Ladies and gentlemen, good day and welcome to Redington Limited Q2 FY 2027 Earnings Conference Call. Before we begin, a brief disclaimer. This conference call will contain forward-looking statements about the company, which are based on beliefs, opinions, and expectations of the company as on date of this call. These statements are not the guarantee of future performance and involve risk and uncertainties that are difficult to predict. As a reminder, all participants' lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand over the conference to Mr. V.S. Hariharan from Redington Limited. Thank you. Over to you, sir.
Thank you so much. Good afternoon and a warm welcome. Thank you for being with us today. This quarter marks another important milestone for Redington. We delivered the strongest quarterly revenue and profit after tax in our history, not in a benign environment, but against a backdrop of geopolitical disruption, changing component prices, and continued supply chain complexity. The outcome says as much about the quality of our execution as it does about the strength of demand across our markets. We are like a multiverse phenomenon.
Consolidated revenue for Q2 FY 2027 was INR 43,002 crore, up 48% year-on-year. Profit after tax, excluding exceptional items, rose 50% to INR 581 crore. Excluding Arena, this looks even better. Revenue expanded 54% and profit after tax increased 55% to INR 657 crore. Growth remained broad, and the core business converted that growth into stronger earnings. For the first half of 2027, consolidated revenue reached INR 77,967 crore, a growth of 41% year-on-year, while profit after tax, excluding exceptional items, reached INR 1,067 crore, growing at 61%. Both are the highest Redington has recorded in any first half.
Can everyone else mute their lines, please? I hear some background noise. These results are not built around a single brand, market, or technology cycle. They reflect a portfolio designed for resilience, scale businesses that generate reach, value businesses that deepen relevance, and emerging capabilities that prepare us for the next phase of technology adoption over the next few years. Let me begin with a little bit more deep dive into our markets. India continued to lead growth with the distribution business growing 67% year-on-year during the quarter, while the Rest of the World , excluding Arena, grew 38%. Contributions by GCCL, these are the GCC countries in the Levant, countries outside of UAE and Saudi, grew 121%. UAE grew 39%, and Africa grew 35%. The Middle East grew 41% despite the geopolitical uncertainty. The breadth of this performance demonstrates the relevance of our portfolio across these markets.
India benefited from several growth vectors working together. Premium mobility continues to be a key play for us in the mobility segment, the smartphone segment, backed by NPIs, and higher PC selling prices in the PC segment, substantial data center wins, and sustained expansion in software, cloud, and security. Our routes to market are also becoming more effective. The direct-to-retail motion in India. Other technology-enabled models are increasing our reach while giving partners a more responsive distribution platform. Across the Middle East and Africa, our teams adapted quickly to the logistics disruption, longer collection cycles, and tighter liquidity. The region nevertheless produced strong growth, particularly in value-led categories. We are encouraged by the opportunity despite the situations in these markets, while remaining deliberate about credit, inventory, and cash discipline. Now turning to our business engines and giving a little bit of narrative around that.
Every vertical grew very good double digits during the quarter. More importantly, the mix of growth shows that Redington is participating across the full technology stack, from devices to data centers and from cloud consumptions to software-led solutions. Mobility grew 40% and accounted for 34% of the consolidated revenue. As I mentioned before, premiumization, especially in India, new product launches across the world, and selective price increases supported the quarter. SISA geography grew 70% with healthy momentum across both Apple and Android. In the Rest of the World , mobility grew 34%, excluding Arena. Endpoint Solutions grew 38% and represented 30% of revenue. Higher average selling prices were the principal driver, supported by a sequential increase in commercial PC volumes. The business delivered its highest quarterly revenue to date, demonstrating the device demand remains relevant even as the market shifts towards higher performance and AI-capable PCs.
On the Technology Solutions Group, it was a standout performance this quarter. Revenue increased 91%. Taking TSG to 20% of the consolidated mix. Server storage and networking all contributed. However, the AI servers, the GPUs with richer configurations and dramatically higher ASPs, in many cases 4x, are driving the growth. Large deals exceeded INR 3,800 crore and accounted for roughly 9% of the group's revenue. A good chunk of the large deals in India came from data centers. Excluding these large deals, TSG grew by 33%, giving us confidence in the depth of the underlying opportunity. Software Solutions Group grew 39% and contributed 15% of revenue. All SBUs grew under SSG, with strong growth in cybersecurity and cloud. Cybersecurity sprung back very nicely with all the efforts and focus in the last few quarters.
We are widening our access to leading OEMs and brands and hyperscalers, taking existing partnership into new market and combining products into more complete customer solutions. The objective is straightforward, moving from fulfillment towards orchestration and earn a larger role in the customer's technology agenda. Our professional services business registered strong growth with many enterprise and SMB wins. Our new CloudQuarks 2.0 has been rolled out to all of Middle East Africa, and cloud lifecycle management tools such as TrackMyCloud and Reonix has found better adoption by partners. These will hold a lot of good stead in terms of stickiness to customers and partners to our cloud platform. AI is becoming a common thread across the businesses. Our participation, spanning infrastructure, workstation, devices, cloud, software, professional services, AI is across all of them.
Specific initiatives like AI Exchange, which was created in Q4 of last year, has moved from concept to commercial activity. The launch of AI COE in Singapore, the physical experience center, also combined with the virtual COE that we are building during the quarter, is going to be very important and critical for Redington's the beginning of a journey on being able to get use cases from customers and partners and find solutions from ISVs. Together, these capabilities position us to connect multiple technologies, brands, ISVs, as customer requirements become more complex. We also rolled out five AI learning centers over the last two quarters, now in place in India, executed as part of our CSR program. Again, adds to the entire AI focus. Our OEM ecosystem remains central to the strategy.
Redington's advantage lies not only in scale, but in the ability to bring hardware, networking, software, cloud, a whole range of product portfolios across markets. That breadth allows us to open new routes to market for vendors and assemble more relevant solutions for partners and customers. Operational quality remains equally important. Working capital was at 35 days, at the lower end of our 35-40-day guidance range that we provide every quarter. Return on equity improved to 21.6% and net ROCE to 22.7%. Excluding Arena, these measures were even stronger at 24.4% and 28%, respectively. We also retained operating leverage. Revenue grew 48%, while operating expenses increased at a lower rate of 40%. We will continue investing in the people, platforms, and capabilities required for SSG, Software Solutions Group, TSG, Technology Solutions Group, and AI, but each investment will be assessed against its ability to create durable returns.
Arena remains the principal area requiring corrective action. Revenue was lower by 37% year-on-year. If you remember, the Arena subsidiary exited the VDF contract, and the resizing of the Turkey operation since happened, exiting from the Lira business. Redington's share of the loss this quarter was INR 115 crore. This loss comprises of a business loss and a Lira business transition loss, and an exceptional impairment of intangibles of INR 40 crore. Arena has a totally new management team in place who's now steering the company through. Our priorities remain restructuring, portfolio choices, and development of a Turkey-specific dollar-denominated growth revenue. Stepping back, Q2 demonstrates the shape of Redington's next chapter. Our scale businesses are expanding, our value portfolio is gaining weight, and our investments in cloud cybersecurity and AI and digital routes to market are beginning to connect.
The record H1 outcome gives us momentum, but it also raises the standard of execution we set for ourselves. Our position in India and across MEA creates a powerful platform. It gives vendors reach, partners access, and customers the ability to source and integrate technologies across brands. As AI increases the interdependence of infrastructure, devices, cloud, and software, this ability to orchestrate ecosystems will matter more than ever. Behind every number are Redingtonians who kept customers supplied, partners supported, and operations moving. I want to especially recognize colleagues working in sensitive and conflict-affected markets.
Their professionalism under difficult conditions has protected business continuity and reinforced the trust we have built with our stakeholders. We enter the second half alert to geopolitical liquidity and market risks, but with confidence in the breadth of our portfolio and the discipline of our model. Technology adoption remains a structural opportunity across our markets. Our task is to capture that opportunity responsibly, turn growth into returns, and keep building a stronger Redington. Thank you for your continued trust and support. We will now be happy to take your questions.
Just one add-on for all of your information. Hari is attending this call from the hospital. His parents are not well. He may not be there for the full call. Just keep the questions brief, please. Thanks.
Thank you very much. We will now begin with the question -and -answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. 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. The first question is from the line of Nitin from Investec. Please proceed with your question.
Hello. Hi, am I audible? Apologies.
Yeah, sir. You are audible now.
Yeah. Hi, thank you for the opportunity. Solid quarter, congrats on that, and best wishes to your family, Hari. A couple of questions. One is, on the gross margins, just your thoughts on despite the mobility mix having come down year-on-year, still the gross margins seem to be trending down. There is some context there as to why that is happening. Second, on TSG, from a large deal perspective, this quarter was extremely solid. I think more than what you did the whole of last year, if I am right.
In that context, how does the pipeline look, and do you see this sort of sustaining sort of going forward, or do you think this will be quite lumpy? Apart from that is, I think last quarter, you had indicated some concerns on ESG in the context of inventory stocking. Great if you could give some context here as to how it looks at the moment. Maybe I have a few more, but maybe I will get back into the queue for that.
Okay. I will start off on TSG and ESG, and Krishnan, if you can just jump in on gross margin right after that.
Yeah.
TSG, as I mentioned, it is not really a pricing phenomenon as a lot of people think. There is a real transition happening from CPUs to GPUs, and this is based on enterprises adopting GPUs and migrating to GPUs. We are seeing, if you see, and this is a global phenomenon, not just unique to our markets, there is a big jump up of ASPs, and that is happening. It is almost 4x in most cases. From a perspective of this adoption continuing, assuming people continue to be motivated by GPU and what it is going to achieve, and AI, because there is always a mixed bag of what you hear and how people get into that emotion of, "Should I continue to adopt AI or not?"
We think this will continue because this is not just a short-term pricing phenomenon of something of constrained and components driving it, etc . It is a CPU to GPU migration. So that is what is happening the last two, three, four quarters. On the ESG side, clearly the trend continues. The unit volumes on the consumer side are declining, and the increased prices are giving us that revenue growth. Commercial PCs are flattish to small growth for now, and that multiplied with the larger ASPs is giving us that. There is still speculation in Tier two in terms of pricing, et c, and from whatever we hear, there will be some price increases will continue for a few more quarters. But at some point, the volume demand elasticity is going to come in, is what we feel, because the unit volumes are clearly, there were some questions even previously.
If I look at the unit volumes on PCs, there is year-on-year, if you take the same quarter the previous year, it will be flattish to a slight decline on volumes, consumer a lot more, and commercial holding up, and the ASP contributing to the growth. Again, I think at some point, these price increases will slacken the actual unit consumption. So that we are clear about that. On the TSG side, it is a bit different because of the transition of CPU to GPU. Over to you, Krishnan, on the gross margin.
Yeah. When compared to the previous quarter, the gross margins are broadly similar. Having said that, if we eliminate the large deal, I mean, on account of large deals, this moves up to about 5.13%, very similar to what it was in the last year, similar the same quarter. You need to also understand that this includes Arena, where we have been doing till this in Q2 and part of Q3 last year, their local currency business, which have had better margins.
Perfect. That is very helpful. Thank you so much and all the best. I will get back in a bit to you. There are a lot of questions, we will get back. Thank you.
Thank you. The next question is from the line of Pratik Kothari from Unique PMS. Please proceed with your question.
Hi, good evening, sir, and first of all, congratulations to the team. Srinivasan, if you can just help us reconcile the kind of growth that we are posting and also in few recent interactions with media, et c. I mean, this is not something which is short term. You see this for at least two, three years, if not five. On the other side, we read anecdotally these reports about Apple cutting down on some phone production, Intel cutting down on some PC production, volume shipments, etc .
A lot of this is pricing-driven, where volumes have either started to get hit or maybe will, say, over next year or two. Just if you can reconcile, on ground, where are you getting this confidence from for the higher trend line in growth that we have been seeing for last few quarters and maybe possibly more for the next few years? Because the news we hear is very different, and that is sometimes confusing.
Yeah, I will try and answer that. It is not a straightforward answer. Clearly, as prices go up, the people migrating from non-premium smartphones to premium smartphones, they will delay some of that. But the premium segment of the smartphone segment has introduced a lot of interesting new models as well. If you look at quite a lot of fold phones now, Apple has and Samsung has and a few others. It is a very new category, and people want to upgrade to those. As we look at the market on this smartphone market, we would say there are three segments in the market. One is where people buy from wealth, their own wealth. Second is people buy from credit. And third is people buying from wages. The one that we see migrating slower or transitioning slower to premium would be wages.
Both the credit pieces and 2/3 of our premium smartphone in India is connected with an EMI kind of a picture. So, both the wealth and we are seeing that phenomenon actually, because when the premium phones are launched, the one with unique features, the one with the newer form factors, et c, is a hot in demand. Then on top of that, the camera features, the AI features, all of those. So consumers share of the wallet on some of these things are going up over the years, and that is one that gives us the confidence. But it is definitely not at the same rate that we would see the last few years that it has grown. So definitely, we are going to hit a wall somewhere. Truly, the entry level in the mid-range of the market is seeing some of those.
Okay, correct. Second, on Arena, right? So from ex of this provisioning that we had to do, we went from INR 20 crore, INR 30 crore of losses a quarter to almost INR 70 crore this quarter. Anything specific to call out? Ex of provision.
Yeah. As I called out in my narrative, there were three parts to it, right? There is a business provision, and there is a transition provision. The transition of the Lira business, there were a number of things that were both in terms of rebates and discounts given to partners that should have been available from vendors were not fully aligned, and some of that came in as provisions. On top of that, we took an impairment of our intangibles. That is why it all added up. If you look at just the business loss, this quarter was much smaller. Krishnan, you want to add some more narrative on that?
Yeah. See, these are the three splits. Just to elaborate what Hari said, the businesses where we exited, we had to also make sure that our customer relationships are proper, and if they have a challenge and we need to support them. Those are some of the hits, and these are primarily on account of the discontinued businesses.
Correct. Lastly, on this debt equity at 0.5x, 0.6x, I mean, where would our comfort be? Historically, I mean, or globally, I mean, what would that benchmark be? Until what can we go up to?
See, the distribution business, which is working capital intensive, you tend to have normally debt equity of beyond 1:1. This is what you will see across many constituents. Globally, it would be about 0.6x - 0.8 x. We are quite comfortable in where we are, and this is primarily on account of the higher growth that we see in the business. Like we had mentioned in the past, when we see the requirement for additional capital piles, we will come back to the market at the right time.
Great. Thank you, and all the best. Thank you.
Thank you. The next question is from the line of Hitesh Goyal from Origin Capital. Please proceed with your question.
Thanks a lot, and congratulations, team, for a good set of results. My question is actually on this, the laptops, PCs, and smartphones. On a YoY basis, how much of the growth is pricing-led, and how much has volume to duration we have seen in the market? Has Redington actually gained market share during this period in the distribution business? Can you shed some light there?
It is very hard to separate out the value-led versus the pricing-led because, what happens is a lot of the PCs that are shipping now are AI-capable PCs, and higher TOPS and things like that. The entry-level PCs have become smaller and smaller. So it is a phenomenon of what is supply and demand. Is it actually customers trying to adopt AI-capable PCs versus they are just going for the higher-priced PCs when they are upgrading or enhancing, especially enterprises? It is somewhat hard to determine. My assumption, there will be a combination of both, but the exact split will be very hard. The second question was, I am sorry, I missed.
Same in smartphones. If you can also say on a like-for-like basis, there has been 30%-40% inflation, right, in smartphones and PCs and all. Is that right? On a YoY basis.
The price increases have been anywhere between 30% - 50%. Yeah.
Yeah.
Depending on the genre. Yeah.
Yeah. Also, basically, when you are saying AI-led PCs, it is more enterprise-driven because, I mean, consumer side, the proportion of AI-led PCs will be very low, right?
Correct. Absolutely. So, it will be the adoption of AI PCs is more than 40% in the commercial PC segment and bought by enterprises, whereas the consumers still are hovering around 10%.
Okay. Do you see the same trend continue in October, in third quarter basically? Or because we have previous participants said that recently we saw many companies saying that we are doing a production cut in smartphones and PCs and all that. Is the momentum continuing in your business at least?
I mean, we can definitely see the volumes are, as I said, the consumer volumes are declining, the unit volume shipments, and we can also see activations in PCs, Microsoft activation data is - 20%, -30%. Whereas in commercial, as I said, it is right now still between 0% and 5%, 0% and 7%, something like that. The ASPs should drive on top of that revenue growth. Now, I think enterprises will need PCs, and enterprises will need to transition, and they need to transition because they are probably post-COVID, when they refreshed, they were in the three, four, five years life cycle. So we see that continuing. Again, even on the commercial side, will there be a demand softening because of the price increases? We will have to wait and see. We have not seen a - 10%, - 20% type demand softening on commercial PCs.
Great. Final clarification, how much of distribution business is enterprise and consumer split in your business?
Actually, 2/3, 1/3 you can say. Two-third is enterprise and 1/3 is consumer. I think you talked about market share as well.
Yeah.
I think we have gained some market share in some of the brands. I would say largely we are flat to a slight gain in market share, is what we think in our markets we are in. Not a whole lot. But we have not lost market share. We would have gained a little bit.
Great. Thank you.
Just to clarify one point on the commercial versus consumer. When Hari said 2/3 consumer, it is because we have PC segment, we also have mobility segment, which are broadly equal. So if you take only IT, you need to look at it as a half. Basis our own business, it is about 2/3, 1/3.
So 2/3 is consumer, 2/3 is enterprise. I think Hari said 2/3 enterprise.
Yeah. On the PC side, 2/3 is enterprise, correct. Somewhat, yeah, in that direction.
Okay. Thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in this conference, please restrict your question to one per participant. Should you have a follow-up question, please rejoin the queue. The next question is from the line of Aejas Lakhani from Unifi AMC. Please proceed with your question.
Yeah. Hi, team. Congrats on a very stellar quarter. Congrats to the entire management team. Sir, I have two questions. The first is that, could you call out, sir, the sharp rise in OpEx that we have seen, and you mentioned in the earlier remark that some of it is transition provisioning in regards to rebates and discounts. Krishnan, could you just call out if there is a number, what is the sustainable steady state OpEx that you are looking at? Also, could you call out the receivable and inventory provisioning that you have taken for the quarter?
See, OpEx has three important elements which you need to look at when you do the comparison. One, we have already spoken about this AR-related provisioning, and that is something that is on the higher side, and this is both in Arena as well as in the case of India. Second, the investments that we are making and primarily in the SSG-related space, which is also there as part of the current OpEx. The third is very specific to Middle East, where on account of war-related situation, there are some increase in cost and primarily is on account of insurance, et c.
Understood. Going forward, what is the sustainable OpEx number that you can sort of lean us in the direction of?
We should track anywhere between INR 950 crore -INR 1,000 crore a quarter.
Understood. Sir, could you just call out specifically what was the receivable and provisioning numbers for the quarter?
It is about INR 213 crore, which includes about INR 67 crore in SISA, and in Arena about INR 135 crore.
INR 135 crore in Arena. Okay, sir. Understood. Sir, this is the receivable provisioning number. Is there any inventory provisioning that we have done for the quarter, and could you call out the number?
That is not significant. That is not material, Hitesh. It is the normal provision.
Understood.
In this situation, we are not concerned about our inventory when the price keeps going up, right? I mean, the concern will be on AR, and particularly in Turkey, the general conditions, the liquidity conditions in the market is not that very great.
Understood, sir. My second question is on the capital intensity of the business. Given the very strong revenue upticks that you are seeing, I am trying to understand the capital consumption for the business incrementally. How do you intend to fund such growth? You mentioned earlier that debt-to-equity, you are still comfortable. How should we see that? Are there levers on the dividend side that you are planning to pull back on, given the intensity of growth we are seeing?
See, like I had mentioned in the previous question, we are very conscious, and this is one of the priority areas that we keep looking at today, primarily because of the higher growth, which is something very positive. The levers, there are additional debt that is possible, like we spoke. There are opportunities to modulate the dividend or to raise capital. At this point in time, we are able to manage with the debt, and the other levers we will bring in when there is a requirement. But all depends on how this trend is foreseen into the future. If this is a strong trend, definitely the capital raise will become a requirement.
Understood, sir. Any call-outs on how we should expect growth across segments or regions for the second half? Because each segment has, the Middle East had the affections, etc . Just any perspective on growth across regions and segments.
It is similar, what you see. I think, on a geography perspective, India, GCCL, and Africa will continue to be very strong growth drivers. We still see growth in UAE and KSA to come back. It will depend on the geopolitical disruption. This is a bit of an unknown. I reserve my comments on these two geographies based on what happens there. When you look at segments, we talked about SSG being the strongest growth driver, and SSG is now the other three business units are growing faster than SSG in some way. Second half, we continue to see TSG being a very strong number one in terms of growth driver, followed by SSG.
The value segments will be good for the second half. Typically, they have always been strong in the second half, and the CPU, GPU migration as well as the SSG work will drive that. ESG and MSG, we are a little bit more cautious because of the price volume elasticity, and the volume dampening of demand because of the price increases. We would be a bit more cautious on those two. But we have had some NPIs on mobility, so that looks interesting as well. But definitely TSG and SSG being strong, India, GCCL, and Africa being strong.
Understood, sir. Thanks and all the best.
Thank you.
In the last part, he said India. Not India.
Mobile.
Mobile, ESG, and MSG.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in this conference, please restrict your question to one per participant. Should you have a follow-up question, please rejoin the queue. The next question is from the line of Vinay Menon from Monarch Networth Capital. Please proceed with your question.
Hi, sir, and congratulations on a great set of numbers and how you are progressing with your TV recovery. Few questions from my side. This time with Apple, we saw that they launched the Pro and Pro Max and not the base model, and that is scheduled for spring. So, how do we now look at Apple sales? Because Apple is a seasonally heavy quarter for us because September end typically the new phone launch. So, will we see that now across in Q4? And then should we not take the decline in volumes too seriously right now because some of it will be recovered in Q4?
Yeah. I mean, that's a very interesting question and asked in an interesting way. I think that absolutely you're absolutely right. There's a lot of background noise. Can everyone mute their lines? Yeah. I'll try and answer this in two, three parts. There is a series of NPIs that happens with Apple, and normally it's only once a year. This year we saw Pro Max. The base model coming later. They've also introduced the Duo separately. Then they've also introduced a new set of products on iPad minis as well as on the computing side, the touchscreen laptops. So there is a lot to deal with. Clearly, if I look at what is going to happen, overseas in our Middle East markets, the premium models are always slightly higher proportion.
India has been, the base model has been higher proportion, even though there are more people now beginning to buy Pro Max. So you're absolutely right. When the base model launches in Q4, you'll see a better unit volume kicking in, and 18 does have some good set of features. So, those are all things that will happen. But normally, we would have a Q2, Q3 grade, but we might have a good Q2, Q3, Q4. We have a series of NPIs. We are looking at it a bit differently. And volumes could come back in Q4 if the base model really helps being a hit. But again, prices have increased across everything, so that can be a dampener. Will people continue to buy 17 because 17 is still in the market, or they go for 18? All of that will have to wait and see.
The strongest quarter for distributors because it's the quarter before Diwali. But this time, because there is a bit of a delay in Diwali, are we seeing some demand of that also coming in Q3, and maybe that's where the inventory pileup has also happened?
I think I missed the first part of the question. It was a bit muted.
No, I am saying there is festive season, it is a little late compared to last year. Are we seeing some of that demand to kind of come into Q3, and is that the reason for the inventory pileup also?
The first half of Q3. Yeah, go ahead, Krishnan.
Sorry, Hari. See, you also need to, while partly yes, Vinay, it is mainly to do with the Middle East situation where supply chains are still under stress. I mean, completely, I mean, Strait of Hormuz is closed, and we need to find alternate routes of receiving the material. Everything has increased the TAT of doing business, and that is one of the key reasons why inventory is on the high side.
Okay. One last question. In terms of the large deals, in data centers, you mentioned is a larger part. Are these orders from neo-cloud , or are these maybe to private enterprises, government? If you can just give me some color on that would be helpful.
It's almost all neo-cloud .
Okay, all neo-cloud . Thank you so much, and all the best to your team. Thanks.
Thank you. The next question is from the line of Pranav from Emkay Global. Please proceed with your question.
Yeah, hi. Thanks for the opportunity. I would like to ask a question about TSG. TSG, I'm just trying to understand, since a fair bit of this revenue will be coming from AI-related demand, do you think that this will be a little lumpy in nature, and hence can cause some challenges in terms of managing the working capital? Secondly, I would also like to understand, how do you see the growth runway for this business? Can this become very, very big, considering it is growing very, very fast? Thank you.
See, the way we looked at it is, I think customers are, as they're transitioning their whole server space from being a CPU to a GPU and the associated storage networking, etc , they're just going for the newer category of products which cost more, and it's limited in demand today, and so it's priced like that. Again, this is a run rate business as I see it. It's not lumpy because as long as enterprises continue to transition, migrate from CPU to GPU, we will see it happening over the market. So it will not be lumpy. The data center business could be lumpy in terms of getting the orders and getting the recognition, but the TSG server business will not be as lumpy.
And how much of this TSG business currently would be from data center and non-data center? I mean, to get a sense of recurring numbers.
For the current quarter, roughly about INR 3,800 crore is our large deal size. If you eliminate everything else, it's BAU.
Okay. Thank you so much. That is from my side.
Thank you. The next question is from the line of Chirag from Motilal Oswal. Please proceed with your question.
Yeah. Hi. Congratulations on a great set of numbers. I just want to understand directionally that from seasonality point of view, putting all the moving variables like war-related impact aside, generally, I mean, H2 is better or H1 for the business, ex of Arena and all? Yeah.
See, normally H2 has always been better than H1, and it is because our Q3 is normally Q4 and year-end for a lot of brands and a lot of countries, not India. So, that has a budget, spending your budget. Similarly, Q4 has the India impact of spending budget. So normally, our second half is always bigger than the first half. But this year is a bit different because the whole shortage and the price increases, I think, has pulled forward some of the consumption and purchase cycle forward, both on the PCs and even on the TSG side, definitely smartphones. It could be this year, second half, we are not seeing that much of a seasonality, and we see it is still a good Q3 and a good Q4, but we will not see that much of a seasonality is our opinion.
Okay. So, let us say in a normal circumstance, should we assume because the growth is on year-on-year, particularly in 2Q and somewhat in 1Q, has become very large on year-on-year. So, considering the current order book and the commentary which you mentioned for the segment-specific outlook, is it fair to assume the growth will be north of, let us say, 25% at overall business level in H2, directly?
It should be. I mean, there is no reason to pull back. The only caveat I wougld say is two caveats. First caveat is how much of a demand contraction that happens because of the price thing finally settling in and people saying, "Yeah, I'm just going to delay my work." We will never be able to assess that till it actually hits you. So that is a bit of an unknown- unknown. We are not seeing of that yet, but we could see that, especially post Diwali season, the consumption of smartphones, consumption of consumer PCs, those kinds of things. Second thing is the West Asia crisis, and how much of that impact would be felt in UAE, KSA, and some of GCC. Those are the two caveats. Otherwise, yes, you're right. There is no reason to disbelieve that it'll be north of 25%.
Just one final question from my end. In past 15 days, somewhat the noise around AI and the CapEx behind AI, be it on hardware side or on software side, somewhat, the dust is trying to settle down. Also, the geopolitical changes which may happen considering the election outcome and all in the U.S. Let's say if in a case, the AI-related spend incrementally comes down or some of the proposed projects take a back seat due to any reason, will it anyway impact our outlook of FY 2029 or 2030, which we have given for SSG or at broader level for the business? Yeah.
See, those will affect. Your question is valid when it comes to TSG and the data center piece. SSG consumption, while there is an AI element, I think that piece is still outside of a pure AI reset back, because the cloud security and software has been growing at one pace, and we believe that will continue. Similarly, smartphones, there is not that much of an impact on AI. So, it will be TSG for sure, and somewhat on the PCs, these two spaces, there could be an impact of that if there is a pullback. But I think it will rationalize, I believe, with the other two groups.
Okay. Thank you so much, and best wishes for your family.
Thank you.
Thank you. The next question is from the line of Priya from Emkay Global. Please proceed with your question.
Yeah. Hi, good evening to the management team. Hi, best wishes for your family and parents' recovery. My first question relates to more on the AI Exchange. Now, what sort of traction are you seeing, and is it just dovetail on some of the higher activities which you are seeing in the past few days in this quarter, just to kind of see the ramp-down in one and a half to two months of its launch? And just a small follow-up on Google becoming among the top five. I mean, how broad-based could this be, or is it more related to cloud-related revenues, and this could only increase going forward?
I actually was not able to get the question fully.
First was on the traction in the AI Exchange which you created.
Okay. See, we all know, and I will answer the first question, maybe tackle the second one after that. We all know that the AI adoption, especially the commodity AI adoption on things like on the frontier models like ChatGPT, Claude, et c, is very high. Both in consumer and enterprise space, there is a lot of discussion on agentic AI. There is no dearth of that. The real challenge people are finding is, how do I convert it into an ROI model? And increasingly, people are getting a little bit disenchanted and disappointed in terms of getting that to happen.
An AI Exchange type of a platform was to solve that gap where we bring in a platform where there are ready-made products that are working for some customers, and these agents have been delivered for some customers, and some of the customers can look at it and say, "Hey, I like this model for the BFSI segment used by 10 BFSI customers and developed by digital natives or ISVs." Early days, I mean, we have launched it about a couple of quarters back. We are engaging hundreds of our partners with this, talking to their customers, and we have had many ISVs engage this model.
This is a completely change of a go-to-market model. We are seeing traction in small bits and bytes and a good funnel. It is somewhat like what cloud was 10 years back. And we are encouraged by what we see, but clearly, this has to work for customers, and this has to have a replication, multiplication model by partners. That is what we are trying to see, so that it does not become like an every use case is a new use case, somebody has to go in and develop an AI solution for it. It will be a long journey, clearly. It is not going to catapult overnight. And the second question was?
On Google as coming in the top five vendor base, in terms of some color over there. Because that's on a H1 basis, if I look, has grown 183%, and the base could be lower. But it could pilot it on a very higher growth. Just trying to get some color over there.
Yeah. So Google for us has two parts to it. Has got a smartphone piece, and it's got a office and cloud piece. So put together, it's grown very well for us. But definitely, we play hard in Google Cloud in India, but we don't have partnership with Google in all places. Google is becoming very interesting because their growth, if you look at overall Google growth on cloud, is very high. They're catching up with the bigger boys. And as long as they are in a very distribution-centric model, we think it will be very interesting to work with them.
Sure. Thanks so much. And wishing you all the best. And a speedy recovery to your parents. Thank you.
Thank you. The next question is from the line of Ashish from Leo Capital. Please proceed with your question.
Congratulations on a good set of numbers, sir. My question is, are we seeing a big pipeline of opportunities from the neo-cloud data center build-out in India? How large could the potential size be for the distribution industry on that, and what sort of margin profile and return on capital do we expect on those contracts?
Again, I think we have shared some of this before also. As the whole neo-cloud, specifically to India, goes from 1.5 GW -7 GW and then to 12 GW, clearly there is an opportunity for distribution as well. We talk about the next four years as INR 150,000 crore opportunity. Where does distribution play a role? One, obviously in the hardware deal sourcing, working with our brands and working with the neo-cloud operators. Obviously, the big conglomerates in India are getting into it and trying to bring in their own capital and creating their own partnerships with the neo-cloud operators for the U.S. So we have to see how this plays out between the smaller neo-clouds locally set up in India and the neo-clouds coming in from the U.S. partnering with conglomerates in India. So that will be an important play to understand that.
Distribution and distributors like us, we have to see value adds in multiple places. One, obviously stitching contracts because we work with multiple server storage, networking, and cooling system and power players, stitching those solutions. Working this whole ecosystem orchestration, being able to play a role in filling capacity, bringing mid-market customers, and bringing in professional services, all of that. If there are smaller players, we may be able to play a role in capital stitching. The larger players will do it on their own. So this is an evolving space, clearly huge numbers, but we will play where our value is. You asked about margins.
Definitely margins are not as interesting as normal business unit run rate margins that we have, between 4.5% and 5%. But the ROCE, we are very clear about picking up deals and partnering, and especially on the hardware side, there is a ROCE target we have. We don't fall below that, and we try to do this with less incremental OpEx. So the leverage is definitely good for us, and it's a starting point of working in the data center space to be able to play into the value-add space like managed services and filling capacity, et c.
Yeah. Just to add, Hari, Ravi here. Ravi Shankar from Redington Limited. I am the CFO of Redington Limited. The capital investment on the funded portion is almost nil. We only have a non-funded portion being utilized for the purpose of large deals. In that sense, if you see the return, it is almost infinite.
Got it. Got it. Sir, if I could squeeze in one more question on the Turkey Arena business. By when do we expect a turnaround in that business?
I know this has been a question every quarter, and every time we have tried to answer, there are new sets of vectors and things that happen in the Turkey market. There is a new issue on the funds in the market. There has been all kinds of things beyond interest rate and inflation that has happened, which is what is making us challenge and struggling. I think, see, what we have done clearly on Arena, the subsidiary, they have exited from the high interest rate working capital business, and we believe we are towards the end of that piece.
There are other things looming in the horizon, in terms of our existing partners that we work with, how good are they in terms of going forward. We need to really closely watch the market, but we have taken all steps to eliminate all the negatives we had, and we believe we are getting a cleaner business and a completely new leadership team. That gives us encouragement, but we really cannot estimate all the new curveballs that are coming up in the Turkey market. That is the challenge.
Got it. Thank you. Thank you for taking my question, and best of luck.
Thank you.
Thank you. The next question is from the line of Shrinarayan Mishra from Baroda BNP Paribas AMC. Please proceed with your question.
Thank you for the opportunity. My first question is on ESG. Last quarter, we had highlighted there were above normal channel inventories in anticipation of price hikes. How is the situation currently, inventory levels?
I think it is similar. I think this kind of trying to take some inventory so that they can make more money, that continues to be a challenge. There is a little bit more than comfortable level of inventory in Q2, I would say that.
Okay. In TSG, if you can quantify what would be the contribution from large deals this quarter?
Yeah, I think that was called out also, INR 3,800 crore was the contribution. Yeah.
Okay.
The growth without those large deals would have been 33% for TSG. Obviously, the 90% growth has come from the large deal portion.
Got it. Okay. Thanks.
Thank you. The next question is from the line of Akshit Shetty from Family Office. Please proceed with your question. Mr. Akshit, can you please speak?
Hello. Am I audible now?
Yes, you are audible now.
Yeah, sorry. Yeah. Okay. First of all, congratulations on the strong performance. My first question is related to business transformation and profitability. I see that the TSG and SSG grew 91% and 39% YoY in the second quarter of 2027, as Redington expands its cloud, cybersecurity, and enterprise technology business. Do you see this changing the company's traditional distribution-led business model? Over the next three to five years, say, can we expect a structural improvement in the gross margin and EBITDA margin and ROCE?
Yeah, I think we've again shared this. Good question. Clearly, if you see SSG gross margin this quarter, it's higher than six. And the profitability from the SSG business is also higher than the average PAT compared to the overall Redington average. As Redington moves its role from pure distribution to orchestration, which cuts across TSG, SSG business, there will be a lot more solutioning, a lot more services that will be enabled.
That is the expectation that we are driving, that all the capability building that's going on CloudQuarks 2.0, the marketplace, the automation tools, the management of lifecycle, all of that should result in greater value for the customer, greater value for the partner, and getting greater gross margin. The expectation of what we are trying to do in the next three to five years is clearly getting better gross margin on SSG and TSG business combined, the whole ecosystem orchestration.
Okay, understood. Thank you for answering my first question. My second question is related to working capital and cash generation. I see in the second quarter of 2027, free cash flow was INR -1,871 crore, whereas the first half of the 2027 free cash flow was INR +583 crore. As Redington expands into larger enterprise and data center projects, could working capital requirement increase structurally? Going forward, can the company sustain the earning growth without a proportionate increase in working capital?
You want to take that question?
Yeah. See, the free cash flow may not be a right metric when you see a growth rate of this nature in a working capital-intensive business. It is purely to do with higher growth, and that is the trade-off that is being chosen. Working capital, we are controlling the overall working capital in terms of number of days. But because of growth, higher growth, obviously, the quantum of working capital as well as the debt is expected to go up, and we have spoken about it earlier. I mean, currently, we see levers in terms of higher debt, but if you see a requirement for more capital, we will take the decision at that point in time.
Okay, got it. Got it. And thank you for explaining both the question thoroughly. Yeah, thank you for that.
Thank you.
Thank you. Ladies and gentlemen, due to interest of time, that was the last question for today. I now hand over the conference to Mr. V.S. Hariharan for closing comments. Thank you, and over to you, sir.
Thank you for a good set of questions, and thank you for the interest in the Redington journey. We are definitely committed to make Q3 and second half a success too. We continue to watch out for the trends on the geopolitical disruptions and the potential softening of demand because of the price increases. But we will do our best as always and come back to you with good results, and look forward, and Happy Diwali for everyone in India. Thank you.
Thank you. Thanks. Happy Diwali to all of you.
Thank you. On behalf of Redington Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.