Rashi Peripherals Limited (RPTECH) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q1 FY 2025 Conference Call of Rashi Peripherals Limited. [Operator Instructions]. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantee of future performance and involves risks and uncertainties that are difficult to predict. I now hand the conference over to Mr. Krishna Kumar Choudhary, Chairman and Whole-Time Director, of Peripherals Limited -- Rashi Peripherals Limited for opening remarks. Thank you, and over to you, sir.

Thank you. Good evening, everyone, and a warm welcome to all. We are delighted to welcome you all to discuss our performance for the first quarter ended June 30, 2024. This is our second earnings call post listing. We would like to first give you about macro developments to set up the context. Colleague and our CEO, Mr. Rajesh Goenka, will then share our operational update, followed by our CFO, Mr. Himanshu Shah, who will update you on financial highlights for the quarter. Post that, we will open the forum for Q&A. Talking about the recent results, which got announced we saw a series of transformative policies designed to propel the IT sector to new heights. We enhanced R&D tax incentives, robust support for start-ups and MSMEs, investments in digital infrastructure that sets a solid foundation for driving innovation, growth and digitalization. This will have a positive impact on our growth trajectory. Our extensive service portfolio in source that both vendors and clients experience exceptional value. Vendors benefit from our extensive reach and business expertise, while clients receive with parallel support tailored to their needs. This has fostered long-term relationships with more than 60 brands associating with us for over a decade. Looking forward, our strategy is to broaden our product portfolio and for new association with additional brands. We already operate one of the largest distribution network in the country with 51 branches spanning 715-odd locations. With a clear vision and steadfast dedication to excellence we are well positioned to contribute to the continued success of India's IT industry. I now hand over to Mr. Rajesh Goenka, the CEO of Rashi Peripherals to discuss about the key initiatives even during the quarter. Rajesh?

Thank you, Choudharyji. And I think what you mentioned about the tremendous reach that we bring in India. This is inconsistent with our corporate strategy of increasing our penetration continuously. I'm also very happy to share with you that overall, Rashi Peripherals have had a consistent growth, all around growth. We have grown in each of the regions. We have grown in both the LIS and PES vertical both. Some of the noticeable [ achievements I would ] summarize is, one is we have an additional order from NMDC, which is again a 3-digit figure. Another order we have received through a partner for Tamil Nadu education project, which is again a 3-digit figure. So our project business continues to thrive and gives us accelerated business opportunity. Then we have also inaugurated our laboratory as committed on time. The Embedded Laboratory in Bangalore. It is already inaugurated, and now we currently have 18 demos, live demos operation out of the same. We've also implemented CRM for our sales team. Currently, we have implemented in west, and we are all set to expand to all India. Needless to say that our strategies which we initiated this year continues to remain our focus. And some of the key strategies that we are continuing are creating a separate visual display vertical which we have already created and the Tamil Nadu order is a part of that strategy only. Then, creating a separate LOEM vertical because a lot of local manufacturers are coming. So that is also in the process of implementation. And to cover all this, we continue to invest. And currently, we are doing a channel business forum in 40 cities of India. And I want to highlight this that these 40 cities of India are beyond the 51 branches or 51 cities where we have the brand. So they are basically the 52 to 92 towns of India, where our team is doing channel training and channel business forum. So all in all, we continue to have a consistent momentum with all these initiatives in [ place ]. With this, I hand over to our CFO, Mr. Himanshu Shah to describe about the financials.

Thank you. Thank you, Rajesh, and good evening to all the investor family members and friends. This is CFO from Rashi Peripherals, Himanshu Shah. I would like to take you through the financial highlights of the first quarter for the financial year '24, '25. On a consolidated basis, we have achieved revenue from operations of INR 42,670 million registering a strong growth of 42% on a quarter-on-quarter basis. That stands at INR 550.37 million, which grew by 16.95% on a quarter-to-quarter basis. EBITDA stood at INR [ 905.83 ] million, which has grown again by [ 8.23% ] on a quarter-on-quarter basis. Segment wise 59% of our revenue was contributed by PES and 41% is contributed by LIS. Very importantly, the working capital for our days -- for our business has improved to 38 days, and we have been able to maintain ROCE of 15.17% which is 1% higher than the last quarter. EPS is again an important element of our P&L statement and which has grown by 18%. Last but not least, CRISIL Ratings has reaffirmed its rating on the bank facilities for the current financial year with A+ for long-term and A1 for short term. Thank you, everyone. With this, we can now open the room for question and answer.

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions]. We have our first question from the line of [ Neha Jain ], an Individual Investor. Please go ahead.

A couple of questions. In the presentation, you had mentioned about inauguration of Embedded Lab in Bangalore in the month of April. So just wanted to check what will be the revenue contribution from this lab that is coming up and going forward?

So this Embedded Lab is a part of our Embedded Vertical, which also called as the Semiconductor Vertical. And this we started about a few years back. So this is a value add for testing these samples for various applications. So obviously, the lab will directly not give a revenue, but it will help our semiconductor business to scale up faster and provide real value-add to business.

So when we say that the semiconductor can grow faster. So can you put a number to that?

Yes, it's very difficult to give a number to that. But the growth in terms of percentage would be at least 3x or 4x of our overall growth.

And how long do we target this? Like 3 to 4x growth and how much -- span of how many years?

Yes, in 2 years' time.

Okay, okay. And also, currently at present in our Q1 results, we see that an increase on the revenue side, what the margins are subdued. So just wanted to understand the reason for that.

So [ Neha ], right? I'm getting it correct, yes. So Neha, the top line has grown because as you might be aware that we have declared a large deal, which we declared on the stock exchange in the first week of April, which we have executed during this quarter. Now this large deal comes with comparatively lower margins than the run-rate business. So the effect of that is visible in the financials. If you have any further detailing to be done, we can connect offline.

Sure. Okay. And sir, apart from this new business, what are the other brands that are contributing to the revenue?

Yes. So in this current quarter, there are no significant new brands. New brands, it takes time. They have a longer cycle. So currently, the entire business growth is primarily on account of existing business only.

Any particular brand that has the major share of revenue?

So overall, we had a consistent growth across all products and brand categories. The only thing is this NMDC order is a little bit additional. That has accelerated our topline growth.

[Operator Instructions]. We have our next question from the line of Aejas Lakhani from Unifi Capital. Please go ahead.

[indiscernible] Congratulations on the results. Rajeshji, my first question is, did the entire NMDC data center order booking done for the quarter? Or is there any slow-up for next quarter?

It's already done, and I'm happy to share with you, which I already shared that we have one more small order from NMDC, which is -- which we have just received and will be executed soon.

And sir, what is the size of the newer -- new NMDC order?

So, it's around INR 200 crores to INR 300 crores order currently.

Okay. And that will be executed in the subsequent quarter?

Yes.

And so I mean, could you quantify what is the Tamil Nadu education project order? And when will that be executed?

Yes. So this is, again, 3-digit crore figure in terms of size. And this is basically Tamil Nadu Government education project where LFD large monitors and PCs are being installed. Again, this -- while we speak, the execution has just started. But Aejas, I just want to clarify what happens is execution is directly proportionate to the availability of the products for this. So normally, the execution cycles are a little bit longer but it has already started. The execution has just started.

I got it sir [indiscernible]. Sir, could you -- Rajesh, could you quantify what are the margins in the projects business? And what is the working capital intensity in these businesses?

So it is basically for these projects, we have to look more from the ROI angle because margin is one sector but do we carry inventory what credit exposures we take, what support we get back to back, all these 3 factors together give us an ROI. But yes, it is true that these projects, the overall ROI is a little bit lower than our regular run rate business. Neha asked that question, like why top line growth and bottom line growth, there is a gap and Himanshu explained it appropriately.

Okay. Sir, incrementally, given that you are seeing a lot of these data center opportunities coming your way, you just won NMDC, you get another one from Tamil Nadu. Is there any way that you can call out the projects business versus the core business so that we can understand how both facets are moving?

So. Within Rashi, we are keeping this both very differently so far so that this is the first time we are talking everything consolidated. Otherwise D&A, we are talking very, very differently for 2 reasons. One is, it should not cannibalize with each other. And second, we should not get overwhelmed with these large projects. So there is a very set process which we are monitoring both independently. And as I explained to Neha that even without the large projects, our growth momentum continues to be in similar lines.

The other [indiscernible] of the large project and associated gross margin with that, what would the core business gross margin has been for this quarter? Or maybe gross margin and EBITDA should go [indiscernible]?

It's around 5% as it has been in the previous quarters. So it's the same.

And EBITDA also ranges in the same range.

Sir, that would then imply that the projects that you have taken are at a similar gross margin range as the existing IT businesses?

No, it's -- so what I'm talking of is in the same range because this projects business comes with lower margin, little lower margin. The kind of investment like Rajeshji mentioned that stock carrying days are much lesser than what is there than run rate business. Credit exposures normally, we tend to take like we tend to not take on our exposures and something which helps us in improving the ROEs.

Okay. And sir, now that you've got a rating upgrade, what would be the revised rate of interest we will be weighing on to combine debt?

So is this the rating upgrade has happened from A to A+, which means that it is A bracket only. Unless we move to AA bracket, significant interest rate benefit is something which we should look at when we move to AA bracket.

Got it. And sir, what is the total debt today?

Today, it's in the range of around INR 600 crores plus I would say. Debt equity around 0.44.

Got it. Rajeshji, you spoke about what channel business for and what exactly does that mean? And could you explain the contours around it?

This is one of the biggest channel event brand in the country. We have been now doing this for almost 20 years. every alternate -- alternate year. Our team from the corporate office and the branch office, they visit these cities, they meet the local partners, customers and in the evening, we have a 2.5 hours training program where -- and along with the product display and demo and normally, we do not have drinks. So it's not an evening party. And what we have seen is this -- with this interaction with training, with a live demo of the products, and we also give confidence to local customers that Rashi Peripherals will provide these products and solutions doorstep in your respective towns, this has helped us in long-term developing the business.

So you do this, have you been seeing this kind of market for many years.

Sorry to interrupt. We request you to please rejoin the queue.

If I remember correctly, this is our 13th CBF which we are doing. And it's basically a market development, newer markets, newer cities, where the IT penetration is relatively lower.

Thank you. [Operator Instructions]. We have our next question from the line of Rohan Mehta, a shareholder.

Sir, I had a few questions. If you shed some light on any procurement strategy that we have in place when we onboard any brand. And if we have any sense of exclusivity when we tie up with any brand for distribution?

Okay. Rohan. So to answer your question, but in distribution, it is not procurement. It is more a distribution agreement and it's a long-term agreement. So it's not like onetime purchase where we negotiate the price and then we buy. It's a sustainable over a period of time circulates. So normally, our purchases are not negotiated. It's a mutual agreement with the vendor, and it goes on a rotation basis. The other question?

Sir, in terms of the procurement strategy and if we have a exclusivity concept with any of the brands that we work with?

Yes. So it's roughly 15% to 17% of our gross revenue comes from either exclusive product or exclusive region or exclusive customer base. It could be a combination of all 3.

Understood, sir. And typically, our agreements with the brand -- the duration of the agreement would be on average how long?

So all the agreements vary from 1 year to [ 3 ] years. But normally in the industry, not only Rashi Peripherals, agreement terminations are almost negligible. Like we are now working with various vendors for 20 or 25 years and it gets auto renewable.

Got it. So client stickiness is very good, sir. And sir, do we see any difference in the margins that we get between the 2 verticals of personal computing versus lifestyle IT? Or if you look at margins with respect to individual brands also if you could throw some light on that?

Yes. So obviously, PES and LIT both have different -- a little bit different margin structure. Even though if you see the overall gross margin is just about 5%. So there is no -- not too much of variation. And at Rashi Peripherals, we try to balance both the business to sustain our gross margin objectives.

Okay. Understood, sir. And so speaking of numbers, any visibility on how the ROCE and ROE would look like in the current financial year? Any movement on that front?

So Rohan on ROCE and ROE numbers, if you see last year, February, we had this capital raise. So definitely to get to the normalcy and the capital base to get fully deployed and generate its volume of business is not 1 year proposition. So we will have to wait until the reaches to normalcy. And so this year, maybe it will look like in the range which we have delivered.

Understood. And lastly, sir, if you could give a little bit about our strategy of expanding our branch network over the next maybe 3 to 4 years, if you have any range target on that you want to open in any criteria that we have in terms of when and where to open a branch?

Yes. So we continuously strive to expand our customer base. And to increase our customer base, one of the ways is to expand the branch network as well. So currently, while we speak, we are doing our basic analysis and viability, and we are hopeful for having a few more branches in the coming year.

Okay. Just one last question. Do we actually see client concentration as a risk in the sense that if we have any 2 or 3 clients that account for a large share of our revenue?

Again, I think at Rashi Peripherals because of our widest product range and because of our widest reach, our dependency on 1 or 2 or 3 clients is the least. To the best of my knowledge, if we exclude online and LFR, then we don't have a single customer, which controls even 10% of our business. It's much lesser actually.

All right. Okay. That's one from my side. Thank you. All the best.

The next question is from the line of [ Manira ] from [ Investo ] Investment.

Am I audible?

No. Can you speak a little louder?

Yes. So what are your measures to bring down your inventory days?

So, Manira, the inventory days, we see a scope of improvement of around 10% from the existing level, which we continuously work upon it, we can continuously track the inventory and align with the market. Demand and the kind of supply times which are required. So effectively, in the long run, you can see the optimum level is 90% of what we are currently operating at.

Okay. And if you may highlight which are the top brands that contribute to your revenue?

So our leading brand currently is Asus, Lenovo is the second largest, Western Digital is the third largest and so on and so forth. But we have a pretty long tail. So our dependency on one brand on -- or one product is the least in the industry.

We have our next question from the line of Sanjay Shah from KSA Securities.

My question was regarding the future prospects and trajectory for the business and our company. Since we have grown so well, and we have around 60 global technology brands under our net plus a wider net of customers, reputed customers in India domestically. So now how can we see to mitigate the risk in future and grow from here? Are we planning or in a pipeline to add any more global brands or even for customers with some -- and even what about our market share right now in India and how we anticipate that going ahead?

So Sanjay, I think I would answer your point very specifically by giving the history that our CAGR for last 20 years has been about 20%. The last 3 years, our CAGR has been 23%, right? So that's our buydown. The same question I was asked 5 years back, I was asked 10 years back, and I was also asked about 15 years back. So that's one history. Now looking positively at the future there are 2, 3 things happening. One is digitization, you know everything is going digital. So the consumption of ICT products and solutions continue to grow on a macro level. So therefore, the industry will continue to grow and all third-party reports that we have gone through indicate double-digit growth in next few years. Second, newer product categories and solutions, like, for example, data centers. The order that we just executed. It was never in our radars few years back. But right now, it came when we have a substantial business play in that segment. Similarly, we have started the semiconductor vertical 3 years back. Similarly, last year or just recently, we started a visual vertical. Visual means displays, displays that you see not only in our homes, offices, but even at airports, highways, education institutes. And the latest vertical that we have started is LOEM. India now is going for manufacturing. So if you go for manufacturing, the manufacturers will require the components to be sourced locally. So that's where Rashi Peripherals will play an important role. So all this coupled with some more things coming in the next few years, we are very optimistic to sustain our growth momentum.

That's really very helpful, sir. Thank you very much, and good luck.

Thank you. The next question is from the line of Rushabh Shah, an individual investor.

I had two specific questions. Are you planning to enter any new product segments?

Yes. So it's part of our strategy. And as I mentioned when I mentioned about the visual vertical, so visual vertical, we were earlier doing LG. And now currently, we are also doing ViewSonic. So it's a process within the organization and newer verticals, newer products, newer technology. It's in our DNA, and we will continue to do that in the coming times as well.

Okay. And second question was with regard to foreign exchange fluctuation. So what strategies are in place to manage this foreign exchange fluctuations for the import of our products?

So yes, I think this is a question we almost get at every call, and it's a very valid question from an investor point of view. Our -- almost 40% products are being imported. And the pricing is normally kept at current level plus something which is going to cover our future hedging cost, right? Number one. Number two, the inventory, what we carry, the pricing of inventory is being evaluated every week. And based on the current sections that the prices are taken care of. So it's an auto hedge third thing that we also have as part of our imports vis-a-vis our payment due date. So altogether, everything is taken care of to my future exchange rate. It's a combination of partial hedging and partial in-built business parameters, where we get natural protection.

We have our next question from the line of Manoj from KSA Securities.

This is Manoj Jethwa from KSA Securities. So my concern is that we are working on a very wafer-thin margin as we are the distributors for the 60 technology partners. So in future, if any some challenges come to how are we protected against that? This is one question from my side, sir.

So Manoj ji, you see we have widest portfolio of products like 60 brands and the portfolio for distribution itself is a risk mitigation the proposition, first of all. Second, dependency of one brand is not more than 23%, 25%. So there also, we have different strategies or long-term relationships in place wherein there's no visibility of any such risk getting topped up [indiscernible]. Thirdly, our engagement with the brands and the penetration into the geography, wherein we have largest work of distribution provides us that the upper edge to mitigate the risk, which you are foreseeing or trying to find a solution to it.

Thanks. My second question is relating to the artificial intelligence because many of those products in ICT or LIS things and all that, right, now artificial is getting embedded in most of the products. So do you see it would be a good volume-wise also and margin wise also, we may have some good margins on those products if we distribute such products.

So this is the question closest to my heart, AI. Everyone is talking of AI. And it is true that AI implementation the pace of the implementation is amazing, but it's also a fact that it is just at the start point right now. So while we speak, we have started receiving a few laptops, which are AI-enabled. There are a few solutions, which are AI-enabled. And the large project order that we have executed is again basically AI data center. So while we are very optimistic and we see the big business opportunity coming our way, but it will have its own gestation period. And we are actively engaged in this field as well.

My last question would be our present and future synergies as for the data centers. Artificial Intelligence data centers in relation to NVIDIA company, sir, could you add some color on that?

So we are one of the oldest in the largest distribution partner for NVIDIA now for many, many years. And we hope to continue to work with all these technology companies to bring the solutions to Indian consumer and enterprise.

Your next question is from the line of Bhavin from Enam Holdings.

Congrats to the entire team for record quarter and integration of such large orders single quarter. A few questions, sir, if I can take the cost tax number and cash number as on June 30?

Sorry?

Gross borrowing number and a cash investment?

We could share those off-line sort of the results which we have. We can discuss later.

Largely, the net debt has remained flat quarter-on-quarter or has it declined, increased? I think March '24 it was INR 523 crores like that, so largely it's a declined, increased, or a trend if you can give?

Working capital gap that you see has increased a little bit with the increased level of activity. So the balance sheet items, we can take it up offline.

Okay. So other like as you mentioned, again, 2 large orders coming in the business, in large part of the same would be executed in quarter 2. So the margin trend again as compared to the historic margin would optically look low. Particularly, because NMDC already has low margin, but what about the Tamil Nadu, it's a normal part of the business, it is a normalized margin or do you see that also has a low margin component in that?

Bhavin, I don't think we have that library of this INR 100 crore or INR 200 crores projects at large margin. There, the margins are always tight. So it is going to be in the similar range as well. And margin pressures will continue to be there but as I said earlier, ROI's what we should look at, and ROI's are lower than our regular business for sure.

And so if you can give a trend in the first quarter and maybe again, July and August was just something at the key product segments of particularly, the industry is growing and yourself are growing in terms of desktop, laptop, drives, a few of the products you want to highlight what are the range in urging and growth rates happening there?

So I think overall, if I go by the third-party reports, then they indicate that the market was either flat or some part of the market was negative in the last quarter. But Rashi Peripherals we have a virtue of the variety of products and solutions we have by value of their reach in a number of cities and our number of customers, which has [indiscernible] both actually grown which has resulted a decent growth for us. To answer your specific questions, we -- basically, what we have done is we have increased our market share because of our penetration. So as a result, I would say in 80% of the product categories, we've had growth, barring 1 or 2 exceptions like, for example, solid state drive that market, there is a major price crash happened globally. So that market is actually a little bit de-growth. Second, a bit of component market which is again not an organized market. So there is -- there also -- there is some de-growth. But other than that, almost all the categories, we've had a double-digit growth.

So, except for these 2, largely you are having [ INR 28 ] crores across your category and that to basically has been driven by more penetrated, and more distribution network and slightly higher share from your competition. Again, most of the products also, you have been the only distributor of the top distributor. So really difficult to get incremental picture. So question is to more market share?

Yes. So 20% business, as I said earlier, is like, I would say, 17%, 18% business is exclusive. Rest 80%, 82% business is nonexclusive business. So there is obviously a scope to get market share. But I think penetration coverage is one of the fine key areas for us in having this growth.

We have our next question from the line of [indiscernible] and individual investor.

I have two questions. Are there any add-on benefits to create separate vertical for visual display business?

Is there any additional benefit for? We missed your word.

Okay. Benefits to create separate verticals for visual display business?

Yes. Yes, definitely, because if you have a separate vertical, you have a separate team, then they are trained to manage that respective business and then there is more focus and attention. And therefore, you tend to get higher success. And that has been our strategy. I cannot comment about others, but that's our strategy.

Okay. The other question is, are there any margin distance in the service efficient channel?

Yes. Amongst the channel, LFR and online margin percentage varies.

The next question is from Neha Jain, a shareholder. Neha, are you there?

Hello?

Yes, please go ahead with your questions.

I just want to check what is the split between the metro and non-metro how do we see it going further?

Yes. So I think Neha, to answer your question, to be very specific. We have 60:40 metro versus non-metro ratio. And depending on the season and depending on the project, this keeps on varying. Of course, currently, this quarter because of the last 1 or 2 projects, the metro seems to be higher. But I'm sure in July, August, September, which is Q2, which is more consumer quarter, again, it will come back to around 60:40. And that's what we think is realistic.

So, it's an annualized basis, Miss, it will be 60:40 is what we feel.

Okay. Okay. So just one last question about the mobile distribution segment. As we are aware that the competitor already has a good presence in this segment? So can you expect any such a move from the company?

So we take pride in saying that we are probably the only one and unique distribution company, which is committed to ICT. So we are an IT distribution company. However, while saying so, even during the IPO stage, we were asked this question many times. And we said that considering the overall margin and the opportunities, we will evaluate as and when it comes. But currently, in the ICT, you can see our growth, almost 40% plus. We have enough on our plate while we sit today, you never know what comes opportunities tomorrow.

Thank you. Ladies and gentlemen, that would be the last question for today, and I now hand the conference over to Mr. Rajesh Goenka, CEO of Rashi Peripherals Limited for closing comments. Thank you, and over to you, sir.

Thank you so much, all our investors, family and friends, it was good to talk to you. I hope we are able to give you some vision for Rashi Peripherals. And on behalf of myself, I also want to thank Adfactors and our entire management team sitting here and helping us to answer your queries. Thank you so much for all of you.

Thank you. On behalf of Rashi Peripherals Limited that concludes this conference. Thank you for joining us, and you may now disconnect your lines.