Ladies and gentlemen, good day, and welcome to Redington Limited Q3 FY 2023 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 date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. As a reminder, all participant lines will be in the listen-only mode, and there is 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. Thank you, and over to you, sir.
Thank you so much. Good morning and welcome to all participants on the call. Thanks so much for joining. We just announced our results after the board meeting yesterday, extremely pleased to report another strong quarter of sales and operating margin growth. Our revenues for the quarter were at INR 21,715 crores, which is a very strong, very healthy 31% Y-o-Y. The EBITDA was INR 622 crores, a 14% Y-o-Y, EBIT INR 583, 14% Y-o-Y. All of these numbers have been absolutely record numbers for us, the highest ever of four quarters performance. PAT at INR 380 was a -2%. All of this has been supported by solid execution across businesses and geographies.
On the back of that, of execution, we have been continuing to gain share and secure new opportunities in markets that we compete in. Despite an evolving macroeconomic environment and somewhat difficult conditions for the technology industry, and I will talk a bit about those later, we remain well-positioned to continue to grow our business profitably by helping our customers and suppliers, helping them to navigate an increasingly complex market. Redington achieved record revenue and operating margin for the third quarter as our continued investments in improving our technology infrastructure and technology capabilities, which serve our customers and partners in building deeper partner relationships, both with the downstream partners as well as global vendor relationships.
Making a breadth of offerings, which is the products and solutions and services that we bring to the market, more comprehensive than ever before, and introducing innovations in our business model, and all of those have started to pay off. Like I said earlier, this is the highest ever quarter for both revenue and operating profits. For the first time in the history of our company, we have had three consecutive quarters of more than 25% growth. Just as an additional information, the trailing nine months have been the highest ever nine months of growth that the company has seen since we started operating here. I can also tell you that this delivery has been largely broad-based with all our operating regions, which is India, Middle East, Turkey or in South Asia, all contributing to growth.
All theaters have been pretty robust. The growth is well-balanced, fairly balanced across all the different product categories that we operate in, which is telecom, mobility segment, which is enterprise products and solutions and services, cloud and also the volume products that we do. Clearly, the business dynamic during the quarter has been mixed. Technology demand related to work from home and learn from home has been subdued. In fact, it de-grew in Q4. Q4, which is calendar Q4 of IDC. You'd have followed the IDC results for the global PC industry, and that declined by 33% year-on-year. Smartphone shipments have declined globally by 18%.
However, the demand has been extremely robust as people have started to come back to the offices and work from home has actually started to shift to work from the office. The hybrid environment continues, but it's more predicated towards work from the office now. So demand has been robust for those kind of workspaces. It has been very robust for data center infrastructure products, which are products of the nature of servers, storage, networking, software and security. As the digital transformation projects have been accelerating, I talked about those in the previous meeting as well. The migration to cloud, back to office, data center procurement have all been very strong catalysts for our growth.
That, you know, when you couple that with our improved engagements with the enterprise, mid-market and SMB customers and partners, it more than made up for any of the de-grow that we would have seen in the learn from home segment. Our enterprise products grew by a very healthy 65% during the quarter, and cloud grew by more than 33%. Literally you can see that the world is shifting towards consumption of new technologies, and those are the leading indicators that we are extremely focused on and proud that we could capitalize during the course of the quarter that went by. I also want to let you know that the geographies we operate in, which is South Asia, India, Middle East, Africa, Turkey. All of these geographies are largely consumption and investment driven.
You would have seen that most of the GDPs that we operate in have shown a positive growth trend. There has been a guidance. Our guidance keeps going a bit up and down. The growth forecast has been reduced, but there's been a very positive growth trend from GDPs of all the countries we operate in. The governments have been a major spender, and I'll take a minute to talk about this in a bit. Clearly there has been a very, very mixed sort of a business climate, but negative to stable business climate, which is helping us to make sure that the digital projects that we are focused on continue to gain momentum and continue to give us the lift that we deserve.
Financial situation across the world has been highly volatile, there are obvious factors to be considered over the near term. We've all seen a very high inflation regime, which means there has been high commodity prices and increase in interest rates. The cost of capital has gone up significantly, and that's the reason you see a very sharp difference between our EBIT, EBITDA and then the PAT. These impact demand on demand as well as margins impact on PBT and PAT. There has been a currency devaluation in some of the countries we operate in Egypt, Nigeria, Kenya, Ghana. While there has been a delay in delivery of networking products, which can literally have an impact on large project business, I think the shortage situation of the technology industry has eased considerably.
Over the last six months, it has been becoming better every month. Now we are getting to a point where it is far superior than what it was when we started the year. I see the project execution will start to improve significantly. We've also seen the oil prices to be stable at higher levels. That positively impacts a lot of geographies we operate in. For instance, Nigeria, for instance, Middle East. A lot of those countries that we operate in, they are positively impacted because of the oil prices. Therefore, you can see that the overall macroeconomic financial situation of the world is been good. Some very, very good and some not so good financial indicators. We obviously expect these to balance out positively in favor of Redington.
We will, however, be extremely watchful and cautious over the next few quarters to make sure that we are vigilant as we ramp up our business in the technologies that we are very focused on. As we project ourselves into the future, we do anticipate a demand environment which can be concerned in some places, but it'll be extremely robust in some other areas. You all would have gone through the budget announcements yesterday, an immense focus on digital and digital initiatives. All of these are transformation initiatives. We've seen and learned a very hard and tough way that during the Covid times and also after the Covid times, digital is the one which is the real transformer of growth for most companies and most economies. I really welcome the budgetary announcements which focus so much on digitalization.
I do anticipate an extremely robust demand outlook for technology products on the back of these investments and spending that the government is going to do. Some of those investments will be in really infrastructure setup and infrastructure, all the technology or IT. You know, this is a tech infrastructure which goes into back-end creation of data centers, creation of capabilities and competencies, innovation funds, making sure that security infrastructure of that information is very strongly done. All of those are going to be very, very strongly focused on. I can also share with you my own experience of dealing with the government in the last couple of quarters in India and also in some countries of Middle East, Africa. I was in Turkey 2 weeks ago.
In each of these places, the focus of the governments on trying to make sure that they are far ahead in terms of technology and are very leapfrogging. The rest of the world from a tech perspective, is very intense. If you see in your home, I do expect a very strong demand from the government on modernization of citizen services, on modernization of education infrastructure in the country from a technology perspective, on all the finance projects that the government is leading right now, the communication infrastructure and networks that the government is leading right now. 5G is going to be a game changer in many ways, both from creation of infrastructure and also from fueling many other application areas that are going to be there. Defense also is going to be very strongly modernized.
We do see anticipated demand infrastructure, demand environment, which is going to be strong, and I'm hoping that continues to be robust. It will be less so in some product categories like access products, but very strong in data center, cloud services, accessories and services around those. We therefore expect to see reasonable revenue and margins from our growth in that from our recently implemented operating environment improvements amidst the backdrop of all the geopolitical and financial stuff that I talked to you about. Net-net, let me conclude by saying that our strategic initiatives and our execution capability are delivering for us right now.
You know, when you have such a significant deviation from what the market is and what Redington is, and clearly it suggests to us that the initiatives that we made are in the right direction, That really makes us extremely optimistic about our future. Let me step back and stop over here and hand it over to all of you to give your opinions, views and any clarifications or questions that you may have. We will be more than happy to take them on. With me in my room, I've got S.V. Krishnan, who is our Global Chief Financial Officer and our Finance Leader, Deepika as well.
Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question, please press star and one on their touch-tone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have the first question from the line of Sanjay D-A-M from, I mean, Sanjay Dam from Old Bridge Capital. I'm sorry. Please go ahead.
Thank you. Congratulations, sir, for a very, very sustained, robust, top-line performance. Thank you for those insights. I think we come from a very, very high base in last in the Y-o-Y quarter. I would not, you know, take too much time on, you know, comparison versus that. But when I look at your our September June-September quarter and then look at the December quarter, the gross margin has kind of changed a bit, which flows into the EBITDA margin. So if you could, you know, help us understand that bit of it.
The second part is that, although, the gross margin has, you know, come up by 50 basis points, you've been, you know, you've been able to hold your EBITDA margins. I suspect that, the flexibility which you took in investing into the business, existing verticals as well as new verticals, you would have calibrated, to deliver that 2.7% EBITDA margin. If you could, also, take us through, you know, what to expect, in the year ahead. Thank you.
Yeah. You know what I'll do is I'll just give you one context, and I'll hand it over to Krishnan to take you through a bit of more details on that, Sanjay. Thanks so much for your nice words about our performance. Look, our EBITDA margin is at a fairly high 2.9% right now at the console level. That's, and you're right. I think the way we are pivoting our business on the back of making sure that there are efficiencies brought into the company through the implementation of the platforms that we are doing on both on digital business as well as on the cloud business, those are helping us. Those are strategic initiatives. They're long-term.
We will make the investments, continue the investments in them because they are the ones which are necessary for future growth and future optimization of the organization. That's, that's a strategic sort of a, two bets on that. Krishnan, you wanna, you know, give more color on how the margins are playing out there.
Sure.
Before Mr. Krishnan goes in, sir, since we have you, one bit more on the progress so far. The investments that you have made into the business, would you say that it has kind of met your expectation and, you of course, have a endpoint or, some progress, some milestone in mind. Would you say that it's been a satisfactory progress so far? Thank you.
Well, that's a great question because you always make investments with an end objective in mind. Though these are always in technology industry, it's never an end. It's like always gliding towards. Gliding means it's always in motion because tech industry keeps evolving. We would always want ourselves to be ahead of the curve, which means we are always making the right investments. We are reading the trends of the market extremely well and pivoting ourselves to the future versus being stuck in the past or stuck in the present. I think that's the way to think about our investments. So far, the investments that we made, we made investments. Three very clear investments we made.
We made an investment in trying to pivot ourselves to a digital distributor. Our objective and aim is to become the best digital distributor in the world, which means anybody who wants to interact with us will have a very strong, no manual, very easy to do business with kind of an interface. The second investment we made is in the cloud. The growth of our cloud business suggests to me that we are absolutely in the right direction on the cloud. We are adding features. We are adding functionalities. We are adding solutions and services on the cloud platform.
Like I said, it's always gonna be evolving and becoming better all the time, but absolutely in the right direction because our cloud business is ramped up on the back of that platform, which means if we didn't have the platform, our cloud business will be far smaller than what it is today. The third investment that we are making in the company is on getting our company more automated, more technologically savvy for our internal processes and, and systems. All three of them, in my opinion, are in the right direction. They are bearing fruit for us right now because we're starting to see traction on them. A good portion of our business has shifted to digital already, and I'm hoping that in the course of the next two quarters, more than 20% of our business will actually become digital.
I think that will be a great progress if we make that. Cloud is 100% of our cloud business is already on the platform. I think those are the right metrics and right indicators for us to really feel good about.
Let me pitch in on the earlier point, Mr. Sanjay. See, as you know very well, I mean, our business cannot be compared on a quarter-on-quarter basis because...
I mean, the Q2 that you mentioned is basically a quarter where there are new product launches that are happening from major vendors, and also it's a period where the festive sale is aiding us in terms of better revenue and profitability. On a year-on-year basis, yes, there is a drop. Let me explain this. First of all, the current quarter, you would have seen that the provision towards the inventory has gone up, and I will explain that a bit, and that's the primary reason why the gross margin has come down. Having said that, even adjusting for it, there is a marginal drop of about 10 bits.
This is the Q3 of last year. That's an account of how the market is as Mr. Rajiv mentioned. Very specifically with respect to inventory provisions, we have discussed couple of it in the earlier calls. I mean, there is some slowdown that we are seeing in the consumer business, which has impacted in terms of our inventory levels. Second, we also discussed about shortages that are there in the enterprise space while, I mean, a bit of it has got eased, but still we, I mean, we face shortage and because of which we have got part of the consignments are not full, which is not enabling us to build the full inventory to the customers, and these are with us.
Some of this has resulted in higher inventory provisions. We are quite confident in the next two to three quarters, we will find a way to between sell these inventories and in which case these, I mean, inventory provisions should come back to the P&L. In a strict sense, there is a marginal drop in gross margins, not significantly higher.
Thank you, sir. Thank you very much. I think other participants will probe more into this. Wish you guys all the best.
Thank you. Thank you.
Thank you. The next question is from the line of Aejas Lakhani from Unifi Capital. Please go ahead.
Yeah. Congratulations, gentlemen, on, you know, very strong execution. Again, it speaks about the execution powerhouse that you are. Sir, a couple of questions. First being that, you know, Apple at the start of this year announced that, you know, they are putting up more staff on the retail force. Could you speak about how this impacts the domestic business? What percentage of our proportion of sales comes from Apple today for just the domestic business, if you could comment? How are we planning to, you know, navigate this transition of Apple going direct?
Okay. Thanks so much, and I think, thank you so much for your nice words as well. Let me give you a sense of broader than Apple, okay? This question about people growing brand stores and how the brand stores start to impact the rest of the providers in the market. You know, all these brand stores, and Apple is starting up, a big brand store of their own. That's the reason they are going to be hiring some, in-store promoters and in-store, sales people for themselves over the course of next whenever foreseeable future. What we've seen is in most countries, and I've worked in countries, like China, Japan, Australia, Singapore, Indonesia, Philippines, countries which are similar to us and countries which are not similar to us always, even in Middle East.
Actually, Apple's opened the largest, single largest store in the world in Qatar just two weeks ago. That is the single largest store of Apple, including the U.S. It's a really, really massive, you know, store that they've opened up. What we've seen is over time, whenever you have a brand coming up like that, suddenly the entire brand gets a lift. There are more programs which are thrown into the country. There's more affordability matrices that come in. There are more financing and more OpEx, which is thrown into the country to make sure that the brand continues to get a lift. We've always seen in every single country, you would find that a brand of this, when this kind of a thing happens, the brand gets a lift.
I'm hoping that on the back of Apple coming up with their own store, you will get a brand lift of that nature, which means that it's good news for all of us, yeah. It's terrific news for all of us. Like I said, I've seen this in countries, and I can name at least about 20-25 countries that this sort of a thing has played out. The contribution of Apple to our revenues, Apple contribution to overall revenues is just iPhone business is about 19% is contribution of iPhone to our overall revenues, right. Contribution of Apple to overall Apple portfolio to our portfolio is just about under 30%.
I think, and it was higher earlier, our growth in the enterprise cloud and all that segments has meant that this contribution, while the revenues have stayed good, that this contribution has come down. I think, which is good news for us because we are, in a way, we are trying to get into a more diverse sort of a business that we are talking about. That's the, that's the win. Since your question is specifically with respect to just only domestic, only India, contribution of Apple iPhone to domestic is 24%, okay? To domestic, our domestic business is 24%, and that's pretty much where it is, it is right now, at the moment, yeah.
Got it. What is Apple's contribution domestically? You mentioned the iPhone bit at 24%. What is the Apple contribution domestically?
Apple contribution domestically is about a third of our business, yeah.
Okay. Got that, sir. Sir, just a couple of others.
One is..
Because it was the last quarter was their launch quarter. Okay? September is a launch time for them, so it goes up. Every time in Q4, it goes up a bit and then it comes down. It settles to under 30 every time. Yes .
Got it. Got it. I hear you on that. Sir, the other bit is that, you know, you know, the working capital has gone up and it was in line with your commentary and guidance earlier. The current working capital, are we comfortable at these, you know, levels, or do you further see working capital moving up? Mr. Rajiv, just to follow up, is that what specific initiatives are you driving today, you know, and what kind of business outcomes would they have?
Look, let me give you a sense of our working capital, and I'll ask Krishnan also to chip in. If you recall in the last two calls, we have been guiding that the working capital will start to normalize in the range of 28-35 days. Okay? It was around that last quarter. This quarter it is settling at about 30 days for Redington consolidated overall. I think it's a little lower in Middle East, in South, in the rest of the world, and in India, it's about 35 days, right? I think we are right bang in the middle of our guidance or the early part of our guidance. It will go up a bit more.
We are absolutely comfortable because if you go back to the times which were pre-COVID, we were stuck with a working capital around 50 or 55 days at times and then or high 40s. Now in the range of what we are talking about, 28-35 days, I think it's pretty much par for the course. It might go up as well because that's the nature of the business right now, and that's the nature of the industry that or the way in which the demand is shaping up. Long-term projects.
The way we try and manage ourselves, what specific initiatives we do is obviously we are all the time working with our vendors to make sure that, in the project kind of a business, we work with longer cycles of payments as well, return back to the vendors so that our project receivables and payables is kind of balancing out in a good way. Your question about what kind of long-term initiatives we are working around as an organization, clearly there are, you know, we have a very strong strategy on how we are trying to pivot our business to the future. That strategy rests on four very consistent pillars. There is one which is all about enhancing, making sure that we have a very strong focus to our core business.
The core business is what is our mothership, and it gives us all the growth and all the revenue. We have to make sure we are growing very strong on the core business and gaining share there. Whatever it takes to protect the base and gain share is this one part of the strategy. The second is we are trying to expand more product categories and get more technologically oriented to serve our customers better. The world of technology is really, really evolving at an extremely fast pace. We've got to make sure that we are pivoting ourselves to the future by bringing in the best, most latest technology products into the market.
Towards that extent, I don't know if you've been reading some of the reports that we are reading, you know, releasing to the and some of our interviews of our senior executives. You'll find that we are pivoting ourselves to a paradigm called eliminate or reduce technology friction in the market. This is. The technology friction is the gap between the rate at which technology gets innovated, which is very fast, and the rate at which the technology gets adopted, which is slow. This gap always has a societal and an economic impact. The mission of a company becomes how do we make sure that we eliminate or reduce technology friction? That means bringing the latest technology to the market at the fastest speed possible. That's the second one, right?
Pivoting our. There's a core and share gain, there's a technology. The third piece is making sure that we become a business model innovator sort of an organization. That's the reason you saw us talk about the digital platform, the aim to become the best digital platform, the best digital distributor in the world. The aim to become the most easy provider of cloud product solutions and services through our digital platform and Solar through our digital platform. You're finding us innovating on the business model front, right? That's the third piece of our strategy that we are trying to do. The fourth pivot of our strategy is making sure that whatever we do, we are absolutely operationally excellent.
I think the point which was made earlier about our strong execution stems from the fact that we have an absolute maniacal focus on being operationally absolutely excellent. Whatever it takes for us to make sure that our processes in the system align with delivering the fastest, cheapest, best to the market. Our internal processes allow us to engage with our customers and partners in the most efficient manner. Whatever it takes us to be operationally efficient is something that we are trying to do. These are the four pillars of how we think of ourselves as we go forward, yeah.
No, that's very clear. Thanks so much for that. Rajiv, just to follow up, could you speak about what is the cloud revenue this quarter? How was the execution on that front, and how you are seeing growth momentum in that specific piece?
Okay. Sure, I can do that. No problem at all. Look, our cloud revenue in quarter three is INR 257 crores. Okay. Oh, no. One second. Sorry, my apologies. That was India. Is overseas INR 272 crores. The total cloud revenue for the business is about INR 528 crores. INR 528 crores has come in at a growth of more than 33%. For the nine months, our cloud growth has been almost about 60+%. Cloud..
49%.
49%. My apologies. 49% for the nine months I was reading from a, on a country level. Our cloud growth, in three months to be clear, INR 528 crores in this Q3 quarter. 33% growth for the nine months or 49% growth, which is very, very strong. We see the momentum on cloud continuing, and that's where our pivot is. That's the reason we invested in tech. There are different ways of succeeding in the cloud business. We are pivoting our company very strongly to make sure that we can leverage the cloud, the strength of cloud, we can leverage the technological innovations that are taking place and bridge the technology divide, which is reduce technology friction in the cloud space, yeah.
Got it. Krishna-.
Both in momentum continuing very strongly. No problem at all.
Got it. Krishna, just one bookkeeping question. In the standalone, the reported number versus what you disclose in the PPT, you know, for the SISA piece, there is a slight difference, and there is a corresponding difference in the ROW piece as well. Could you explain what is that difference?
The standalone is only talking about India distribution.
Mr. Krishna..
Sorry.
I'm sorry to interrupt, sir. There are many other who are waiting in the queue.
Yeah. No, no. I will answer this simply.
Okay.
SISA includes SSA, which is Singapore and South Asia, also includes ProConnect, and we have a shared services company in India, which is called RedServ. All these are part of SISA. There will be some small difference, yeah.
Let's move on to the next one, yeah.
Got it. Got it. Thanks.
Thanks so much.
Thank you. The next question is from the line of Chirag Sureka from UTI Mutual Fund. Please go ahead.
My questions were on the working capital, which you partly answered. Just an observation that in SISA, we have seen a higher increase during the quarter. Is it because of our enterprise business growing faster in SISA? The second part was on the gross debt number and how are we funding and the funding cost for the same?
Krishnan, do you want to take this?
Okay. Sure. As far as the working capital is concerned, yes, there is a significant increase that had happened in India. That increase, as you said, is also on account of mix, but I wouldn't, I mean, I wouldn't say it's only because of that. We have been talking about this normalization for quite some time. It actually first happened in overseas, we are seeing this happening in India in the last two quarters. This is purely a normalization phase, also coupled with that, there are two important factors which also have contributed to increase in working capital. One, the, I mean, the general toughness in the marketplace in the form of, as I said, in the IT consumer space, there is a softness of demand.
Also on account of the fact that there is a liquidity pressure in the marketplace. There are certain delays from the customers which also has enabled an increase in debtor days. Second, because of shortage in the enterprise space, there are some excess inventory that are there, which over a period of time will get liquidated. These are some of the factors and these are expected. We were sure this is something that will get normalized in some time. With respect to your question on the debt portion, our gross debt is about 0.45x to the networks now. It is going up now today because of working capital increase across the market.
We started seeing increase in terms of our debt levels. However, we also have sufficient cash balance and hence if you look at the net debt. The net debt to equity, it's still at about 0.15x .
Sure, sir. Thanks.
Thank you.
Thank you.
The next question is from the line of Siddharth Bhattacharya from Anvil Wealth Management. Please go ahead.
Hi. Am I audible?
Yes, please proceed.
Yeah. Couple of questions from my end. I have seen that hardware technology has improved significantly over the last couple of decades. Has that led to longer replacement cycles, especially in the IT part of the business? What are your views and going forward, what do you think the trend will be over here?
I maybe I wasn't able to hear you absolutely clearly, Siddharth. You mentioned hardware technology has gone up significantly.
Has improved significantly, yeah, over the last couple of decades. The replacement cycle effectively, has become longer. Is that a correct scenario to look at?
A bit. Only a bit, Siddharth, because look, the replacement cycle almost always has a connotation with access devices, which is PCs, laptops, desktops, cell phones, tablets, pads. Those kind of devices are more prone to replacement because they are in the hands of individuals like you and me, even though they may be used in the enterprises. Now, what happens is the refresh over here is sometimes the companies have a very strong replacement or refresh cycle policy. Some companies do it in three years, some companies do it in four years, and some companies also do it in five years. There are policies, which means that these are those are policies for long term, and that doesn't impact the replacement cycle.
Often the replacement cycle in the consumer space, which people will use for homes, is also driven by changes in technology. For instance, if a Microsoft is sunsetting Windows 10 and saying Windows 10 is not available anymore, everybody shift to Windows 11, then suddenly you'll find that the replacement starts to happen. Similar to those kind of things. I think it's driven by tech advancements. If a new chip comes into the market, which is extremely more powerful than the earlier ones, then suddenly you'll find that the consumer shift towards buying new. The replacement cycle has got different context.
Now, in the data center space, in the more back-end, more, you know, back-end operations where people are using hardcore enterprise-wide applications, those are the places where refreshes are more stable. They're not done just because there's a tech. They're done largely because people want to do software upgrades, or the processing requirements have gone up, or the storage needs have gone up, or the number of users in the company have gone up. We are seeing that as the migration towards cloud is taking place, the refresh there is actually a no limitation thing right now. Because in the cloud space, people are just throwing and creating more and more infrastructure to serve the customers better.
Because that architecture, that technology, that implementation is dramatically different from a technology device at a, at an individual sort of a level. I think it's got a very broad context of how replacements work here.
Sure. My next question is, I just wanted to understand your outlook on the services business. I know it is not a large part of the pie as of now, but where do you see it going with the future targets?
Yeah. Look, I think one of the questions which was asked earlier about where do you see your cloud business and how do you do that, and how do you see your ProConnect or logistics business, which is part of my services, we do see our services business to be growing. Now it is, because we are so large in the rest of the business, obviously it's a small fraction, but in absolute sense, we do see our services business to be growing faster than any other business. Right now it is, services business is about 3+%, about maybe an under 4% of my overall revenue right now at a Q3 level. Services as a part of my overall cloud business is about 3%.
Our objective in line is to get to at least about a 10% of services business. 10% of the overall cloud business should be services business. If we get to that space, I think I will be in a very, very robust space right now. I think services business is a strong focus, both of the cloud variety as well as the ProConnect logistics supply chain variety. We are well positioned to get to that space because we are adding capabilities and we are building competencies in that space.
Sure. Sure. Final question from my end. You are present in geographies, where there are, historically there have been buying currency fluctuations. How do you anticipate that?
Look, a lot of our countries have been currency fluctuations for a long time. We've been present in these countries for more than 20 years. Countries like Kenya, Nigeria, Egypt, Ghana, Turkey, all of these countries are subject to currency fluctuations, so is India in a bit. We know how to manage them. Lot of our contracts in these countries run on dollar-denominated currencies. That's the way we try and manage it. We have the ability to swing our business up and down a bit all the time. We manage in a good way. I mean, it's not that it is a perfect world that you don't lose money ever. We are losing some money in Egypt in this quarter.
That's and that's the reason of, you know, Egypt currency fluctuation was much more sudden and much more abrupt than at any other point in time. You guys know the financial market extremely well, so you would know this. We have a very good way of making sure that our business is done in dollar-denominated currencies in most countries across, and we have a way of trying to naturally swing up or swing down our business in a good way so that we can continue our growth and continue our momentum.
Okay. Okay. Thank you. Thank you, gentlemen, for answering my questions.
Thank you.
Thank you.
Participants, you may press star one to ask a question. Ladies and gentlemen, in order to ensure that the management will be able to answer questions from all participants, please limit your questions to two per participant. Should you have a follow-up question, please rejoin the queue. Thank you. We have the next question from the line of Mohit Khanna from Banyan Capital Advisors. Please go ahead.
Hello. Congratulations, sir, for, you know, very good execution, for this quarter. I have a follow-up on what Sanjay Dam asked regarding the inventory write-off in the enterprise business that you have mentioned. I just wanted to know that what is exactly the policy? Because is the inventory write-off is due to the obsolescence of those products? If those products are not obsolete, then why write it off? It is just a, you know, a demand supply sort of mismatch, and it would go off anyways.
Okay. It is provision. There are rules you follow for provision. I'll let Krishnan take this. I just wanted to make sure I clarify your misconception. It is not a write-off because these are meant for end customers. Assuming the customer order has network, server and storage, and you haven't got the storage equipment, you have got network and server, you can't give it to the customer. It lies with you. The moment the balancing equipment comes, it'll go back to the customer. It'll be written back into a book. It's not a write-off, it's just a provision, temporary provision waiting for the equipment to come, and those provisions have norms to follow. Krishnan, you want to add?
Absolutely. I think it's a very important clarification. These are provisions. See, we follow a consistent provision methodology, and this is a time-tested one, and we have a model that is agreed by the auditor. That's something that we want to follow in a strict sense. If there are any stock buildups and those are aging, irrespective of reasons, the provisions will kick in. If you look at the enterprise example that we are discussing, I mean, whenever it gets sold, it should happen in the next one or two or max three quarters, it should come back. There are also some provisions on account of excess inventory buildup. Entirely, it's not because of enterprise.
In those cases, while we will seek support from the vendor in terms of liquidation, we also need to be prepared if there is any dilution in the value of our selling price. This is a very, very, very consistent policy and all the constituents are comfortable with..
Sir, I'm sorry to interrupt. Sir, your voice is breaking. I would request you to come closer to the speaker phone and speak, please.
I only said all the constituents are comfortable, and this is something which is more time-tested and hence it has got provided for. We will do whatever is required to be done. These come back into the system.
Yeah. In the enterprise business, you hardly have a write-off of this nature. Never you have a write-off. It's just a provision and which is consistent with our corporate governance policy, yeah.
Understood, sir. Just, one more question from my side. Can you give me a breakup of how much was the government-related growth and how much was the consumer-related growth, and the corporate-related growth in this quarter? What is your outlook on that, these three segments?
I don't have a government-related growth numbers specifically for you, Mohit. We can get back to you later. Okay, on the growth on the volume, which is consumer product is like a volume product, is about. See, in India, the consumer growth was negative. In Middle East, Africa, overseas business, it was plus, I think plus 9%. That's the way it is. Overall, it will be about, in the range of about 5% will be the consumer growth.
Right. The corporate spending, the enterprise business?
The enterprise business, we've mentioned to you that enterprise business for the Q3 was a 65% growth.
Right. Right. Okay. Very good. Thank you so much.
Mr. Khanna. Sorry to interrupt.
And this is simply enterprise and government. So all those...
It will have government as well included in the enterprise. Yeah.
Yeah. Okay. Anyways, thank you. Thank you, sir.
Thanks.
I will get back with you.
A reminder to all the participants, may we request you 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 Rahul Gupta from Fidelity. Please go ahead.
Yeah. Hi. Thanks for taking my question. I have just one small question. Your finance cost seems to have gone up a lot in last two quarters. Can you just explain what's happening there? I'm assuming there would be some forex loss here, but if you can help us understand better and also give a bifurcation of, let's say, forex loss versus interest expense.
Rahul, it is primarily because of increase in debt on account of increase in working capital, which we discussed. As I mentioned in one of my earlier answers, we are seeing debt, I mean, a positive debt situation across all our markets. You know well now the interest rates are going through the roof, I mean, both in India as well as in other part of the world. We are, I mean, our interest rate in Turkey is well over 20%. Some of these factors are resulting in higher interest costs. It would not be proper to compare it with the earlier years, because earlier years, all of us know, was not a sustainable levels. This is the way it is.
Once this, the interest rates, I mean, it comes down, we should see some better improvement in terms of interest costs.
Sir, can you just remind me what is the total gross debt we have now?
Gross debt is about INR 3,000 crore end of December.
Okay. INR 3,000 crores. Okay. Cool. Thank you.
Thank you. The next question is from the line of Priya Rohira from Emkay Global. Please go ahead.
Thanks for giving me an opportunity. This is Priya here. I just going by the vendor concentration which you have, clearly there seems to be some new vendors which is becoming more strategic if I look at orders. You know, while across Apple, HP, Dell, Lenovo, Samsung, there's been growth. Is there something which we should be aware about whereby certain vendor could become very big like the other top four? That is first question, and this could even be a cloud player or a major enterprise player, so if you can highlight. My second question, since permitted only two, is on the Q3 seasonality. Generally, we've seen because of Apple launch in September, Q3 is typically high on mobility. That seasonality, any color if you could share, would be good.
Okay. Yeah, we can do that. Look, let me give you the answer first on the vendor concentration, because that's a great question. I think it's important for us to understand the way in which the markets are shifting, the technology buying is shifting. Now, because we said that Q3, our buoyancy was a hugely driven thing by the enterprise value product segment, which is the data center, the software, cloud buying, those kind of buying. Very strong in Q3. Hence, there is a shift. Apple is not an enterprise player, so obviously, clearly, you know, there is a bit of a rebalancing of a portfolio. It will continue, Priya.
It will continue because as the world goes towards more and more digital transformation projects, as the world shift, continues to shift towards more cloudification, you'll find that the enterprise variety of products, which is server, storage, networking, software, SaaS products, which is software as a service, and the services within the cloud portfolio will start to become more dominant, that's what we are seeing. We've been seeing this over the last couple of quarters, not just one, but over the last many quarters that we've been seeing this shift in buying of customers or shift in technology deployment towards this kind of a technology behavior. That's one thing which is very, very strong. Your second point about how Apple is from a seasonality perspective and how the phone business is.
Look, typically this quarter of Apple is always going to be as strong, is always a strong quarter because there is a new launch always happens. iPhone 14 got launched recently, and that launch is always, which gives a bit of a lift in terms of how the Apple business. Our Apple iPhone, at a consolidated level across the world is about 19%, and Apple at the overall worldwide level is just about 30% for us. Like I said earlier, it stays in the range of less than 30 in most quarters. In the launch quarter, it always goes up towards that level. It's just a global sort of a reflection of how consumer demand peaks up for new brands and new models of Apple when it gets launched in the month of September, October, and other times it is more stable.
Your first question is far more insightful because that shift is real. That shift is in the marketplace taking place towards a lot more customer. Even though the PC industry de-grew in Q4, we were able to grow so healthy overall, just because we pivoted our company towards what's going on. We pivoted our company towards insights from the market, and hence we capitalized on the growing trends here.
Sure, Rajiv. This is helpful. My main objective was obviously to understand is there some enterprise product names which we should track apart from the top five, which would suddenly become strategic and come in the top five at some point of time, because that is how the business is changing.
Yeah.
Over the years, we have seen you introducing products ahead of the growth in the market. In that knack of you know, understanding or-
Yeah.
Moving on products which can grow in the market or something, I was looking forward to.
Yeah. Priya, I think. That again is a very sort of good way to think about how the market is shifting. If cloud is becoming more sort of important in our portfolio, then companies like Amazon, for instance, and Google and Microsoft become more important in the cloud space. Data centers are more important, then companies like Hewlett Packard Enterprise and EMC become more relevant. Data centers are important and networking is such a critical one, Cisco becomes a very important player for us. You'll find that there will be shades and differences. I think you guys will..
You guys might want to think about how you want to take a look at the way the tech industry is evolving and pivot yourself towards that, and rather than going by getting guided only by historical trends. History is a great way of learning, but I think there is a huge amount of shift that is taking place in the technology industry. If I were you, I would also start to think about how the server industry is shaping up, how the network industry is shaping up, how the cloud and the SaaS product industry is shaping up. You know, those would be the ones which I would start to think about a lot more.
Sure, Rajiv. That's helpful. I'll come up with a follow-up if time permits.
Thank you. The next question is from the line of Athreya from ithoughtPMS. Please go ahead.
Yeah. Thank you for the opportunity. I just wanted your comments on the logistics business. I mean, it has only seen a mid-single-digit growth this year. What are we doing? What has caused this, and what are we doing to, you know, fast-track the growth?
Okay. You're right. I think logistics business has grown at 7% over the course of last nine months. What we're trying to do is, you know, couple of very different things. It's a, it's a business which is a largely B2B business. This is a back-to-back business-to-business business in logistics. What we are doing is we are, like I said, two things. One, we are adding a new set of offerings to our portfolio. We were largely in the warehousing business, and we are now adding a range of transportation business also to it. That's how we are trying to increase our range of offerings to the customers so that you become more relevant. Customers are now coming back, and this is an insight from the market.
Customers are coming back, they say, "Look, don't give us only storage warehousing solutions. Give us more than that. Become an end-to-end supply chain provider for us versus being a logistics provider." I think we are pivoting our company or shifting our company towards becoming a lot more supply chain dominated than just one function of logistics. That's one. Excuse me. The second thing that we're trying to do is the logistics business, supply chain business is becoming extremely technologically, technically dominated, okay? You add more features, functionalities from a tech platform perspective to make sure that you can be far more easy with the customers. You know, the courier business is all tech because they can come and you can receive an equipment.
They give you a sign-off on the, in a digital way. It's very digital-oriented, but not the warehousing, not the transportation. All those businesses have to become far more technically oriented, which is what we are pivoting towards. We've taken this, we are taking over the course of next one or two quarters to make sure that we are upping our technical capabilities, to be able to provide services of this nature to our customers. The other thing which is. These two are more sort of, the capability creation that we are doing. The other thing that we are doing and investing time and effort on is making sure that our market segmentation model is the best and the most perfect model.
There are segments in the market which lend themselves easily to us, and they are more profitable, and we'll go there. There are segments in the market which are less profitable, and we don't have a natural right to win in those spaces, and we are not going to go there. We are decommitting business to some places, and we are really in a very good phase of consolidation. I feel very optimistic about the fact that this phase of trying to pivot yourself on the right set of customers with the right profitability is the right way to go forward. That's how we see our, our logistics business. Over the near term, we have a three-year plan on that, and it's going to be very robust, very aggressive growth on our logistics business.
Because it is a sunrise industry. It is an industry which will continue to be extremely growth-oriented. We've seen in the COVID times, our supply chain is such a pivotal factor for most companies to link onto.
Sure, sir. That was very helpful. My second question is on, you know, our top vendor, that is Apple's, you know, growth. If my calculation is right, we are growing at or in low single or low double digits. Based on news articles, we know, we can see that, you know, their growth is much higher in India as well as, maybe in the Middle East as well. Are we, like, losing market share there or wallet share rather?
In Apple? No, no, I don't think so.
Yeah.
I think Apple grew... You know, I had a, you know, quarterly business review with the Apple global leadership just two weeks ago. They grew 8%. We are obviously growing faster than them.
Okay, thank you. Just one clarification on the debt to interest cost. Do we expect it to remain in this level or maybe increase going forward?
It can increase, I mean, some bit because we don't think the interest rates have reached the peak. Over the next two quarters, it should start coming down.
Sure. Thank you so much.
Thank you.
You know, the way to think about interest rate, the way to think about this would be take a look at what happened pre-COVID and during COVID and now. You get a whole pattern to the industry, the way the industry has been operating. It was much higher earlier. We are at much lower levels than where we were in pre-COVID levels. You know, while the number 3,000 may look high and you know all those things, but these are much lower than where we were. I think we're in a very, very healthy state right now. Our endeavor has to make sure that our operational excellence efforts make us stay at the right levels, yeah.
Thank you. The next question is from the line of Dhvani Shah from Investec Capital. Please go ahead. I'm sorry, Ms. Dhvani, we are not able to hear you.
Yeah. Am I audible now?
No, ma'am. I would request you to kindly use your handset.
Hello.
Yes, ma'am.
Hello. Yeah. Am I audible?
Yes.
Sorry. Sorry for that. Yeah, just one question. On the provisioning of inventory and receivables, could you help us with the percentage?
Can you repeat? We couldn't hear the question, please.
Yeah. The provisioning of inventories and receivables, can you help us with that percentage for the quarter?
Okay. For the quarter, 0.34% is the provision for inventory. The provision for receivables, just in a minute, I'll tell you. It's about 0.03%. Overall together it's about 37 basis points. You know well, in the past, if you look at long-term, the same provision percentage, it would be about 15-16 basis points. There is an additional, you know, I mean, additional 20 basis points on account of these two in the current quarter.
Okay. Thank you.
We're done.
Any further questions, Ms. Shah?
No, thank you.
Thanks so much, everyone on the call. Thanks so much for joining the call and for your nice well-rounded questions. Very insightful on how we're trying to operate. Like I said earlier, it's a very, very interesting time in the industry when tech is pivoting to a completely different ballgame altogether, and we seem to be running ahead of the curve to make sure that we capitalize on the technology investments and the tech directions that the world is taking in a very, very good way, bringing variety of ways in which we reach our customers through omnichannel experiences, by creating innovations in the business models, by making sure we do everything possible to build capabilities and reduce or eliminate technology friction in the industry and for the customers. When you eliminate technology friction, the customers become more efficient, more productive.
There is an economic value to it and there is a societal value to it. I think we are trying to do everything possible in our arsenal to make sure we are staying ahead of the curve. That's the reflection in our results that in a market which has been very steady or de-growing over the last couple of quarters, we have kept up momentum and grown 31% this year. I think a lot of things are coming together, and I hope that we can continue this momentum. Thank you so much for joining the call, please feel free to reach out to us in case you have any supplementary or additional questions.
Thank you, sir. On behalf of Redington Limited, that we conclude this conference call. Thank you for joining us, and you may now disconnect your lines.