Redington Limited (REDINGTON) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Redington (India) Limited Business Update Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Raj Shankar, Managing Director, Redington (India) Limited. Thank you, and over to you, Mr. Shankar.

Thank you, Nirav. Good evening to all the participants. This is a very unusual and a very extraordinary time where no company, no government, no individual has ever seen a crisis of this magnitude, this scale. Now from a Redington standpoint, we are certainly doing our best to try and cope during these difficult times. But before I continue, I would like to certainly take this opportunity to express our deepest sympathy and strongest solidarity towards all the people impacted globally. We would also like to applaud the heroism and -- of individuals who are working tirelessly and without a thought for their own well-being in an effort to help us combat or contain this pandemic. So coming back to from a Redington standpoint, we had set out 2 very important focus areas. One, to ensure that our people and their families are safe across all the markets that we operate. The second, very important, is to ensure perpetuity of Redington. So in other words, do everything possible to help the company survive during these extraordinary times. Now it may appear to you as like a cliche, but we had set out what we would like to call as 7 Cs. The first most important for us is to ensure that the company has adequacy of cash flow, adequacy of capital and liquidity to ride over this difficult period. I say with a lot of humility, not knowing what the future holds, though we all know that things going forward can look worse. But we are reasonably well-prepared and covered in India, in META and in Singapore with regard to our cash flow. Now yes, this would not be possible but for the fact that in most of these geographies we have managed to ensure that not only have we kept sufficient cash to ride over this period when business is at a low ebb, but more importantly, to take care of all the operational expenses of the company for at least 1 to 2 quarters. The second most important for us is collections. Since this is a period where we are unable to do business as there is lockdown in most of the countries that we operate, a significant portion of our time, of our salespeople and business people, is spent towards engaging with our partners, with our customers. And again, I wish to share with you, if the last 29 days is a small indication, I think thus far, the company has been able to reasonably get some of the collections banked. This is true both in India as well as outside India. The third most important is, given these difficult times notwithstanding how much ever cash and capital you may have, all said and done, the accounts receivables are coming in at a particular pace. We also want to make sure that we are extremely frugal with regard to our costs. So we have taken, like in many other companies, decisions where we are not hiring. We have put a recruitment freeze. We are not giving any revision to compensation. We are also making sure that many of our costs are reduced through hard negotiation and bargaining. So we are making sure that every single rupee that we are spending is something that we are doing after a lot of negotiation. The next is about customers. Needless to mention but for them we would not be in business. So we are making sure that we are trying to find ways and means of working with our partners to ensure that they continue to be in business, and we can support them in very many ways. And if we are able to be their trusted partner, trusted adviser during these difficult times, we strongly believe that they will become a long-term strategic partner of the company. The next is about contracts. As a technology distributor, we value the numerous distribution contracts that we have with the global technology companies. So while we are certainly pushing them very hard towards giving us better payment terms and also giving us other support, we are also trying to collaborate with them to make sure that at the end of the day, they see us as a very formidable and a very worthy distributor. The other C is about controls. Notwithstanding how these things will play out, we are making sure that every single aspect of our business, we are putting in serious controls, whether it relates to expenses, whether it relates to purchases, whether it relates to credit or to do with CapEx. For instance, we are pushing -- we are making sure at this point in time, in our H1, we are not going to be putting money on any investment. We are pushing it to the second half of the year. So suffice it to say that from a controls point of view, we are trying our best to make sure that we don't have any negative surprises. Just want to give you a little quick color to what's happening both in India as well as outside India with regard to the business. Now there could be a concern before I continue with regard to the fact that while on one hand the company prides itself in operating in a number of emerging and potential markets outside of India, these are times where you could be worried as to how the company is managing and coping and navigating itself during this crisis. Let me give you an assurance that at this point in time, the company, if April is any indication to go by, I think, thus far, we have managed every single business in every market reasonably well. I certainly don't want to give you the impression that everything is hunky-dory, but what I certainly want to share with you is that we are doing everything possible to ensure that our relationship with vendors and partners are served well, whilst at the same time we are making sure that in spite of all the difficulties we have still got the numbers up on the board. May not be as much as we did the previous year, not as much as we would like, but under the given circumstances, I think we have done reasonably well thus far. The other thing that we observe is, during this period, we see some of our competition in some of the markets become a little weak. In some ways, this certainly offers an opportunity for us to solidify our position. Now to give you a sense about how the outlook with regard to what IDC and some of the others have to say, you'll be pleasantly surprised, according to IDC, the spend on enterprise products, which include servers, storage, network, software, security, cloud, et cetera, which is a $9.8 billion business opportunity, is poised for a 12% growth this year, strange as it may be. However, the PC devices are likely to degrow by a double-digit of over 20% and it is estimated by ADC -- I'm sorry, by IDC at 8.2 million units. Smartphones, likewise, are expected to have a 10% degrowth, but the total number of units expected -- I mean, estimated by IDC for the current calendar year is 136 million units. Now for a minute, when you look at the situation outside, if you take META, Middle East, Turkey, Africa, again, according to IDC, the IT spend is likely to degrow by 5.8%. However, when you look at individual devices like PC, laptop and tablets, as a complete category, is expected to degrow by 11%, mobile phones by 9% and enterprise infrastructure by just 2% whilst software, licenses, cloud is expected to grow marginally at 1%. So the long and short of what I'm trying to mention to you is while the -- some of the IT spend is likely to degrow, there are pockets of opportunities where we clearly see that the future is going to be very technology and digital-driven. We see a huge growth opportunity post COVID for Redington in this business. So as we think about, if we are able to survive and navigate ourselves out of this crisis, which I can give you, thus far, we seem to have managed well, we are likely to emerge stronger than we entered COVID. And therefore, our outlook for this industry, for the markets we serve appears to be very robust, appears to be more positive than what it is today. With this, I hand it over back to Nirav and to all of you if you have any questions, please.

[Operator Instructions] First question is from the line of Riddhesh Gandhi from Discovery Capital.

Sir, just a quick question. So historically, you guys have had extremely low delinquencies on your accounts receivables, which has effectively allowed you all to effectively operate on reasonably at a low profit margin. So in this environment where a lot of these SMEs and small retailers and even with larger retailers who've got large rental expenses and no business, could you potentially be stressed and distressed and go under. So do you see the potential risk of high delinquencies on a reasonably large accounts receivable and with the steps we are taking to kind of [ actual -- actually -- actually do ] mitigate against that?

Yes, it's a very good question and very pertinent. First, we are approaching it in 3 ways. Point number one, I would like you to know that most of the receivables that we have are credit insured. So if you look at in the Middle East, close to 96% of our receivables are credit insured. And therefore, even if you look at India, our credit insurance cover would be north of 73%, 74%. So the first point that I want to give you as a comfort is that most of our accounts receivable are credit insured. And to the extent that they may not be insured is purely because we have certain payment terms or these are customers on whom we have high degree of confidence in terms of their ability to pay and a strong balance sheet. The second...

Who is it they're insured again -- who's the insurer of this?

Yes. So we have different companies, different places, in different markets. It could be Markel, it could be Euler Hermes, it could be Atradius. So there are different markets that we have negotiated with different insurance companies. The second important aspect is that, as you would know, in all these cases where we deal with SME partners, we collect a postdated check. So to that extent, we do have the checks. And therefore, we are reasonably confident that most of the partners will make sure that they honor the check, else there are implications. The third, and very importantly, our sales team and our risk team, credit team, is in continuous and constant engagement with each and every partner. And this is a question that I ask every day and I want to share with you that our risk officers starts his day at 6:30 in the morning every single day. And every day they have to report back on whether they see any increase in the receivable going bad. Thus far, it appears that we are reasonably confident that once this lockdown is lifted, partially or fully, we should be able to collect our receivables, thus far. So we are not getting any signal so far that our receivables are at risk, so far.

Got it. Got it. That's extremely helpful. And the other question is with regions like GCC, et cetera, where we are like reading reports where there could be material economic impact given the tourism in Dubai, et cetera, has stopped and is expected to be off for a reasonable amount of time and overall population reduction is largely expected. Do you see impacts of a large slowdown happening in those regions and then potentially effectively having to scale down operations? And how nimble would you be able to be that in case of a demand shock to be able to recalibrate operations to ensure the profitability?

Yes. So -- again, a great question. As you would know, in most of the markets, we operate both on the consumer space as well as on the commercial and the corporate space and the enterprise space. So it's not that we are overdependent on one or the other, point number one. Point number two, it's very interesting, even during these times because of the work from home model, the demand for laptops and numerous other devices like a portable printer, home WiFi and so on and so forth is in high demand. We believe that this is going to become the new way of working, not just during the COVID period, but even during the post-COVID period. So we have huge demand for laptops, more than we can even sell for now. But unfortunately, given the current situation of lockdown, we are not able to buy or receive the material or deliver the material, but we believe that this is certainly going to become a very big opportunity, which is what I said at the -- during my opening remarks that we are seeing both technology and digital to be a very big opportunity and a driving force. And therefore, we are only hoping that post this COVID, it is going to become -- actually, it is going to boost our sales and at retail notwithstanding whether it is online or offline.

Next question is from the line of Pavan Ahluwalia from Laburnum Capital.

Just wanted to focus a little bit more deeply on the 2 issues of accounts receivable and actually inventory. So I would assume they -- on the accounts receivable that the part that's not credit insured, as you said, would be receivables from the likes of Croma or just very, very strong balance sheets where the risk of default is very low. So if you're talking about accounts receivable from even midsized companies or certainly small retailers, small shops, et cetera, all that would be credit insured. Could you, for the benefit of those of us that don't understand the details of this, explain exactly how credit insurance works? What kind of defaults are covered versus not covered by credit insurance? And is it your view and the view of your lawyers that whatever has happened right now you will actually be able to collect on edge despite force majeure indemnification, it would be good to get some clarity on that. The second area where it would be good to get your thoughts is inventories, right? So historically, we've seen in the past that at points when we've had to bulk up on inventories ahead of the curve, and there's been a fall in the price of the finished goods. Obviously, we end up taking the hit. How are we feeling about the stock of inventory we're holding right now? What's happening on the price of that inventory? And how do we feel -- could you give us some color or dimensions on the extent of inventory hit that we may have to take, if any?

Okay. So I'll take the second one -- question first. Now let's take, for example, in India, our inventory levels basis our normal sales is anywhere in the vicinity of about 20 days or even less. So the first thing that I want to tell you is the value of the inventory that we are carrying is way below what our normal inventory levels are. Typically, as you would know, we would have inventories closer to 30 days. So now we have inventories which is just 20 days basis our normal sales, point number one. Point number two is, we look at our aging of inventory and there, again, I want to give you the comfort that as we speak probably somewhere in the vicinity of about 20%, 25% of this inventory is aging. But the bigger challenge for us is, it's not so much about aging of inventory, and therefore, we believe the prices will drop and the margin will get squeezed. It's about, most of these are against back-to-back orders. So we were consolidating these products in order for us to be able to deliver to our partners and eventually to our customers. So about 65%, 70% of that inventory is all against back-to-back orders. So to that extent, the price is clearly established, contracts are in place, customers have still not canceled those orders. So we feel reasonably confident that we should be able to manage, given that the value of the inventory is very much under control and the aging is not worrisome. And since they are covered on a back-to-back basis, we should be able to address this issue. If, Pavan, that would address the -- satisfy you on the inventory, should I move to the receivables?

Just 1 follow up. So it's about 25% of India inventory that's not covered back-to-back. So that's what's potentially at risk to some impairment depending on what happens to pricing. What about Middle East? And this is on the enterprise side, could you give us some color on both enterprise and mobility in both India and Middle East, exactly like you just did for India enterprise?

Okay. So maybe I didn't articulate well. Pavan, when I talked about 20 days, it is the total inventory.

Okay. Understood. Understood. And is that 25% that's not covered, is it concentrated in any particular geography? Or is it mostly enterprise? Is it mostly mobility? Is it India, non-India?

Okay. So a good part of that is enterprise. And therefore, we believe most of the enterprise orders in our case are normally back-to-back. But yes, there would be some which is stock and sell. But we don't -- during these times, there is a huge demand for the products. We are reasonably confident that we would not have to suffer any erosion of margin on account of price drop, et cetera. But notwithstanding all of that, Pavan, as you would know, as a matter of rule, we apply a stock provision towards any inventory that is aging in different buckets. So notwithstanding that, we have already made provision for all the inventory that we are carrying as at 31st March '20, and which is what we will do as at 30th April and so on and so forth. So summary comment, total inventory is about 20 days of normal sales. Number two, majority of it is on a back-to-back mode. Number three, since we have -- we believe that whatever is aging is already provided for, not that it, therefore, allows us to discount, but to that extent any potential hit is already factored enough and more. Does that answer your question?

Yes.

Okay. So as we quickly look at receivables, could I request Krishnan to give a little more color and clarity on this. Krishnan, over to you.

Thank you. Thank you, Mr. Raj. See, we have been taking this credit insurance for the last many years, and I can say that there have been no instances of we having lodged a claim and the credit insurance company not honoring the claim. And even the force majeure, we have checked and these being global insurance companies, for this there won't be an application of force majeure clause. So we don't foresee any challenge there. And in terms of operational aspect, if there is a default, up to 85% is covered under the credit insurance and the balance 15% has to be to our account. So we are quite confident in terms of processing these cases whenever it comes. If in case -- I mean if it comes and get compensated fully.

So the value at risk then is the 3, 4 days of inventory that's kind of non-back-to-back. And worst case, up to 15% of the defaulted ARs that we would have to be on the hook for. That's kind of the maximum that we would expect to see on impairment in terms of earnings, balance sheet, et cetera. And the rest of the impact on the business is just on growth and how we do relative to competition, how fast growth comes back, et cetera. Is that fair to say?

That's right. So it's a very fair comment.

Yes. So one last question then. I'm very glad that the company is safe, the employees are safe. That's the most important thing. And I'm just curious, as CEO, Raj, what keeps you up at night? Is it this 15% plus 3, 4 days or is it growth or is it just making sure that the operation runs effectively during a time of stress and lockdowns and things like that?

Yes. Great question, Pavan. So initially, I must tell you till we were coming to terms with this whole crisis with not knowing there are lot of uncertainties and different governments operating in different ways. So we were -- we are -- therefore, we have to play by the ear, we have to play by each day, having to really plan and prepare ourselves and be that agile organization that we always wanted to be. So initially, it was a lot of, I can tell you, tension, difficulty, challenges, whatever. But I think in the last 3, 4 weeks, I don't want to sound very confident or be too overconfident, but I can tell you I am so proud, Pavan. Trust me. I want you to even talk or meet some of my folks at the right time. I think we are doing -- I was the biggest skeptic to this work from home. I was not even sure this would work in a very transactional business like technology distribution. But I can tell you, it's working magical. I think our people are doing an amazing job. I'm so proud of the way this Redingtonians have managed it. So I mean, I'm unable to say it more at this stage, but suffice it to say, you will be proud when we finally share with you some of the details. It's not so much to do with numbers, but how we are going about it. Just to give you 1 or 2 examples. Pavan, can you believe that our boys on -- before 31st of March, and we wanted to bring down the receivables and we wanted to improve collections, they managed to request and persuade many of our partners where the due date was in April to pay it in the month of March. I mean, I can give you many, many such instances. So the first point that I wanted to say is people was my biggest concern, to start with, whether they will be able to adapt to this new way of working, whether we will be in as good a control and engagement. So I can tell you that is no longer a cause for concern. The thing that worries me the most is making sure that we have adequacy of cash flow and capital which can really help us even if the next 2, 3 months were to be on a lockdown, I want to make sure that we are completely and sufficiently prepared. On that, again, without sounding audacious, trust me, our team has done a fabulous job, and we are reasonably capitalized. Our liquidity position is in a good state. This is what worries me, not knowing how long it will last. Obviously, if it continues like this for too long, that is something that would worry me the most. This is what is my biggest concern today.

No, what would happen -- even if it continued for too long, what would happen, right? We wouldn't be incurring fresh accounts receivables. So all it would mean is that this 15% plus 3, 4 days, the discount on that or the hit rate on that would increase, right?

No, but that is one way to look at it, Pavan. You are right. But then if business is going to be at a grinding halt, then obviously, you're incurring a certain amount of costs. So we will have to then start taking a hard look at costs and starting to take some tough and harsh decisions. And let me tell you on that, we are preparing ourselves for 3 scenarios like every other company, I guess. So we call that as basis impact, what we call as a moderate impact, significant impact and severe impact. For now, we are preparing ourselves. Everything is in place, keeping significant impact in mind. A severe impact would mean it's not about a few months, not even a few quarters, the whole year becomes a big drag or becomes sort of a very subdued business, then how do you deal with it? That is something that we still haven't come to terms with, but I can give you this comfort. On a significant impact, which means, let's say, Q1 turns out to be a very subdued business and Q2 is a period of recovery, and it's only in Q3 -- sorry, in the second half of the year, do you hit normal and above normal. And I can tell you, should that happen, I think today, I have reasonable confidence that we should be able to navigate ourselves in the way we have prepared to face the significant impact scenario. But God willing, if it tends to be moderate, then it would be a completely different game altogether.

[Operator Instructions] Next question is from the line of Aditya Bagul from Axis Capital.

Sir, I had a couple of questions. First is when we look at FY '21, what is the kind of trench do we see in the first half of the year? After which we, as you highlighted earlier, we see some recovery Q3 onwards? So is the cut as deep as 30% or do you think that cut could be 60%? So just wanted to get some understanding on how deep is the trench there?

So when you talk about cut, do you have in mind about the degrowth that you're talking about or...

Yes. Yes, the revenue decline that I'm talking about.

Excellent. Okay. So our sense is that Q1 is likely -- let's -- we are today -- let's talk about half year. If you look at overall for the first half, our view is probably in the vicinity of anywhere from 15% to probably going upwards to 20%.

This is the cut?

Yes.

Okay. Fair enough, sir. Sir, the second question that I wanted to say -- ask is, over the last 2 or 3 months, what is the change in terms of the narrative from some of our key customers, Apple, Dell, Cisco? What is the change in narrative, let's say, in February, March, April?

Yes, it's a great question. So first of all, I must tell you, some of these vendors have voluntarily come forward and extended help by extending payment terms and giving us different kinds of support. So I feel very gratified that this is the time where I genuinely feel to be a proud Redingtonian because of all the relationship that we have had. We are -- we seem to be blessed with good support thus far. Now to your question about narrative. Yes, they are all aware that probably April is going to be -- we all know, is going to be very, very low in terms of numbers. They are expecting actually from May second half and June onwards, things to pick up, and I was very surprised that they are not talking about a change in their numbers beyond this current quarter. So in other words, they're all planning towards, hey, how do we try and get our Q2 up and running? And nobody is talking about revising it downwards. So I genuinely -- and they're ready to come forward. They seem to be ready to -- ready and willing to help. And they are also looking at the role of a distributor to be more than just a broad liner, to be a value-added distributor. And this is where we are seeing that the kind of engagement they want us to have with our partners and the engagement they have with us is more about, how can we deliver different kinds of webinars, e-learnings and virtual training and so on and so forth. And today, if there is some business that is still happening because the IT products are not treated as non -- as essential products, they come under the nonessential category. And yet if whatever little numbers that we have been able to deliver thus far, is largely to do with software and cloud and so on. So they are also looking forward to seeing how we can together work and scale up some of these opportunities. So the narrative is the following. Beyond Q1, they're all -- that is our Q1, they are looking at almost business as usual, Q2 and beyond.

Next question comes from the line of Pranav Kshatriya from Edelweiss.

My first question is regarding, can you give us some sense on what proportion of markets are currently open or in some way or the other is business happening?

Okay. So what we do is we have some kind of metrics that we plan and prepare. So we take into consideration various criteria, places where you can operate your warehouse, places where you can have deliveries to customers possible, banking operations is possible, customer collections. And therefore, we can physically go out, meet customers and collect and work from home. So -- sorry, we, therefore, take country by country and look at the metrics. So just if I can give you 1 or 2 examples. If you take, for instance, United Arab Emirates, from 2 days ago, the level of activity in the country has increased from 15%, 1-5, what it was, to 30% today. Similarly, Saudi Arabia, which again was at 15% until 2 days, 3 days ago, is now up to -- at 30%. A place like Turkey is currently at about 50% to 55% because there the warehouse operations is limited, but everything else, like deliveries, banking operations, collections, everything else is possible. So we look at country-by-country. The place where there is, you could say, it is at a very low ebb would be Nigeria, where the business is almost at sub-5%. And probably the next place will be Uganda, where until a couple of days ago it was almost closer to 0. Other than that, most of the other places could range from 15% to upwards of 50%, 60%, if that answers your question.

Yes, it does. And can you tell us where India is in this?

It would be somewhere in the vicinity of about 20%, 25%.

Okay. My second question, sir, is regarding Africa. I mean, if you look at...

Sorry, one clarification, my sincere apologies to interrupt. I'm not giving an indication of sales, I'm giving an indication of what activities are possible and to that extent, to what extent is the market opportunity available. It may not give you necessarily what sales numbers we may have done. I just thought I'll clarify. Thank you.

Yes, sure. Sure, sir. Sir, second question is with regards to Africa. I mean, we have seen this -- whenever this oil prices collapse or the commodity prices collapse, typically it doesn't end well, especially in the Africa, in African region. Especially Nigeria had seen a sharp devaluation last time around when same thing had happened. So are you taking any steps to reduce either exposure? I mean, how are you looking at it from a risk management perspective? And not only relating to this the COVID-related dropdown, but the further impacts, the secondary impact of that?

So it's a very good question. And by the way, the situation is no different than what it was the earlier occasion. Even this time around, there has been a devaluation already. As you would know, Nigerian economy, 92% of their earnings, U.S. dollar earnings, comes from oil. And since the oil prices have declined, and declined steeply, so it's certainly hurting them in very many ways. The one thing that we did after our last experience, this is something that you will be happy to know, is 85%-plus of our total business we do in Nigeria is dollar-denominated. So -- whereas until then, we used to also have business happening in country in local currency. We then moved and changed the model because we didn't want to take a currency risk and we also didn't want to come under the vagaries of whether the country has got dollars, even though we may have imported the products, and we have to pay it towards -- to the suppliers. But if the country is impoverished with regard to dollars, then what do you do? So what we have done is we have changed the model. So this has resulted in our business having gone down, but we have moved more than 85% of our business to a dollar-denominated method. So if we get the dollar, well and good. If we don't get the dollar, we don't do the business. So to that extent, our exposure and risk both are reasonably under control and managed well.

Sir, the last question...

Sorry. Go ahead, please?

Yes, sir. I mean, I have 1 small question after this.

No, no, go ahead. Please go ahead.

Yes. Sir, the last question is regarding cost reduction. Can you give us a sense of how much is our run rate cost, which is fixed in nature? And what sort of reduction one can look at after these cost reduction measures you have taken?

So what I can tell you at this stage is, this is something that we are putting in a lot of time and energy. I'll give you a very -- I'm sure you would agree with me, it will be very difficult to give you a sharp number, but I'll tell you conceptually how we are trying to address the problem. Whatever is the decline in the revenue, we are trying to make sure to that extent or closer to that, let's say, 70% of that, we try and manage to reduce our cost. So for the purpose of discussion, if the reduction in revenue is 15%, we want to make sure that we come closer to that. But at least ensure that we don't go below 10% cut in the cost. Does that help?

Yes, sir. That is very helpful.

Next question is from the line of Mike [ Farrell ] from [ Alacrity. ]

Two questions. Firstly, could you update us on how ProConnect is doing in this lockdown situation? And secondly, there's a transition to 5G when it comes to smartphones. Whilst that may be delayed, putting aside COVID, can you talk about how you see that impacting you in India?

So if your second question is about rollout of 5G and how does that impact our business in India?

Yes.

Okay. So we -- our main relationship in India -- so first of all, we do smartphones in India. While we have 3, 4 brands, there is 1 brand which plays a significant part of this. Now on that, we are still seeing demand for the earlier 4G version. We are not seeing any impact, at least for now, for not having a 5G. So I don't think there is any negative impact on account of not having 5G so far with the brands that we distribute in India. So to answer your question, no impact so far. Your first question -- sorry, could I...

[Technical Difficulty]

Sorry?

I'm sorry [Technical Difficulty]

Mike, your first question? If you don't mind, could you repeat, please?

Yes. ProConnect, could you please give us an update on how that is doing in the lockdown?

Okay. Thank you. Krishnan, do you want to take that or... S. V. Krishnan?

Yes. I'm there.

Okay. Okay. Would you want to take that?

Yes. Being in the logistics operation with warehouses across, this lockdown has been setback in terms of logistics business. About 170-plus warehouses are there for ProConnect. And initially only essentials were being allowed. Since we also deal with essential goods like pharma products, et cetera, those were the only ones that were in operation. In the initial stages, we had been running about 10 percentage of the total warehouses. It subsequently got increased to about 20%. But as we speak now, in the last 3, 4 days, there are lot more places which are green zones and amber zones where things are getting eased up. So I think slowly, slowly things should come back to normalcy. And basically, we think after the lockdown things should be properly in place.

And just 1 follow-up. When do you think 5G will come to India?

So that's a tough one for us to answer. I'm afraid I'll have to tell you, I don't know.

Next question is from the line of [ Aman Rathi ] from Morgan Stanley.

Sir, my question is actually overall on how do you see the impact of this COVID situation in the overall logistics sector? Not about only Redington, but how the third-party supply chain is actually getting affected?

Krishnan?

Yes. See, there are 2 types of billings that are invoked in that sector. One is the fixed model billing and second is basis of the volumes and the transaction. So fixed model billing is something even in the current situation things are quite okay. That's something that will continue. And the variable is where during the lockdown period and post which, as the volumes change, there will be some billing changes. With respect to outlook, there is -- I mean, this is expected to come back and do very well if there is one sector which is expected to do well after COVID it's expected to be the logistics. So we are only getting ourselves prepared once things come back to normalcy.

Next question is from the line of Rajeev Agrawal from DoorDarshi Advisors.

My first question is, we have been market leaders in META and we have been trying to get market leadership in India. So can you talk about given the competitive dynamics and some of the disruption you are seeing in the marketplace, how does that position us? Do you think this strengthens us? Or can you just talk about the relative positioning [ versus others? ]

So the last part of your question, somehow, you were not very audible. Just the last one -- 5 seconds.

Sure, sir. I said, can you just talk about the relative positioning of Redington versus other players?

Excellent. So the leadership position that we enjoy in META continues. It's a little too premature at this point in time to say whether it has further put us in an even stronger position. But I would like to believe, if I go by certain markets in overseas, it appears that some of the other competitors are playing down and seem to be in a relatively weak position. But it's too early to come to any conclusions, maybe they are taking some precautionary step for now. So the long and short of this is, overseas, we continue to be in a strong leadership position. As far as India is concerned, yes, we are -- in a way of speaking, we are men of equal with one other solid player. So we believe that this year, but for COVID, would have been a very defining year for us in India. But I would like to believe that in spite of COVID, we are still reasonably optimistic in terms of the outlook. And therefore, we believe we would be a very strong player. Now whether we would be relative to others where -- whether we are likely to emerge stronger than them at the end of the year, I wouldn't know. But I can give you this comfort that we were getting ourselves really prepared to make sure that in India this year was something that we wanted to come out as a very strong, solid formidable player. Probably our plans have got diluted a little bit, but our goals have not changed, and we still want to drive. So we believe that we would be a good, serious, formidable competitor as we had planned.

My next question is around the supply chain. So I think you referred earlier where you said that you have good orders, and in some cases, you might not have the supply. So can you talk about the supply chain? How quickly are the goods getting replenished where you have orders? And what your plans are post lock -- or post May 4 in India, assuming the lockdown gets lifted?

So the good news is that in India, almost about 80% of all the purchases are done in Indian rupees, so which means most of our suppliers give us the products locally. So it becomes -- the onus is on them to make sure that they import the stocks and keep the material ready so that post lockdown, they would be in a position to be able to supply us. So we believe, like I said earlier, our engagement with some of the -- with our key vendors and key partners is still very good. So we are in a good position. Yes, our current inventory levels may be much lower than what we would like. But I think we are reasonably confident that once the lockdown is lifted, we will quickly swing into action and -- we're just waiting for it. We have planned well. We know how do we want to go about it. We know our priorities well. So to give you the comfort from a supply chain point of view, the vendors seem to be better prepared in this last 1 month, 1.5 months, though very little business would have happened. So I expect that if the lockdown were to be lifted, then we should be able to quickly swing into action, get our inventories that we need and supply to the market. So I don't see that as a limitation.

Got it. Got it. And then lastly, just if I look at your P&L and I look at your operating leverage and obviously, most of the cost is related to the cost of goods. But the rest of the operating leverage, how do you think that plays out as you go down in Q1 quite significantly and then ramp up for the rest of the quarter in financial [ '21. ] Could you just talk about the operating leverage there?

Yes. So my request to you more so during these times would be, ideally, you should be looking at a full-year outlook or a full-year perspective because it is possible that a particular month or a particular quarter can turn out to be a little subdued. And therefore, when you talk about operating leverage, it may be a little bit of an unfair comparison because during this period it could be operating deleverage rather than operating leverage. But to answer your question, this is something that we are extremely clear in our mind that we should be able to manage to bring down our costs to the extent, or at least to a large extent, if the revenue were to decline, which one of the earlier questions I had answered, if supposedly, there is a 15% degrowth in revenue, then we want to make sure that our costs are also reduced to that extent. But at least to the extent of 70% of the degrowth, which, in this example, would mean about 10%, is something that we must manage to reduce cost and are -- and we know which are the areas and how to go about it. So we've got our playbook ready.

Ladies and gentlemen, that was the last question for today. I will now hand the conference over to Mr. Raj Shankar for closing remarks.

Thank you, Nirav. Thanks to each and every participant for joining the call today and giving us an opportunity to give you an update. Overall, my view is, as I said, we are putting a lot of our focus on making sure our people are safe. And at the same time, we are doing everything that we possibly can to make sure that Redington survives these difficult torrid times, and we are prioritizing cash flow and liquidity as our main focus area. Thus far, we seem to have managed well. And we all know that probably the difficult days are ahead of us, but we're ready, prepared and we will and we feel reasonably confident to be able to navigate. And with the assurance or with a clear hope that post this COVID, we would emerge stronger, and we see bigger and brighter prospects for our industry. Thank you once again. Good day to all of you.

Thank you very much. On behalf of Redington (India) Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.