing out exactly the way we expect. Krishnan, you are at.
Just to see, Nitin, first, I'll give a tour of working capital days. As you said.
I'm sorry to interrupt, sir. Your voice is breaking.
Okay. Is it clear now?
Yes, sir. Please proceed.
Okay. As you know, the net working capital by end of the quarter, it was about 28 days, split into debtor days of about 52 days, inventory days of about 32 days, and creditor days of about 56 days. I want to ascribe one important reason as to why there is a spike in working capital, as Rajiv alluded to. See, in the enterprise space, what we see is there are short shipments. Since there are short shipments and the balance shipments are taking time because of the general shortages that we see in the industry, we had to store these stocks and we couldn't bill. That has enabled us to increase our inventory days. This is something which is very unique. It'll continue for some time till this shortage situation goes away.
There is no concern at all on this in our view. As the enterprise performance, the IT value performance has been better. As you know very well, this also tends to increase the debtor days. At the same time, we will also get, you know, higher creditor days, which can cushion a bit in terms of increase in debtor days. As Rajiv said, we are well within the range, and we don't see any concern in this thing.
Sure. That's helpful. Any change in provisions for the quarter? That's all from my end.
The provisions for the reasons that I had stated had gone up in the case of inventory. Inventory provision for the quarter has been at about 0.55%. Which is mainly because of some of these part shipments that had come in where we had to provide for it. We had an option of changing the inventory provision model because we don't think these will be taken as a hit, but we thought it would be prudent not to make a change, and we had gone ahead. So that has increased the provision percentage for this quarter, which, I mean, once the product gets sold, it will get reversed. In the case of receivables, the provision percentage for this quarter has been 18 basis points, 0.18%. That's also slightly higher. I want to, I think mention two important points here.
One, in the case of India, in Q4, there was a provision that we had created last quarter. I mean, we knew the money will come, but it is going to take time. A substantial portion of the money has been received in the current quarter, and the provision got reversed. There is a similar transaction in our overseas business where, while we are still confident in terms of collecting because of the 18 that we should provide for it, and that provision has added on to it, so that the overall provision is about 18 bps return.
Thank you so much, and all the best.
A request to all the participants to limit your questions to two per participant. Should you have a follow-up question, please rejoin the queue. Thank you. The next question is from the line of Pranav Kshatriya from Edelweiss. Please go ahead.
Hi. Thanks for the positivity and congratulations on a good set of numbers. My first question is regarding, you know, the growth. I mean, we were anticipating some sort of, you know, slowing down growth in India Mobility segment. If I look at that is the one which has driven the growth in this quarter. What has led to that? Because I was thinking that we had this change in GTM which would slow the growth. Your commentary also suggests that Enterprise has driven the growth, but you know, the numbers suggest that India Mobility is you know, sort of driving the show. That's my first question. Second question is you know, on the sustainability of the margin.
If I look at the margin and if I incorporate the 18 basis points.
Mr. Kshatriya, I'm sorry to interrupt. Your voice is echoing.
Hello.
Please proceed.
Yeah. If I look at, you know, the margin profile, the margins are at, you know, significantly higher, considering the, you know, there has been 18 basis points provision. What will be the sustainable level of margin given I think most of the costs are now normalized? Or are there one-off costs which you want to call out? Because our last interaction suggested that you might be looking at investing more in creating capability, and that's why we were sort of expecting the margins to go down. Lastly, I mean, working capital trajectory, if you can comment on that. That's it from my side. Thank you.
Okay. Many questions. I think we covered the working capital, but we can give you more color to that. Let me give you a sense as to growth, and is the growth driven by India mobility or is it driven by many other things. Growth is driven by mobility overall. Clearly, there is a mobility which has grown faster than any other part of the business. Our value part of the business has grown 30%, okay, which is a very significant in period growth. Our value businesses generally don't see such a huge amount of growth because they are a much more stable sort of a product line and category. Our value part of the business has grown significantly. Our cloud has grown even faster than that. Our cloud has grown 48%.
It is equivalent to our mobility growth. I think the question that came up last time in the call, and many analysts, many of you had asked that question about the impact of Apple GTM and how is it going to impact the revenues of the India-based folks and all that. If you recall, we had answered that question. It wasn't Apple alone, it was Apple and Dell and Lenovo and ASUS, and everybody makes changes to their GTM. It is only fair. I told you that it is only fair for them to make changes to the GTM to suit the model that they have. We as Redington have to do a variety of different things to make sure that we continue on our course of growth. There are many elements, and your question is very deep.
There are many elements that allow us to stay on the track of growth and also stay on the track of profitability. Sustainability of margins and run out of cost, we are making investments. We made investments into our many areas of technology, people, platform. Last couple of quarters we've been making, and we'll continue to accelerate those investments because those are fundamental to our business. What we're doing in that space is we are making investments in technology that allows us to become more productive and more efficient. Very straight line sort of an equation. We are making investments in shifting our business model from a pure-play brick-and-mortar to a more online or a customer choice model, which is an omni-channel model. We have made a shift towards the cloud platform.
You know, we've got a very strong cloud platform where more than 11,000 partners are transacting pretty much every day now, every month now. That's a very, very strong mode of working. All of those are models which allow you to do more with a much more optimized operation. We've set up, in the last quarter, a shared services which has consolidated the operations of Redington across the entire country to enable us to become far more efficient. Just so you know, I'm really not sure how many of you probably know, we generate more than 300,000 invoices every quarter. We process more than 300,000 orders every quarter. All of them is getting done now out of my one single shared services center at the back end.
How cool and efficient can that be? Look, there are many, many, many such initiatives that enable you to become far more optimized and efficient in your business than otherwise. That's the way we see our trajectory. That's the reason of growth, because the value has grown very significantly, because cloud has grown significantly, because all our tech investments and efficiency investments happen to be continuously sort of scaling up and going up. To give you a sense on whether they are sustainable or they are one-off, one-off kind of a profit margin and all that, I think we are cranking ourselves to be very efficient and very maniacal focused on our cost. We are also cranking ourselves to become more efficient. We also have a view to where the world is headed right now.
We know for sure that the global supply chain, the global financial markets, everything is disrupting. Providing a sort of guidance to you for the long run is going to be a very difficult, tough ask to do. We did extremely well in Q1. We have a good hold on where our Q2 is headed. That's all. That's all that we can be, we can be as proven business players in the market for a long time. As any reasonable business, you would expect us to be very, very strongly and maniacally focused on delivering short term in a very healthy way and adding every single quiver or every single arrow in our armor to make sure that we have covered ourselves for the mid- to- long run.
I think those are the ways in which we are trying to think of our business. Everything has to be in a good, sustainable way. You will continue to see us make more investments, and not less. To your question about working capital having gone up, we answered that. Krishnan, do you want to add anything more to that, please?
I think the answer is clear. In working capital, I mean, I just want to make all of you know, we are active. There is no need for concern. If there are any business-related situation, we will handle in the best possible manner. We will not leave any stone unturned as far as the efficiency is concerned. To the point on cost, Pranav, what I want you to know, in spite of the additional cost that we are incurring towards the capability building, still if you see the increase in cost is well within control. In the way of speaking, what we had done in Q1 is a bookish performance. Revenue has grown strongly. Gross margin has grown even at a better pace.
The OpEx growth has been lower than both revenue and gross margin, resulting in the operating profit being better. I mean, we will be active going forward.
Yeah. Also to your point, I think the current environment will not allow you to make long-term or very long-term predictions from that perspective. Our range of working capital stays in that of 25-35 days sort of a base there. Okay. Over to you, Pranav.
Yeah. Thank you so much for all the answers. I'll come back in the queue. I wish you all the very best.
Thank you.
Thank you. A reminder to all the participants to limit your questions to two per participant. The next question is from the line of Krish Mehta from Enam Holdings. Please go ahead. Mr. Mehta, I have unmuted your line. Please proceed with your question. I believe we have lost the line of Mr. Mehta. Let's move on to the next question, which is from the line of Athreya from ithought PMS. Please go ahead.
Yes, sir. Hi. Good morning, and thank you for the opportunity. I just wanted to know, I mean, as to whether the mobility segment, you know, grew year on year in the rest of world market or how is the performance there been? That is my first question.
Yeah. Mobility grew in the rest of the world as well. Mobility has grown in-
By 24%.
By 24% it has grown in the rest of the market.
Sure, sir. Thank you. I mean, in the past few quarters, we had, you know, incorporated new subsidiaries in Bahrain, Jordan, et cetera. What is the medium-term perspective? How are we planning to grow in new geographies? Can you just talk about the new products, the solar products and AWS partnership as well?
Okay. Again, I think thanks so much, and that's a great question, pointing towards how we are thinking about our business. Clearly our business has two or three dimensions of growth. One is in a distribution business, you add more products, you will surely grow, or you add more geographies, you will grow, or do combinations with two in any geography, you will grow. In countries like Jordan, Bahrain, there are requirements that we must set up our business expansion there, and we are setting up our business expansion. You're absolutely bang on. Jordan is a subsidiary that we're looking at, and there will be a few more countries where we will try and go to expand our reach and coverage. We understand the game well.
We know how to set up a distribution business in any of these countries, and we are using tech enablement, technology enablement to make sure that we can accelerate our penetration into these countries. The products are similar. The products are the products that you get a contract for from any of the brands. We try and do value, we try and do volume, we do an IT and mobility products in any of these countries. For whichever product we start with getting a contract from a brand, from a vendor, and we start to penetrate in that market. That's the philosophy, that's the growth pattern right now. We are in the countries that we are in, but we are looking to make sure that we can expand our coverage in a lot of these other countries there.
Sure, sir. Thank you so much. Is it possible for you to give some more color on the, you know, how the cloud business is working and is shaping up and our partnership with AWS as well?
Yes, I'm gonna give you that. You asked a question on AWS, and I was gonna cover that.
Okay.
Solar as well. Okay. Let me cover Solar and then I'll cover Cloud. Is that okay?
Yes, sir. Sure. Thank you.
Okay. Now, Solar is a very strong business now. You know that globally there is a strong pitch towards sustainable energy, very strong pitch towards green energy. India has made some significant commitments to World Forum on sustainability of trying to make sure that 50% of the energy generated is green energy by 2030. I think that's a very, very strong commitment India has made. That pitches solar to be a very, very strong deployment implementation, and all the solar projects have to be done at a very, very fast pace. Because of that, our Solar business grew more than 40% last year, and in this quarter, Q1, it has grown about 190%.
Close to 190% has grown Solar business in Q1. We do lots of activities in Solar. We do classic distribution of the solar panels, inverters and all the products that go into the making of a solar plant. We also have a bit of advisory services over there. We are extremely differentiated. We pretty much are the only unique in this space because we are the only organized distribution partner which also does consultancy and advisory services to a whole range of partners who set up small and big solar plants. That's one thing which is paying off. Hopefully we can expand this business as we go forward because the geographies we play in are literally the sunshine capital of the world there.
There is huge amount of potential possibility which is there in the Solar business. Your point about Cloud. Now Cloud has been a very good story for us in Q1. In Q1, our Cloud business across all the geographies, countries we operate in, has grown by 48%. That's a very strong story. Our managed services on Cloud has grown by 62%. Those are both very good, very good outcomes. We have struck a partnership with AWS for all the regions we operate in, India and Middle East and Africa. Those are very strategic. We've got very strategic sort of a play or partnership with AWS and also with Google and Microsoft to resell their products, but also scale up in trying to add competencies.
Those competencies then allow us to do a lot more with our customers and partners, be far more engaged and enriched with our customers and partners. This is a strategic collaboration agreement called SCA with the Amazon Internet Services Private Limited, which allows us to take a range of the products and also enables deployment and all.
Sir, I'm sorry to interrupt. Your voice broke. Can you please repeat the last sentence which you said?
I said, we have a strategic collaboration agreement, SCA, with Amazon Internet Services Private Limited, which allows us to offer the range of products, management platforms and services to our customers and partners. It enables us to become far more capable because we add technical capabilities to our sourcing to deliver these products and services to our partners. We feel very good about the fact that the world is headed in the direction of cloud and so are we.
Sure, sir. Thank you so much and all the best. That's it from me, sir.
Thank you.
Thank you. Reminder to all the participants to limit their questions to two per participant. The next question is from the line of Krish Mehta from Enam Holdings. Please go ahead.
Yeah. Hi. Congratulations on a good quarter, and thank you for taking your question. The first question I have is a follow-up on the Cloud business. If you could provide the margins for the cloud and cloud managed services for the quarter.
The cloud product resell comes at a similar margin ratio. It doesn't really give you a very, very huge differentiated margins. It will be in the range of 5%, 7%, 8%, depending upon which product of cloud you're selling, and which brand of cloud you're selling and to which customer or which segment of the market. It goes in the range of 5%-9%, not more than that, at a cloud product level. Services are a different ballgame altogether, Krish.
Right.
Services stretches from a very rudimentary, fundamental entry-level infrastructure services or provision, which will give you a margin of 10%-15%. If you scale up the services to the level of migration and platform and software as a service, then you start to get in the game of 25%, 28%, 30%, 35%, 40%. Depending upon the complexity of services. We are building our capabilities to do the entire range of services. Right now we may be less on the more complex services and a lot more on the entry-level services, but we build capabilities now to deliver and deploy the more complex services of migration nature, which will give us much, much higher margins.
I think just to add on to what Rajiv said, from a working capital perspective, there is no, I mean, these are no [audio distortion] as a working capital. So, both the businesses resell under services portion in terms of role say will be quite affected.
Okay. Thank you. My other question was on the net debt and cash balance, if you could provide that for Q1?
Can you repeat, please, maybe your question, please.
Can you provide the net debt and cash balance for the quarter?
Okay. The net debt figure end of Q1 is about INR 744 crores, which is roughly about 0.1 x of negative net debt. The cash balance, okay, I don't have the ready-made number. It's about INR 1,100-INR 1,200 crores.
Okay. Thank you so much.
Thank you. Reminder to the participants to limit their questions to two per participant. The next question is from the line of Aasim Bharde from DAM Capital Advisors Limited. Please go ahead.
Morning. Just a couple of questions. Firstly, can you talk about what should be a sustainable EBITDA margin for the consolidated Redington Group going forward? Would it, you know, hover at levels just shy of 3%, maybe a little higher the year after? And what would keep margins at these levels? Would it be more on the enterprise sales bit, which bring its own working capital and higher interest costs, or would it be more services oriented?
What did you mean by the second part of the question? First part was what will be the sustainable EBITDA margins, and the second part of the question?
What would drive it basically? Would it be more enterprise hardware beat that would keep it higher or services also? Because services today is still just 1% of revenue.
Okay. All right. Good one. Look, we mentioned in the early part of the call that, you know, guiding or projecting, EBITDA or any sort of profit profile for the long run right now is going to be just the way the global market situation is evolving now, just the way the current operating environment for us is. We're not gonna be projecting here. Right now, just so you know that the way we're trying to balance out our operational efficiencies cost and our product portfolio is helping us to stay in the range that we are in right now. Q2 seems to be on a good track so far. Okay. That's so much from a sustainability of long term. You know, you gotta be thoughtful about how you guide long term.
The second is the driver for the margin. There are few things that drive our margin, Aasim. One clearly is what you said, services versus non-services. You're right, services is a very small portion of what we do today. It's about 1% of the overall revenue that we do. It's always gonna be a small portion, right? A large part of our margin is the mix of this. If our mix shifts from volume products to value, and you saw this in this quarter, our volume grew 14%, but value grew 30%. If value continues to grow faster, then value inherently provides you a better margin profile. That's one.
Second is, if our Cloud business is going to be as good and as steady as it is happening right now, it will help us to continue to improve margin in that space. The third is if our Procurement and Logistics business scales up, it will continue to help us get more margins. Our Solar business inherently comes at a much higher gross margin than the other parts of the business. I think margin is a play of geography and a combination of mix of products that you end up doing. We are always tweaking, always trying to do whatever we can to manage the mix and the geo play to get to the margin requirement that we have in the company. I think that's how we are trying to balance ourselves.
Okay, just a follow-up. How long do you anticipate the enterprise cycle to last from today?
This is like you're asking me to crystal gaze, but I will. Let me give you a sense of crystal gazing on this. My sense is there is such a lot of adoption of technologies and such a lot of digital transformation that is taking place across pretty much every sector of the business right now. Governments are investing, and they know that if they had not invested during the COVID times, countries would have shut down. Companies are investing because if they hadn't done that, they wouldn't have survived the two years of COVID downtime. Okay. People have got to a point where business and technology have almost become inseparable. Earlier, people used to have a different growth for technology, and the two were kind of quite linked.
Now we are getting to a po-
Sir, your voice broke. I'm sorry to interrupt. Could you please repeat the line which you were saying?
Okay. What I was saying was, earlier there used to be a time when GDP and technology growth were kind of intertwined and linked together. Now we are at a point where digital growth has been delinked from GDP growth, and companies are using technology to either stabilize their operations or grow faster, get into new product categories, do innovation, launch new territories and geographies. It has become pretty much absolutely the most crucial thing for businesses to survive. If you take a look at adoption across the world in the cloud, and we know that companies like Amazon, Google, and Microsoft in the cloud domain, they are growing about 35%-36% year-on-year. Okay. At that level of high revenues of $50 billion-$60 billion, they continue to grow at about 30%-35%.
The cloud adoption is f ueling the growth for lots and lots of technology providers. Cloud adoption across the world so far is sub 20%. Global cloud adoption is about 18% right now, 15%-18%, of the workload, 7% cloud. I see the technology buying cycle of the enterprise customer variety and the mid-market SMB variety continuing in the future for a much longer time. This cycle is here to stay for a bit, yeah.
Okay. Thanks for the detailed answer. Just second and last question. Any comments on supply chain?
I'm so sorry to interrupt. Could you please rejoin the queue?
Sure, sure.
There are many other participants who are waiting for their turn. Thank you.
Okay, thanks.
The next question is from the line of Chintan Sheth from Sameeksha Capital. Please go ahead.
Thank you for the opportunity and a very good set of numbers. Congratulations for that. Two set of questions. One is on the working capital. If I look at the past trend, our net working capital typically builds up in Q1 and then kind of tapers down by the end of the year. Is that phenomena will likely to play out this year, or do you see that this is the stable, as you mentioned in your opening remark that we are still at the fringe of our guidance of 20-35 days? That's one. Second, on the within the SISA group, I see that our South and South Asian market is trending towards loss.
Just want to clarify whether the net profit or profitability of that region has kind of impacted during this quarter and what is the outlook there given the geopolitical issues in Sri Lanka, Bangladesh, and in regions we are in, if you can provide that. Yeah.
Okay. On the working capital front, yes, I agree with you. In Q1, normally it'll be higher, not because of any other factor. It's mainly on account of revenue being soft in Q1. You would have seen this quarter revenue has been quite strong. Having said that, the main reason for the spike in the working capital, as I said, is on account of the part shipments that we have received in the IT value space, which we think in about one or two quarters, once the situation gets normalized, this will also get normalized. That's so I mean, it is not just a normal Q1 phenomenon. There is, added to that, this point also.
With respect to SISA, see, SSA has been degrowing. We have spoken about it in the past, mainly because of the movement of the vendor model from offshore to onshore as far as the India part of the business, which was a significant part of the SSA business in the past. That movement has enabled us to rethink even our own structure in terms of if this should be monitored centrally out of India, and be looked at as one unit at SISA. That's how we have gone ahead with this structure. What you will see overall now, since it's an integrated unit, we can look at the growth in this form.
More specifically to Sri Lanka and Bangladesh, yes, Sri Lanka is impacted a lot, but our business in Sri Lanka is not quite significant. We are now playing a very safe game where our risks are covered in where we are participating. Otherwise, it's not. However, I mean, Bangladesh and few other markets we think is looking very attractive and there are big opportunities and we would want to do a deep dive in that space. I would want Rajiv also to add certain few points.
Yeah. I think you have answered a lot. Our presence in South Asian market is only in two or three countries. We do Bangladesh, we do Sri Lanka, and do a bit of Nepal as well. Okay. That's obviously Sri Lanka is a cautious approach right now. Go slow. Bangladesh, you know, Bangladesh is not challenged. I don't know where you are from that Bangladesh is in a difficult situation. Bangladesh is. They're obviously coming up with policy regulations and framework as we grow, but it's a very happening market. We are expanding our operations and we are expanding our play in Bangladesh.
We are trying to do many different things on products, solutions, services, logistics, and setting up an entity in Bangladesh for ourselves so that we can really mine the market as the market starts to grow. It is in a very good situation. I've traveled to Bangladesh a few times, and they're really looking very positive.
Sure. Just a bit on Turkey, given the currency situation there.
Just to round up on the other south market. Right now we play in these countries, but there's obviously going to be potential to play for us in the other little more mature economies of Singapore, Malaysia, Thailand, Philippines, Vietnam, Myanmar, those kind of countries. I think it's a huge potential that exists and we got to explore that. Sorry. Where is the question about this?
Yes. Just on Turkey. Given the, you know, currency devaluation happened over the past two years, and we have still been able to manage both on the revenue growth as well as profitability. Obviously, revenue growth on rupee term will look much better. The profitability is one aspect where, if you can provide more color to it, how we are managing the situation there and, you know, what is the way forward there?
Yeah. Look, you know, I was in Turkey last week. I spent about 10 days in Turkey. Turkey is a very sort of, it's a very clear case. It's a great country, great people, great commerce, good population, and does very technologically very enabled country. Businesses and governments over there continue to use technology very effectively. That contributes to our growth. That's how we've been growing.
Sure. Sure, sir. I'll jump back in. Thank you.
Thank you. The next question is from the line of Rajeev Agrawal from DoorDarshi India Fund. Please go ahead.
Yeah, great. Thanks for taking my question. My first question is, I think there has been some concern about whether your margins, be it gross margins or EBITDA margins, that you have had in financial year 2022 will be sustainable. Based on your commenting so far, it seems to me that you are saying, you know, not only are those margins sustainable, but you might even be able to expand on it. Am I understanding this correctly?
I don't think we said we are expanding on it or we are maintaining it or what. We said that we are taking it in the near- term on a real near-term basis because providing guidance in the long run will be a little challenging given the global operating environment right now. We're not gonna guide from a long-term perspective. What we're suggesting to you and what we're saying is we are maniacally focused on ensuring that every part of our business is optimized to the core, to the hilt, to ensure that we can continue to have the visibility of gross margins the way we have delivered in the past. The reason I'm choosing this is because of the operating environment, so we can guide in terms of small timeframes here.
We exactly said the same thing in Q1 as well, and we delivered a very robust Q1. We are saying exactly the same thing in Q2. So far, Q2 is trending all right right now. Like I said, the continuing growth, growing demand for supply chain orchestration, we continue to anticipate a reasonable demand environment in Q2 as well. We will take it quarter- by- quarter, Rajeev. Really, that's the way our approach is right now. While from a fundamental building the company perspective, capability creation, we are long-term focused, obviously, and I gave you many examples of long-term focus on people, processes, technology, platform play, all of that we are trying to do, our business model orchestration that we're trying to do. On the operational capability, o n the operational intensity, we are very clear in our focus to make sure that we deliver the right results here.
Yeah. The question was really coming because you are getting into new areas which seems to have even higher margins such as cloud, right? And Solar. If you can just elaborate.
Sorry to interrupt, Mr. Agrawal. Could you please repeat your question? We couldn't hear you.
Sure. The question was coming because you are getting into new margin or new areas which seem to be higher margin. Like, you know, your Cloud revenue, you're talking about Solar and how you are talking with consulting there, which are much higher margin. Maybe if you can just elaborate on a few such areas which you are very bullish about and which may have better margin potential?
Look, I think the way we split our business, Rajeev, is across three dimensions. One dimension is focus on the core. What we do well, we must continue to orchestrate and do well. That's our bread and butter. That's our more than 95% of our revenue. We have to ensure that.
Sir, we are not able to hear you.
Okay. Can you hear me now? Is it okay?
Yes, sir. Please proceed.
Okay. What I was saying was we set our business across three distinct types. One is always focus on the core. Our core is about 90%, 97%, 98% of our business. We've got to make sure that the core continues to run as efficiently as possible. That's one. The second is we expand that. Going to new geographies, to the question earlier which came in from Jordan and other places, we expand geographies, we expand product categories in those areas. And the third is, our foray into new product categories of the nature of that you're talking about cloud, of the nature that you're talking about logistics and services and supply chain, and of the nature that you're talking about from a cloud perspective. Those are small businesses right now.
As we scale, you will see that it'll provide me a hedge around any downside to a business, or if there's no downside to any of the on the core business, it'll provide me a lift in our margins. I think that's the way we're trying to play ourselves. We are orchestrating our portfolio to become more balanced. Some parts of the business will deliver much higher margins, some parts will be okay, average as it grows. Overall, we hope to become a much better, much more rounded sort of an organization as we go forward here. That's how we're trying to think of ourselves across those three dimensions of product and portfolio.
Great. Thank you very much.
All right. Thank you.
Thank you. Reminder to the participants to limit their question to two per participant. The next question is from the line of Sanjay Dam from Old Bridge Capital. Please go ahead.
Thank you for taking my question.
I'm sorry to interrupt, Mr. Dam. We cannot hear you.
Is it better now?
Yes, yes. Please proceed.
Yeah, yeah. Sorry about that. Just one question, Rajiv. We possibly ended FY 2022 with around INR 1,600 crore of Cloud revenues, and you keep growing at, you know, 45%-50%. I don't know, I may have got the number a little off, but if that continues, should we be a INR 5,000 crore Cloud business by FY 2025? Is there any reason that shouldn't happen?
If you play it well, there is every reason that we can get to those kind of numbers in the timeframe you're talking about or a year up and down there. Okay?
Rajiv, there is the other question. Sorry for interrupting you. Is that, you know, when you talked about the margins, in the Cloud business and, you know, the services part as well. Services is very small, I understand. So basically Cloud at the base starts at 5% kind of a margin, EBITDA margin. Then, according to the, you know, the kind of complexity, it goes up to 7%-8%. SaaS is about, you know, 25%-40% range. So basically the EBITDA margin of this business, of an INR 5,000 crore Cloud business, whenever it is, one year up or down, broadly should be in the high single digits. Would that be a good understanding?
We'll have to do the mix. When you do a INR 5,000 crore Cloud business and you do a, let's say a 10% of INR 5,000 crores of that as your services business and the services comes at 25%.
Mm-hmm.
Cloud business comes anywhere between 5%-9%, we'll model that, and we can let you know what the numbers look like. I'm sure you can do it yourself as well. Look, you hit the nail on the head, Sanjay. There actually, that makes a lot of sense. If the cloud business is the one which is growing across the world and we are pivoting our company onto a very strong cloud sort of a portfolio, I think that's where we will get to. I mean, your timelines may be a bit up and down, but we are focusing ourselves to make sure that we have a very strong portfolio on Cloud across a variety of alliance types. These global alliances are hyperscalers of the nature of Microsoft, Google and Amazon.
There are many other companies which have cloud products, which are platform products like ServiceNow, like Adobe, like Salesforce. There are players of the nature of Oracle and, IBM, which is Red Hat and, many other companies of that nature, which are SAP, which are pivoting themselves to cloud. We are very well aligned with each one of them. We understand the game has changed. The game, we can play it as a partner or we can play it at product level, but the game is dramatically different now. It has to be played at the level of alliances in a very deep way to maximize. Go to the market with the alliances, to the customers, and that's a winning proposition.
I'll pivot deeper than just trying to say, look, can we get to INR 5,000? We will obviously get to that revenue. Okay? The game is much deeper and broader because you need the whole range of technology, innovation and partnerships to come in and play, to make sure that you can scale it up in the right direction, in the right way, not just a random focus on just the revenue point.
Got it, Rajiv. Second question. If you could tell us about the kind of investments we did in, you know, FY 2022, in the new business and what we intend to do in FY 2023. Thank you.
Sanjay, I couldn't hear your question. You might want to repeat that, please.
Sir, investments in the new business, in all kinds of, you know, abilities and people and systems and processes, to scale this business up and, do it in the way you dominate your bread-and-butter business. How much did you spend in FY 2022 and, you know, what are the investment going to be like in FY 2023? Thank you, sir.
Okay. Krishnan, would you remember the investment that we made? Is it the investments we made in FY 2022 in some of the businesses that we're talking about?
Yeah.
Uh-
How much is it?
How much? How much? Okay. Yes, go on, sir.
As we have discussed in the past, Mr. Sanjay, the investments are more in OpEx form than in CapEx because these are to build capabilities and many of the capability building in these new business initiatives are on talent. That's why I said, when we talked about the OpEx, that those additional OpEx's are also part of the current OpEx for which we may not be getting the return immediately. Some of these returns, better returns will kick in only as we move forward.
I think he's only used to what is necessary to improve the company into the future.
If I need to consider even OpEx as part of the investment, it would be in the range of about INR 60 crore-INR 80 crore if I need to put a number from there.
Thank you so much and wish you all the best.
Thank you. The next question is from the line of Rushabh Choksey from KRChoksey. Please go ahead.
Yeah. On my end, can you put that in numbers?
Mr. Choksey, there is a disturbance. The line is not capable of hearing you. Can you please ask your question? Mr. Choksey?
Hello?
Please proceed.
Hello? Yeah. I have two questions. I saw that you are running late. I just wanted to ask how much your Cloud business has grown year -on- year. Sir, I've seen your trade payables has grown increasingly since last five years. Can you give me the answer for that, sir? The range.
Rushabh, your question wasn't audible at all. I couldn't hear a word.
Mr. Rushabh, there is a disturbance from your background. We are not able to hear you, and your volume is also too low. I would request you to please-
Am I audible now?
Yeah, please proceed.
Yeah. I was saying, so your trade payables has been increasing at an immense pace in the last five years. Can you please explain that? My second question is, how much has your Cloud business grown year- on- year? Thank you very much.
I only heard the first question. Please repeat it.
Yeah. On the trade payable, there are two factors that are attached to our trade payable. One is as our Enterprise business, our IT volume business keeps growing up. Generally, since the working capital deployment there in the form of inventory and receivable days being more, our AP days also tend to be more. Second, we have also consciously spoken to many of the vendors in terms of increasing the credit days where there is a requirement, take the help of outside financial institutions where it can get extended. These are few, I mean, options that we have to make sure that our AP days are better. Yes, I think that should continue. Having said that, your second question, as Rajiv said, wasn't clear to us, so if you can repeat, please.
My second question was how much has the Cloud business grown year- on- year?
48%.
48. Sorry for my small question, can I squeeze in. Any measures you are taking to reduce your credit payables?
Any measures we are taking.
To reduce your trade payables.
Trade payables. No, no, we're not taking any measures.
Our objective is to keep that as high as possible. We would feel happy if the trade payable days covers our AR days. In the past, they were a challenge, but we could achieve it in the last few quarters. Our objective is always to make sure our AR days is covered by creditor days. Thank you so much.
Thank you. The next question is from the line of Sangeeta Purushottam from Cogito Advisors. Please go ahead.
Yeah, I'm Sangeeta's partner, Andrey here. I had two questions. One is in terms of the working capital cycle, how do you compare with the pre-COVID era? The second question is could you give us a sense of the seasonality of your sales in terms of a breakup of sales into Q1, Q2, Q3, Q4 in a typical year pattern, so that I can understand the quarter Q o Q mild degrowth better?
Yeah, yeah. Okay. I can give you the question on seasonality. I didn't hear the first question that you had. Our seasonality of business is H1 versus H2 always in the range of 45, 47/ 53, in that. 47,/53 will be the seasonality of business that we've got.
Okay. The first question was, how does your working capital cycle compare with the pre-COVID era?
Right now it's much better than pre-COVID. Pre-COVID was much higher. Pre-COVID we were in the range of 40-45 days on the working capital days. Right now it's 28 days. It's much, it's about 40% better than pre-COVID.
Okay. Thank you. Thank you very much.
Yeah.
Thank you. Ladies and gentlemen, due to time constraints, that was the last question for today. I would now like to hand the conference over to the management for closing comments.
Yeah, look, thanks so much, everyone. These questions are always very insightful. They keep us in a good space because we tend to make sure that we are covered in our business from all sides, and you guys are very, very helpful in the manner in which you project and present your questions to us. That's very helpful, and thank you so much. Like you said, we had a very strong quarter one. Record revenue for an operating margin for any first quarter of the year, and that's a great story. That's a great place to be in. It seems that our sustained investments in technology capabilities, partner relationships, and our comprehensive breadth of offerings is paying off.
We understand the way the global environment is playing out right now, and we can only assure you that we are very, very cognizant of every single movement that is taking place in all the countries that we operate in. That enables us to be cautious. That enables us to maximize the opportunities. That enables us to mitigate the risks wherever they arise and do our business in a prudent way. Q1 is a reflection of that. Thank you so much for joining the call today. I hope to talk to you as we go forward in the next quarters. Thank you, and have a great day.
Thank you. On behalf of Redington India Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your line.