Redington Limited (REDINGTON) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Redington India Limited Q3 FY'22 Earnings Conference Call. This conference call may contain forward-looking statements about the company which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rajiv Srivastava, Joint Managing Director. Thank you, and over to you, sir.

Thanks a lot, and good evening, and welcome to everyone for joining this call. We've got Mr. Raj Shankar, the Vice Chairman and Managing Director of Redington on the call with me, along with our Global Chief Financial Officer, S.V. Krishnan; and Sowmiya Manickam, who is the Investor Relations leader for the country. The way I'm going to do this is I'll give you a top line or a headline commentary on how our performance has been in Q3. I'll hand over to Krishnan to take you through a bit more detail on the financial performance of the company. And then I'll give you a bit of color on what's happening in the market, the way the market is reacting and behaving right now, the direction in which the IT industry and technology industry in general is evolving. And then we can open it up for the Q&A. So let me begin by giving you a topline commentary. In Q3, we had a consolidated revenue of INR 16,620 crores, which is a 2% degrowth over same period last year, but that is because we changed our accounting standard from a gross accounting of earlier times to a net accounting. If it was the regular numbers as just the way we have reported last year, we would have seen a 2% positive growth. Now this aligns with the global accounting standards, and so it's perfectly fine. Just to give you a sense on EBITDA, we're at an EBITDA of INR 544 crores, which is a 22% growth year-on-year and a PAT of INR 388 crores, which is 103% growth year-on-year. This is, for us, the all-time high PAT we've ever had. And just so you know, our PAT for 9 months now happens to be greater than the PAT for the full all of last year. I think it's been a very, very nice sounded sort of performance. And just to give you a split between India and overseas, where we measure our businesses. Our India revenues are INR 7,157 crores, which is negative 7% just because of gross accounting. But the EBITDA has grown to INR 204 crores, a 10% Y-o-Y and India PAT is INR 140 crores, which is a 261% growth over the same time last year. Just giving a color on the overseas revenue as well. Our overseas revenue is INR 9,463 crores, which is a 2% Y-o-Y growth. If it was on gross counting, it would be a 5% Y-o-Y growth. Our overseas EBITDA is INR 340 crores, which is a 30% growth year-on-year. And overseas PAT of INR 248 crores is a 62% growth year-on-year. I'm just going to leave you with one more [indiscernible] kind of there's been a lot of numbers you've been talking. Just to give you a sense on business segment, the overall IT growth for the company, which is [indiscernible] storage network, printers all of that, is at a consolidated level, which is India and overseas put together, is at 12% consolidated growth. This should be 18% if it was gross accounting, just revealing the numbers. Mobility is down negative 22% and services is a plus 5% growth. So those are the numbers at a high level, and we can get deeper in the numbers or anything that you'd want. But I'm going to hand it over to Krishnan to talk to you about some of the financial ratios and financial -- specific financial numbers.

Thank you, Rajiv. So first on the working capital. Working capital for the quarter, a consolidated level we closed at 12 days, which is similar to the Q3 of last year. While in India, it has come down from 11 to 8 days. There is a corresponding 3 days increase in overseas from 12 to 15 days all Y-o-Y. While inventory days and debtor days have gone up, there is a corresponding increase in the creditor base, resulting in the working capital days being similar to what it was last year at 12 days. Moving to the cash flow. For the quarter, the free cash flow has been negative at minus INR 445 crores. Just wanted to mention here, this is on account of 7 days of working capital in the previous quarter, which was an all-time low. And if you look at for the full year, the cash flow from operations was positive INR 909 crores and the free cash flow from operations after taking into account a INR 460 crores of dividend payout is positive INR 296 crores for the first 9 months. And this is on top of about INR 5,800 crores of the positive cash flow in the last 5 years. On account of better profitability, as Rajiv mentioned, our return ratios are quite high. Our ROCE, I mean, for the quarter at consolidated level is at 93.6%, while in India, it is 103%. In overseas, it is at 89%. So quite substantially high and this is mainly on account of lower capital employed. Then moving to return on equity for the quarter at consolidated level, it is 29.7%. India contributing 31.2% and overseas 28.9%, which, again, substantially, a high. Debt to equity ratio is still well maintained. The gross debt to equity ratio is at 0.1x. The net debt to equity, it is negative 0.5x. And I need to mention here this quarter, except for Arena, in every other unit, we closed at the net debt being negative. So this is something very important to mention. Then moving to the balance sheet. Our network as of 31st of December, I mean has exceeded INR 5,400 crores. And the capital employed at INR 2,733 crores. So you can imagine INR 16,620 crores revenue for the quarter. This capital employed of INR 2,733 crores and in the working capital [indiscernible] business. Then finally, moving to the provision. The provision for inventory is broadly 0. There has been no provision for inventory for the quarter at the group levels. The provision for bad debts is at 0.14%, 14 bps. It's slightly higher than our long-term average of about 0.1%, this mainly because of one provision that we had taken in India. While we are confident of collection, we thought it has taken some time. So we had to provide for it. So I will hand it over back to Rajiv.

Krishnan, thank you so much. Really appreciate your commentary. And I just wanted to give you one -- 2 more colors to this. One is that while we are on the Y-o-Y has been a very strong performance, even on a quarter-on-quarter basis, it's been a very, very powerful performance. Our quarter-on-quarter revenue growth is 13%. Quarter-on-quarter EBITDA is 19% and quarter-on-quarter PAT is 26%. So I think all of that has been in line with the expectations that we have a very strong sort of performance. I just wanted to give you a bit of a context to what's going on in the market, and that will really, really put in perspective the performance that we are having right now. You would see that there is a very strong tech adoption by both end customers, enterprise and private sector enterprise customers and assembly, and also by governments. So there is a very strong consumption that is coming in place. The reason that we operate in, the regions of India, South Asia, Middle East, Africa, Turkey, all of these countries happen to have been a very positive zone from a GDP perspective. The prognosis going forward for each of these countries is a very strong positive GDP growth and also an associated strong ICT growth as well. Now -- and the reason why ICT and GDP are going hand-in-hand over there is there's a very, very strong infrastructure push by government in these regions, in these countries to make sure that there is -- it's an investment-led growth that has taken place. And obviously, there is a consumption, but largely, most of the these regions were driven by consumption earlier, but now they happen to be driven by investment as well. And that's something which is far more long-term sustainable -- far more sustainable from a long-term perspective. We've seen that there is adoption of digital tech, which means years of projects. People were planning projects on long-term basis earlier. They're getting rolled out in a couple of months. And pretty much every sector of the economy, manufacturing, education, work from home, learn from home, retail, digital economy, from a financial services perspective [indiscernible] and Fintech, and the government policy support, all of these are literally leading to a very strong second option in countries like India, UAE, Saudi Arabia, Egypt, Qatar, Nigeria, Kenya, Ghana, all of these countries that we're talking about. The other thing, which is important is from a take it option perspective is what technologies are getting really finding favor with the market. And the technologies that are finding favor are of the nature of back-end data center, high-end systems of enterprise with a server, storage, network, software and then also led very strongly by a cloud subscription model. So these are base foundational applications like SAP CRM customer experience sales automation. But clearly, many, many more apps driven consumption that is now we're seeing. Also, there is a strong push by a lot of companies, a lot of customers to adopt new technologies because we are seeing digitalization as a way to go forward, far more digital connected organizations, connected with their customers, connected with their partners and pretty much playing the whole ecosystem end-to-end from a digitally enabled technology perspective, the technologies that are getting consumed in these areas are clearly artificial intelligence, a very strong focus on that augmented reality, virtual reality, but also applications driven by Internet of Things, applications driven by blockchain, we are finding -- starting to find adoption in those areas. And hopefully, over time, as 5G becomes much more proliferative, it proliferates a lot more, you would find that there would be a huge amount of driven -- growth driven by IT. A lot of that is also voice and video-based driven by [indiscernible]. We're also seeing -- the other thing that we are seeing apart from tech consumption is a manner in which tech is getting consumed. The buying behavior is shifting, what we will buy and how they buy is shifting. So people used to buy in a very capital-intensive manner, but all of that is shifting to as a service, it's shifting to as a service, product to services shift from own to a subscription-based model. And then people are also shifting from a business model of a brick-and-mortar, which is very strong of the retail into the shop, showroom kind of a buying, and they're shifting to a lot more online, omnichannel, and everything in between. So a true omnichannel world, we are seeing to play out as we speak. And I feel good about the fact that we are in a very strong position to maximize and capitalize on all the trends that are taking place right now in the market because of sales fairly technology. So let me stop over here and open it up for any questions/answers, any comments that you guys might have.

[Operator Instructions] The first question is from the line of [indiscernible] from Lucky Investment Managers.

Yes. Congratulations on great set of results. My basic first fundamental question is that over the last few quarters, we have seen your EBITDA margins trend from about 1.8% to about 3-odd percent right now. And what we understood was that Apple is a good customer who gives us higher margins than other guys, but contribution of Apple in this quarter is lower, but despite that, your margins are quite high. So can you please throw some color on the sustainability of these margins going forward? That's my first question.

Let me answer -- let me take that question. Look, and I think EBITDA margin is going in right direction is absolutely a reality. And the reason that this is taking place is because you'd find that we are in a market situation where there is a huge -- there is a demand and there is a demand, which is changing supply right now. It's not [indiscernible] thereon. So demand is outsitting supply at the moment and so that allows you to have a higher gross margin in business and they just flows through to a higher EBITDA margin as well. That's one part of the business. So second is, to your point about Apple being lower in business, but the margin still happening. A lot of these margins are driven by a growth in the Enterprise business. Enterprise business, which is servers, storage, network, software, cloud and services around that, those are the ones, which are the great drivers of margin and profitability. Our enterprise business in this quarter has grown [ 38% ]. So I think that's a very, very, very strong growth across -- and it's obviously different by the [ mitigation written ] by India. But overall, at a consolidated level, our enterprise business has grown that much. So it's a very strong growth, and that really is leading and contributing to a higher EBITDA margin. It's a shift. It's a business mix that is shifting a lot more towards enterprise, which is giving us [indiscernible].

[Operator Instructions] The next question is from the line of Krish Mehta from Enam Holdings.

I had a question on the numbers for the cloud and cloud managed services. If you could split the revenue and margins for both of these?

Okay. I give you a sense on the cloud business overall. Our cloud business for the quarter, Q3 is INR 411 crores. And that is the very strong 35% year-on-year growth. Services as a proportion of this is just about 3% is not that great, but it's still trending in the right direction. And as we go forward, I think that area, like I said earlier, the consumption for model across the world is changing towards the [indiscernible] as a service model and cloud play is right stage into that from an enterprise perspective. So very strong growth in cloud, 35% and a very strong services number, which is 3-plus percent of the cloud revenue. The margins on the cloud hardware business, you've seen -- I answered the question earlier on why our margins are looking better because Enterprise business has gone up. So margins in the Enterprise business are bedrock. So I think cloud hardware and cloud product business, [indiscernible] similar margin as the Enterprise level, which will be around in the range of 6 points, but the cloud services business [indiscernible] is a much higher margin, which is in the range of about 25% to 30%.

The next question is from the line of Sarvesh Gupta from Maximal Capital.

Two questions. One on the margin side. I had 1 query, so one is that you mentioned that Enterprise business being a higher-margin business has grown faster. But in the past, we have seen that it was actually growing slower than the other category of Mobility. So do you think that this is a sustainable trend for your business wherein enterprise business will grow at a faster pace than the Mobility business, thereby increasing the margin profile of the business?

Look, very difficult to say that Enterprise will continue to grow faster than Mobility. Because Mobility is in a very good space right now. And I'll tell you why it is in a very good space and why it will be a much faster growth going forward. It's because you would see that the world is going to be shifting towards a lot more adoption of 5G. Now 5G has multiple indications in the market. One implication of 5G in the market is that it leads to sales of more devices, 5G-enabled devices, the countries in which the network of 5G offers, devices consumption goes up and Mobility will go up, right? That's one. The second thing which happens in Mobility and 5G is, it's [indiscernible] saw a lot more consumption because the 5G network enables you to do much more from a bandwidth perspective, zero latency, it allows you to consume a lot more applications. So 5G and Mobility will drive a lot, lot more consumption and growth. The reason Mobility business is lower this quarter is just because the demand was there, but the supplies were not adequate. Supplies across every single [indiscernible] was constrained, and that [Audio Gap] slower. The enterprise business has been faster than mobility in this quarter, and I hope it will continue to grow at a fast rate and whether it will grow faster than mobility or not, only time will tell. But clearly, Enterprise business has been in a good space because the world model is shifted towards a lot more as a service consumption, which is driving the whole range of ships towards a lot more back-end applications, people are redesigning regenerating applications, redoing their applications. Plus the fact that digitalization of companies is moving at a really fast pace. A company that usually take years to do projects, they're converting all of those year-long projects into a few months now. So I think that is the thing which is really driving the adoption of Enterprise value. So I'm hoping and praying that both continue to grow at a very fast pace. One goes faster than the other, we will take all of that. But I'm pretty certain that both will have a good [indiscernible].

Okay. And sir, you mentioned that you have changed the accounting standards. So what will be the like-to-like comparison of...

I'm sorry to interrupt you, but we cannot hear you.

Sir, you mentioned that you've changed the accounting standard for revenues. So what will be the like-to-like EBITDA margin for the quarter versus last year and for the 9 months versus last year if on a like-to-like basis, sir?

Look, the accounting standard change is only impacting revenue. It's not impacting EBITDA at all. EBITDA is not changing. EBITDA of INR 544 crores for this quarter, a 22% growth stays whether you change the accounting standard or whichever accounting standard we follow. A PAT of INR 388 crores for this quarter at a 103% growth exactly the same as it would be without -- It's only a revenue shift. When you do an accounting standard change in the revenue gross to net, because you don't take the whole sort of top line and then you just take the bottom line. That's the reason it shifts to the revenue only drops, the EBITDA and the PAT remain exactly the same.

Okay. I was talking about EBITDA margins. So will it be possible to give the margins on a like-to-like basis for the previous Y-o-Y periods for 9M and this quarter?

Krishnan, you'll take that?

So Sarvesh, I mean the difference is only about 10 bps in the EBITDA and the profit margin. So it is not significantly higher in terms of percentage of revenues.

Understood. And there was a news report for Apple wherein their shipments had increased a lot in the last quarter of this calendar year. It was, I think, a 40% sort of a jump. While in your case, your Apple share has reduced. So is it because you're carrying some excess inventory for this quarter? Or something else which has happened in India business as far as Apple is concerned?

Yes, I think 2 things can happen. Apple business would have grown. And so the global -- if you follow the global trends on Mobility shipments, you'll find that there has been a decline in the smartphone shipments of world over, okay, including Apple, Fourth quarter 2021, which is [indiscernible], there is a decline over same period last year. So it's not as a Y-o-Y anybody has grown because globally, the smartphone market has dropped by about 3.2 percentage points. Apple -- and it's true for most brands and most vendors as we are dealing with across our entire region of Middle East, Africa, India and all these business. So there has been a constraint on supply. This is really, really causing this sort of revenue drop to happen. And there's a change in there which is important to understand from an Apple perspective is also a change in the GTM. They had made a change in GTM last year, and this was a quarter in which it got impacted was, they made a change in GTM from just the two of us to a lot more online player, which is not serviced directly by Apple. So those are the 2 things, supply constraint and the GTM change, which caused the Apple revenue to gear on. But our revenues got up in the Apple and the other devices which is in the Apple Mac and iPad. So I think that's been a very good story.

The next question is from the line of Pranav Kshatriya from Edelweiss.

I have a couple of questions. Firstly, I just have a little -- [indiscernible] a little deeper on what you're talking about. So you said that GTM change has led to the decline in the revenues for Apple. Is that correct?

Yes.

Okay. My second question is, if I look at the revenue composition by brand, Apple is one part then there is the [indiscernible] brand and then there is other. So that other section also I see a bit of a drop in terms of the revenue. So is it suffice to say that it is largely because of the Mobility whereas the Enterprise has done well? And that's why you have the Dell, HP, Lenovo, and even Samsung for that matter are doing well.

Oh, yes, absolutely, absolutely. No, even Samsung has been a drop because Samsung also is constrained on supplies. And we don't do Samsung in India, you know that. We do Samsung in Middle East and Africa, and Samsung has also been constrained on supplies. So that's the only reason why this thing has Apple -- the Mobility revenue overall has gone down. Whereas Enterprise was good shipment last quarter. Enterprise wasn't a good shipment in the quarter before that. When you go to Q2, you'll find that the Enterprise revenues -- the shipment for Enterprise was little subdued. [indiscernible] has happened with the Mobility in this quarter, it was the other way around in the previous quarter. So that is the reason in supplies of Enterprises has happened, then a very, very strong growth. Mobility was constrained and the change in GTM that led to slow down on a [indiscernible] on the Mobility side.

Okay. And I mean, the change in GTM is sort of a permanent thing. I don't think that those would come back and considering the share of online [indiscernible] sort of increasing, do you think that there is a risk to that extent that Mobility revenue growth might not reflect overall growth.

On the contrary, I feel that there is a huge amount of -- in the last 9 months, there's been a huge amount of stability that has [indiscernible] in the manner in which people buy. And it's not only true for Apple phones. It is true for pretty much every single study, say, a technology product that there is a certain amount of share which the online has and there's that amount of share which the offline has. And there is an equilibrium within that. So I don't see that, that really impacting going forward or changing anything going forward. We don't see a significant increase -- and what -- and [indiscernible] our drop in Apple would have been -- a drop in Mobility, not Apple I wouldn't say that. I think our drop in Apple -- drop in Mobility revenue because of a shift in GTM would have been far higher. Had we -- but our revenue drop is much smaller and had we -- and so this means that we have actually [indiscernible] about 8 to 9 or 10 points of our growth back despite of the drop in the Mobility revenue. So our engine of making sure that our other revenue engines start to crank up faster has been a great success story. So that's one thing. Our other revenue streams are kicking in very strongly, and that's a very strong and positive factor. And second fact that there is a certain amount of equilibrium this [indiscernible], and I think it has settled now pretty much for every single brand and every single -- when you go to Samsung with online versus offline, you'll find there's an equilibrium. When you go to the Oppo, Vivo whatever, whichever model, whichever brand [indiscernible], we all -- there's an equilibrium. Apple just started on that, and so there was a spike and now there's an equilibrium. So I think going forward, you'll find that the steady state works to our advantage actually here.

Sure. Last question from my side, and a quick one. How much time should we expect the working capital days to take to reach to 35 to 40 days, which would be a steady state considering most of the COVID-related things are behind?

Yes. Look, I'm going to defer that question back to the Krishnan, but short answer to your question is, I hope never. And that's the way we will build our -- and that's the way we are trying to build our models in case, but Krishnan over to you, please.

Thanks, Rajiv. So we think there will be some normalization that will happen in about 3 or 4 quarters down the line for now. But what normalization be is -- I mean, the jury is still out. We still think we should be able to maintain, I mean, our total working capital of 30 days, between 25, 28 days, et cetera. So that's our [indiscernible].

And I think it's important to understand just supplementing to what Krishnan said, it's important to understand what's happening in the global IT industry so that you get a sense as to how long this is going to sustain, and I'm hoping that will sustain for a much longer time than otherwise, is because there is a global shortage of equipment. There's a global chip shortage. There is a global commodity shortage. Pretty much everything that goes into the manufacturing of an equipment, laptop or a PC or a cell phone or anything of that nature, is in short supply right now. The supply chain is impacted very, very, very badly. There are brands which got order spending for 6 months, 8 months, 9 months and only now they are shipping. So there's a huge amount of demand, which is changing supply. All our conversations with pretty much every leading chip manufacturer across the globe, whether it is Intel or it's AMD or it is subsystem manufacturer -- equipment manufacturers like Foxconn or MI Tech or anyone, so just that this is not going to change in high. So you should be [indiscernible] I think it's in a good shape right now.

The next question is from the line of Nitin Padmanabhan from Investec.

Congratulations on the elevation. I had 2 questions. The first one was, what is the contribution of BrightStar on the growth numbers in the overseas business this quarter? And considering the [indiscernible] sort of moved the way it did, is there any sort of impact on the kind of margins that we are seeing on an overall basis from this? So that was the first question.

Nitin, the contribution of BrightStar was just $35 million for the quarter in U.S. dollar terms because technically speaking, the acquisition happened on the first of December. So the impact of BrightStar to top and bottom line is just not material at all.

Fantastic. Nice to hear your voice. I thought you weren't there on the call. Congratulations on the elevation as well. You'll be missed. The second question was on the profitability that we are seeing today. How sustainable is this gross margin that you are seeing at the moment? And how should we really think about it broadly on a going forward basis? Anything you can help from a thought process perspective will be very helpful.

Raj, are you continuing to take or shall I take that?

Sure, sure. Please go ahead.

All right. Nitin, look, I think like I said earlier, the situation of the global supply chain industry on the technology front continues to be favorable right now. And what it does to us is and does to pretty much every vendor and every partner and the whole ecosystem is it makes the whole ecosystem far more liquid and far more sustainable and far more profitable in that sense. So my sense is, I think this is here to stay for a bit. Our gross margin situation should continue to be where it is. we're absolutely tight-fisted on our cost control. So we are not looking at our cost to go out the controls. So the equation of gross margin and cost control is helping us to be far more profitable. It will continue for the time period that just this whole supply -- demand changing supply situation continues over the course of the next few quarters of this year.

Sure. And just one bookkeeping question, if I may. What would be the creditor days, inventory days and debtor days for the quarter?

Krishnan, do you want to do that?

Yes. So the debtor days for the quarter is at about 48 days, inventory days at about 22 days and the creditor days at 58 days. Taking the net working capital to 12 days.

The next question is from the line of Deepak Khatwani from Girik Capital.

Congrats on the set of numbers. I have a question on growth. You announced that right now, we are in a normal scenario. So once the scenario normalizes, let's say, 3, 4 quarters down the line, what is the kind of growth that you anticipate that will be in the market in the steady-state?

Okay. Very interesting question because there is a certain amount of linkage that we have from a market perspective. The way in which GDP is trending, the way in which ICT industry is trending, and fortunately for us in both these -- on both these dimensions of GDP as well as ICT across India, Middle East, Africa and South Asia, we are in a positive zone so both these countries, both -- all these regions apart are positive from an ICT and GDP perspective. [indiscernible] difficult has to get on from the perspective of what exact growth number would you want to look for. But I can only tell you the progresses for ICT industry in India is 8.8% growth over the course of the next 1 year. The progress is for ICT industry in the Middle East and Africa over the course of next couple of quarters, the full year is about 2.7, 2.8 points. The thing that I can show you is that we will always be trying to grow ahead of the market, beating the market by a factor. So I think that's all -- I think it's only worthwhile for us to say. But our growth hasn't come literally only from that growth. Our growth has got many other dimensions. These are just confirmations of all brands we can acquire, what geographies that we can open up for ourselves, what new markets we can really capture and how we can [indiscernible] again, so all of that combines and [indiscernible] playing last year the industry got whatever it did and we are going much faster than industry, and we should continue to grow faster than the industry over the course of next couple of quarters.

So if I, like, can rephrase the question. Do you have a growth target in mind for the company on a consolidated global level?

Yes. Yes. We have, we have a double-digit growth target. I can't give the exact number. That would be very forward-looking statement, but I can only let you know that we will be -- we are targeting a double-digit growth here.

And if I may ask another question, would you be able to share the growth of the industry in the last quarter, let's say, December quarter in India and overseas separately if that's possible?

Yes. Look -- so I [indiscernible] for India and Middle East separately have not come out. I can only give you the global number right now. The IT -- and this is only available for PCs there. It's not available for servers, storage, or the high-end technology yet. On the PC, the world market grew by 1%. Versus that, we going grown 13% in the PC in the consumer IT, which is PC, laptops and all of that. So that's how it is and the phones like I told you earlier is [indiscernible].

Sure. And do you see the growth that is impacted by the learn from home and work from home like getting normalized, people go back to offices and schools.

I think very interesting question again. But my first sense on this one is -- and the way I've seen the demand shift, when people started to get back -- get to home, work from home, and learn from home. Children learn from home, people starting to work from home, but certainly a huge amount of demand shifted towards home kind of equipment, which is a laptop or PC, a big screen monitor, a collaboration equipment, some software for collaboration and some software for security. So those are the things we've got [indiscernible] at the homes, right? So that fueled a huge amount of demand. Now when people are going back to the office after 2 years, certainly, everybody is realizing that, the equipment they used to work on are good in pieces, but they're not good overall. So I think there is a huge shift that has change taken place in technology, applications have moved ahead, Microsoft Windows 11 has come and that has moved up. So there's a huge shift that is taking place, which is going to be forcing people to do a refresh. So my person expectation is that learn from home, work from home the whole and in the office, that whole submission is going to be consistent. It may shift more towards home and less towards office or more towards office, less towards home depends upon which part of the world you're in, which pandemic society you're going through, but I don't see a demand which is talking at all because it's a submission, which is going to be a completely growth submission.

The next question is from the line of Anuj Jain from ValueQuest Capital.

Congratulations for the good set of numbers. My query is regarding the margins. You have mentioned that 2 reasons for the margin improvement are demand-supply scenario and larger share of IT products versus Mobility products. But let's say, going forward, [indiscernible] down the line what I understand is demand-supply scenario should be sorted out. And you also has mentioned that Mobility products will grow much faster rate versus the IT products. So should we consider the current margins as peak margins and this should normalize going forward?

Look, I think you've got to give it a few quarters before you even get to a situation of that nature. And I didn't say that Mobility will grow faster than Enterprise. I'm saying Mobility and Enterprise both will grow at a very fast clip. Enterprise will grow because the Enterprise and SMB and the governments, they're all shifting towards a much more digital environment, and that excluding a whole range of [indiscernible] procurement and buying an application. And Mobility will grow because the 5G shift will lead to a lot more consumption or refresh technology. So both I'm expecting both Mobility and Enterprise to continue to grow. This demand-supply gap will continue for a bit -- for a couple of quarters. If all the wise industry leaders and wise company which are very closely integrated with the supply chain [indiscernible] followed, and you can see the way in which they're stepping up over time to supply the equipment that they have to and the order books are 6 months or 9 months. So I think that ship is going to continue -- that demand-supply gap is going to continue for a couple of quarters. The shift to Enterprise will continue and Mobility will catch up even more because [indiscernible]. So I think all in all, the whole ICT market, we are going to be seeing a shift in a very positive way. It is not one versus the other. It's not either or, it's and.

The next question is from the line of Dhaval Shah from Svan Investments.

Sir, a couple of questions from my side. Sir, can you just highlight again on the India revenue for the degrowth on the India revenue side? And my second question would be, you mentioned about 5G being a driver for growth. So say, over the next 3- to 5-year period, what sort of incremental growth you think 5G can add to our top line? These are my first 2 questions.

Okay. I can give you a sense on India revenues since your first question is on India revenue. India revenue is INR 7,157 crores, which is for this quarter. So I hope that answers your first question. The second question, which is about...

My question is that what led to the degrowth year-over-year?

It's just a Mobility business that led to the degrowth. So we had a very, very strong -- we had a very strong IT growth, which was -- IT growth was about 14%. And if you don't take net accounting versus gross accounting, if I take it in the gross accounting, it would be 21% IT growth. So the Mobility business was a negative 37% like I said, they had GTM shift and supply constraints that led to a drop in the Mobility business, but outside of Mobility...

Mobility, so mainly to do with the chip shortages, what you mean.

Mainly to do with the shortage in supply of telecom equipment.

Rajiv, if I could just supplement just to give clarity. So it's important for you to understand that last year, Q3 of FY '21 was one of the best quarters for us from a Mobility point of view. Not only the fact that the product sold extremely well, we also were riding on the back of some solid sales to some of the e-commerce space. That part of the business, this time while the demand was good, supply was constrained. But on the other hand, the opportunity from a GTM point of view was not available like we had last time. So the degrowth in Mobility is only to do with when you look at last year Q3, vis-a-vis Q3 of this year. But it's important for you to note that the contribution from Mobility in India is 28%, whereas IT contributed to 71%. And if you further break down IT just for academic information, Enterprise contribution was 40% with consumer being about 60%. So this will give you a sense that on IT, whether it is enterprise or consumer, we grew double digit, whereas Mobility on the back of the previous year being a spectacular year. Therefore, it is showing a degrowth, if that explains.

Sir, in last year, how much was Mobility in India?

You mean to say in terms of contribution?

Yes. So out of [ INR 7,592 crores ] of distribution revenue in India, so when you give this percentage between Mobility and IT, we have to do it...

Just to give you a perspective specific to Q3, I don't have it in front of me. But just to give you an idea 44% was the contribution of Mobility in India to the overall revenue. Now when you see that, for a minute, shrink to 28%, whereas there is more than enough that has been made up by IT.

Okay. And -- so in terms of the margins, there is -- I assume there is no difference between dealing with brands like HP, Lenovo, or Apple because the GP has increased.

Yes, it is true. But if you recall, there is one point I've always maintained that in the past, we would be able to sell at normal margins for almost about 70%, 80% of the products, but the balance 20% would be sold at lower margins sometimes even at cost. Given that overall, there is a shortage for most of the products and particularly with PCs, right now, we have no margin to give up or leave on the table. We are able to get our normal margins on the entire sale. So to that extent, we are able to bring the gross margin to EBIT or EBITDA at almost all of it.

Okay. So even the employee cost has gone down 10% year-over-year, so this is related to what, I mean, the reduction in the employee cost?

Because we are comparing it with the previous year when we had done a revision because if you remember in '20, we had to, therefore, take -- do a salary freeze. We did some kind of a push up in the previous year -- so that is the reason why it is showing interrelation to Q3. We did a good part of the revision in Q3 last year, and that is what is showing as a degrowth compared to this year.

Got it. And sir, towards the question on the 5G opportunity for us.

Look, I think 5G opportunity you are trying to [indiscernible] in 3 to 5 year timeframe, okay? [indiscernible] like I said is going to be a game changer for a lot of industries. Whether it is health care or it is retail, it is manufacturing of the Industry 4.0 variety or it is any film, editing, video. All those industries, 5G is going to be a game changer. It is a game changer because the way -- the direction in which the world is moving, it's moving towards a lot more voice enabled and a lot more video enabled. All of that is fueled by 5G. Now 3 to 5 years down the line, how much will the industry be -- what the industry be is very difficult to conjecture right now, but the...

Sorry, sir, what I tried to understand is that so we shall also be expanding our product basket. So when 5G comes in. So you mentioned the applications and the end users are many more. The more devices also would be 5G enabled. So will Redington be dealing in more products going forward?

Whatever -- look, our view to the world is that we will be playing in the cutting edge technology all the time. So whatever is cutting edge at that point in time or at any currency of technology at that any point in time to be able to be a strong [indiscernible] in that. So that's our stated objective. That's our goal. That way we will play. So when new devices come in to support the 5G application environment when new horizons come in to support the applications or the devices for Mobility is still on 5G. Of course, we'll be playing a very strong growth.

The next question is from the line of [indiscernible].

My question is, what should be the share of Apple revenues in terms of percentage of total revenue? And the second question is what percent of revenue could be on cloud server business from 1 year from today?

Second question?

Second question is that what percent of the revenue could be in cloud server division from 1 year [indiscernible].

Okay. Let me just give you the answer to the first question, which is your Apple revenues. The contribution of Apple iPhone to revenue at a consolidated level is about 20%. Okay. And that's how it is. Your second question on cloud, how much of our revenue is cloud? Like I said, we've got a cloud revenue in this quarter of INR 411 crores from a total revenue of INR 16,620 crores. So whatever that percentage you can take it. Our hope and desire is to get towards at least a 10% contribution over time. It won't happen in just a hurry, but it'll be [indiscernible] right to say that [indiscernible].

Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Rajiv for closing remarks.

All right. Thanks so much. Look, it's been a very fascinating conversation with all of you. Like I said, we've had a very, very nice and strong rounded sort of market coverage and rounded growth, very strong on the profitability as well. And we see the trend of the ICT industry continuing to be an industry which is really creating and leading the transformation that all the organizations are wanting to move towards. The world of digital is expanding and changing all the time. It is getting far more digital than ever before. The fact that there will be much more rollouts of the telecom network of the 5G variety, we'll continue to fuel a lot more consumption of devices as well as the applications. So you find all in all that the industry will continue to see very robust, very sustained demand and growth of technology across the zones, across the regions that we work in, which is India, Middle East, Africa, South Asia and Turkey. So these are all emerging markets where -- which are tech deficient and they have to be in a position of lead for as we go forward because all of them are very aspirational countries to get to the right level of GDP growth and get to the high level of [indiscernible] growth for themselves. I think we are in a good space. We've had a good result, and I hope to make sure that we will continue to be on a very strong growth curve as we go forward. Thank you so much for speaking with us. It's been a -- like I said, it's been a fascinating conversation. If you have any more questions, please let us know and we'll make sure that we give response to everything. Thank you so much.

Thank you. On behalf of Redington India Limited, we conclude this conference. Thank you for joining us, and you may now disconnect your lines.