Redington Limited (REDINGTON) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Redington Limited Q2 FY '24 Earnings Conference Call. This conference call may contain forward-looking statements about the company's lease 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 SV Krishnan. Thank you, and over to you, Mr. SV Krishnan. Go ahead.

Thank you. Good morning to all. First, let me take this opportunity to introduce Mr. V. Hariharan, our new Global Chief Executive Officer, who assumed his position from 1st of September 2023. Hari's Journey with retention has been a remarkable one that goes back more than 20 years ago. As part of HP, we have built by producing with a distribution partner, and we have been a key constituent of residence for into the large format digital printing category, which today has grown to a size with high profitability. We have seen such a board member and of a valuable insights and guidance now have taken up this leadership role in the company. Hari based in a wealth of experience spanning across 3 decades in sales, marketing, and digital management. This professional journey includes significant leadership growth at industry gains such as Sedana and Wipro. In these roles, he contributed to creating innovative world-leading printer products and driving revenue growth through effective sales leadership. He excel in managing both mature and emerging markets while achieving substantial cost efficiency through geographic-focused initiatives. He is an initial leader in that we have taken the road list travel. At it speed after a successful 8-year carrier SHP, he decided to step back and become a successful [ Antipolo ] in accessible solar products market. His remarkable journey resonates deeply with other companies' values and aspirations. The synergy repeal Hari's extensive experience and Redington's strategic objective is obvious to all, and I'm sure this is the beginning of another great chapter in vending to 30-year low district. With this I request Hari to say a few words about the first 3 months of the company. Over to you.

Thank you, Kay. Good morning to all. It's a pleasure to be here and meeting you all. I'll just share very briefly a bit of my background at put compressions in the first 60 days and our near-term plans. As SV said, I have been associated with Redington for nearly 20 years by working at HP and then as a board member. I've admired the company both from far and up close, and it's a pleasure to be here in this road. Over the last 60 days, in reviewing and learning the new answers of the business with the leadership team, and I've been traveling around a fair bit meeting the India teams, the Middle East, Africa team in Dubai, the Saudi Arabia team in VR and the Turkey teams and having very interested in the quantity of leadership and the talent we have. I've also been meeting the leadership level of various brands and vendors and the joint plans we have with the brands and the feedback we have from them on the Redington and the initiatives we are working on makes me feel really good in terms of the long-term prospects for the company. The regions we operate in continue to have very positive signs of growth. We are very well positioned as a key distributor in these markets. Let me go a little bit by business units. Technical Solutions Group and cloud offer great growth opportunities and the largest headroom. Proud with our strong partnership with the hyperscalers and the SaaS brands were experiencing strong growth. Within mobility, where new product introductions have gone very well and so good momentum. In the Endpoint Solutions group, the emerging category of solutions offer a good growth opportunity. As you may be aware, we have embarked on a number of investment initiatives in the last year, starting with the digitalization of the company in the B2B platform. While the focus on some of these initiatives will continue to remain, we're looking at fine-tuning and rightsizing the investments to get the best ROI for the company. The digital platform enables us to have better efficiency and response time for reaching smaller partners, cross-selling to our large managed partners, and scaling up growth brands. As an emerging market distributor, Redington over the years, has done a great job of managing risk while focusing on return on capital. We will continue to focus on deep basics as a distribution company while playing in the new growth areas. In the near term, most of the geographies outlook is positive, and we'll work towards maintaining and growing our position. We do see some signs of stress with Africa due to geopolitical factors. We will be cautious to navigate for profitable growth in Africa and driving the acceptable return on capital. As we look at the Q2 results that have gone by, they have been good. And I'll let Krishnan walk you through the results in greater detail and happy to take on questions you may have. Thank you.

Thanks, Hari. Okay. So just the heads up on the results we've had in Q2 highest results of revenues and higher server gross margin for every quarter. That's something which is a very interesting situation to be in. On a year-on-year basis, the revenue grew by about 17%. The gross margin grew by about 10%. EBIT grew by about [ 2% ], PAT by about 22%. But for a moment, if you look at on a quarter-on-quarter basis because our objective is to make sure that we need to improve now from where we were. And on that score, revenue grew by 5%. Gross margin grew by 10%. There is a growth in the gross margin from 5.9% to 6.1%. After 3 quarters, we have gross margin of 6%. So that's something which we feel is positive. EBIT has grown by 17% and PAT has grown by 22%. So on a quarter-on-quarter basis, there is an improvement in EBIT percentage and PAT percentage by 20 bps. And all the laser gets have shown growth in the profit after tax. The PAT percentage, which was 1.2% in Q1 has increased 1.4% in the current quarter. At the same time, we have also seen the working capital on a quarter-on-quarter basis decreased by 5 days from 40 to 35 days, which I think is a very important milestone. That has resulted in operating cash flow and free cash flow being positive. Operating cash flow for the quarter was INR 1,249 crores, and the free cash flow for the quarter was INR 1,120 crores. Just wanted to make a mention here, there is a reclassification that was done in the way in which we show the free cash flow. Earlier, we used to net of dividend, which we had found. The pack is being followed by other companies, both India as well as global is lost dividend even if you say on an apple-to-apple comparison, the dividend renew, which was about INR 56 crores to 3 crores in the current quarter, we would still be at about INR 550 crores of free cash flow. Return on equity for the quarter is about 17.4%. Return on capital employed at 21.6%. Our real debt to equity is about 0.3x. Another important metric, we always measure ourselves is the provision for inventory and provision for aged receivables. I'm pleased to share with you there is a reversal of inventory provision in the current quarter to 0.29%. This is primarily on account of the drive that we're doing in terms of liquidating the inventory just to make sure that it is in a proper state. So that has enabled this reversal in the current quarter. The bad mix, it continues to be about the long-term average for the quarter, it is at [ 12 mines ]. So let me pause for now. And if there are any questions, we can answer them.

[Operator Instructions] The first question is from the line of Vivek Ramakrishnan from DSP Mutual Funds.

Congratulations on a good quarter. I can see the management efforts in terms of improving a lot of the things that you said in the earlier quarter. So my questions are in terms of working capital and the fact that they are always vulnerable to high-interest cost economy the affective DVA, your profitable tax. In terms of working capital, last quarter, we got a feeling that you were looking for market share gains and you are pressing on in terms of business. Have you used that off a lot given the fact that the market conditions are at least volatile, if not derating and what is the outlook going forward on working capital? That's my only question, sir.

Okay. So the mantra, we rate very clearly, we would want to drive profitable growth and keep the capital efficiency on top of it. So this is something that we are very particular and that today, the business is being driven. There is a working capital reduction in the current quarter. I just want to tell you that we are being very, very cautious but there are also some tailwinds that happens because of new product launches because of [ some people ] we see some advantage. We don't consider this as a steady state. I think we would be around 35, 40 days in terms of our working capital. Whatever is this possible? We will try our best and make sure that it is officially managed.

The next question is from the line of Priya Rohira from Emkay Global.

Management team on the has strong momentum on revenue side and sustainment quarter-after-quarter. My first question relates to the demand environment. You've seen a material increase in inflationary. How do you see the acceptance of the products that is plan? Secondly, is among the new product introductions, are there any products which you think can give to phenomenal growth in the coming years, depending on the feed you've seen in the market? And the third is if you could share some outlook on the margin side, like we have seen a little bit flatten the recent quarters primarily because of investments we would have done, but any color over there would be helpful.

Yes. So the 2 questions were -- one was on demand. And the second was on the new product introduction and the third one was our margin improvement. Let me try and take each one separately. So if you look at some of the theaters that we are in the demand environment continues to be strong. So mainly India and UAE, Saudi Arabia, demand continues to be strong. And this is across all categories. As I mentioned, technical solutions group, the demand is strong. The cloud has high growth and so is the mobility with the new product introductions. I think Endpoint Solutions good is the only place that we see muted demand, partly driven by the global organizations, not buying pieces at the same pace as we expected. Specifically on the new product introductions, they're all about the mobility products. And you're aware, there are a number of big brands that have introduced products in the last month, and the acceptance of the product actually is really good, and we are bit fulfilling demand in a way, whatever supply we get is going out of the door. So the acceptance of the product is very good. We expect margins to be staying at the current levels in most of these businesses and gross margins. We don't see any deterioration in any of the businesses that we are seeing, and we are closely watching it. And as Krishnan said earlier, we're going after profitable growth. So we are trying not to gain share at the expense of compromising on margin.

Just a follow-on. Gross margin, as you understand, is a function of the vendor performance we partake and also the [ nonmargin ] more color from the EBITDA margin perspective? Is the ending on the investments you would have understand or any new carats that are in the pipeline for which you think Solar marketing as...

We think an EBITDA range of about 2.4% to 55% is something we should be able to hold on. We don't foresee a challenge. Yes, there will be a mix change that can possibly help the PSB does more better compared to mobility. But overall, we are quite confident about this range.

Are you done with the question?

Yes, I am.

[Operator Instructions] The next question is from the line of Sarath Reddy from Unifi Capital.

My first question is that adjusted for the inventory provisioning, is it fair to say that the EBITDA margin force has been flat Y-o-Y?

Okay. See, inventory provisioning, while I had said there has been a reversal, but it is important that we don't consider the complete inventory provision reversal as a profit because while selling these products, there will also be some erosion in the margin that could be there, but some part of it would have come as part of the margins per store.

Secondly, could you speak a little bit about the interest cost because if you look at this quarter, the number, which includes your bank charges as a part of interest, could you just call out what is the actual interest rate that we are paying and how do you expect the trajectory for the rest of the year?

It varies between different markets. In India, it change is about 7.2% to 7.5%. In Middle East business, it's about 5.5% to 6% today. In Turkey, it's quite high. We discussed last time, and it continues to be high. In fact, it has gone up even further where our interest rate is loss of 30%.

Sir, could you call out what has been the absolute factoring cost this quarter? And what is the trajectory on other expenses going forward?

Okay. So factoring cost absolute amount in the current quarter is about INR 86 crores. And predominantly, this is in Turkey. And as discussed last time, there are no enough bank funding available in Turkey, and is something that affects across various industries and the company. So factoring, it is to for us to get funding, and this is the cost of it in the current quarter. Overall, we think we should be able to maintain OpEx as a percentage of revenue. We don't foresee this as a problem.

Got it. Sir, mobility is strong this quarter, which have lower working capital. And you mentioned that 35 days is maybe not the right number. So what is the normalized working capital today, especially in the context of the call you called out last time that vendors have rolled back to earlier credit cycles?

As I have said about 35 to 40 days is something is a range that you should keep that in mind on a steady-state basis.

Got it. And sir, Mr. Hari, could you just call out that what are your thoughts on the strategy going forward beyond profitable growth? And what were your motivations to take up the rule from being a board member to running the organization?

Sure. So in terms of strategy and directions, we have -- we had embarked on a few things as we have discussed in the call in the fall. One is clearly cloud. There is a lot of growth on cloud. And right now, within cloud, we work with the hyperscalers on the resell and driving the consumption. That's clearly one strategy we will continue. The second is we see a lot of headroom on technical solutions and across all theaters. And we continue to look at how to step that up and see what kind of solutions we can play in both product solutions and related adjacencies. In terms of the other areas, specifically in the endpoint solutions with a lot of emerging solutions like gaming, like wearables, et cetera. Clearly, we will play a role and those are good opportunities for us. And on mobility, we also see good traction on Android as well, and we will continue to play on Android solutions as a growth area. We did embark on digitalization, and I did mention there, but we will fine-tune our investments in digitalization, but continue to play there as a way to reach our smaller partners and our growth brands, as I mentioned. Now in terms of my motivation, clearly, I have been associated with Redington, and it was a company that I've always admired. It's multiple theaters, complex business, managing the business really well balancing between risk and return. And when an opportunity presented itself and the Board was reviewing the candidates and they asked me if I would be interested. And I said definitely, and I'm honored to actually lead the company. So the motivation is to be able to drive and lead a global distributor to a much better place, the opportunity in all the [ theaters ] is great. The industry is transforming, and with my background and experience, I worked across consumer SMB and enterprise, and I worked across PC printers, Unix boxes in my past 30 years, I thought I'll be able to contribute and play a role in the growth of predictive.

[Operator Instructions] The next question is from the line of Amit Khetan from Laburnum Capital.

Three questions here. The first is cyclical, the second structural, third focused on your role as CEO. So the cyclical question would be, we obviously saw a big surge in demand post-COVID and various industries are still equilibrating to a post-COVID world. Given the amount of possible over-ordering of IT equipment during COVID, one would expect a falloff in subsequent quarters and years. Some of that is starting to be seen. I'm curious to get your point of view on the extent to which we are through with that versus could we expect significant slowdown going forward, not because of any industry issue just because people [ over COVID ]. The second question from a structural standpoint, do you see any change in terms of the need for distributors overall, is pipe or distributor shrinking where the marginal distributors are getting squeezed out the Redington and Ingram in the world are holding their own, but broadly with the consolidation in the channel for electronic goods, especially on the retail side with Amazon and Croma. What does that do to the pie overall? I understand that we're a small percentage of the pie, but I would be curious to get your thoughts on the size of that side. And finally, as CEO, is it fair to say that your role will be focused more on the growth initiatives and the core distribution business will basically run as is? Or do you expect to be spending time on both? If you could give us a sense of when you see most of your time being spent the CEO, that would be a help.

[indiscernible]. So in terms of the demand side [indiscernible] [Technical Difficulty] So as I was saying, during COVID and early part of COVID, saw a huge surge in consumer demand. And that is partly driven by work from home and a lot of the consumers updating their equipment. Right after that, we did see a consumer slowdown and the enterprise demand picking up very strongly. We see that enterprise demand continuing for a while. Cloud is also enabling a transformation and versus our new kinds of products. So we don't see a slowdown. So we will continue. So as of now, the enterprise demand is strong, and we expect that to continue. Same in the mobility area. And consumer, we do expect it to start to come back. Some of the areas that I foresee, it is too early to say, but I take India as an example. We have reached ICE only to $200 million of the 1.4 billion population. There is a huge semi-urban rural population that don't have access to computing. And I see some of that happening over the next few years as right-side products get to these kinds of customers. And that will drive the consumer demand again. So that's the first part. In terms of the structural change, we do not see a big impact. Clearly, there is fine-tuning happening, things like direct to retail and those kinds of go-to markets are coming up, things are getting a little bit more specialized. We are working on how to reach telco retailers in the face and also sell PCs through them. So an evolution of omnichannel as well as existing channels that are specialized being able to sell other categories that will evolve. And scale obviously helps for things like meat. And obviously, Redington has scale and to be able to create a set of partners across the country where they were selling telco products earlier we could sell consumer PCs and wearables and tens of things. So we see evaluation of channels, especially in mid-market and in states, and we don't see a big structural change. Now in terms of my role, I think to parts to it, the early part, the first 6 to 12 months is clearly working on the core business and really looking at what investments we decided to make and to make sure that we are hunkering down, fine-tuning growth and getting the best out of those investments, digital, cloud, et cetera, and really important because there are adjacencies to our core business. And once we have really got this to a stage where we are getting our expected profit and return on capital employed. We will start driving new dual areas again. So it's a mix. Initial part, we'll be just focusing on the core business and getting the best profitable growth out of the core business. And stabilizing all the theaters, as I mentioned, we have some stress points, especially Africa, overseas. So we are working on how to stabilize those. And once we are beyond that, we will drive new growth opportunities after that. And clearly, we have a very good leadership team to tick forward what has already been done. So I should really focus on getting into new areas and how do we drive growth there. Clearly, we are a distribution company. So we are going to work on the adjacencies and not get out of our current DNA. But we will look at growth opportunities at differences.

The next question is from the line of Drashti from Thinqwise.

My question relates to the geographical change that you mentioned in [ Ageas ] if you could quantify if you evaluated but what's the impact on our balance sheet or on our P&L and also in the other geographies. So I know that the situation right now in transit directly impacting us. But if there could be any indirect impact in any of our geographies. And what are your first thoughts on the overall geopolitical strength in the global situation?

Okay. So again, this is not to get all of us worried about it, but it's just to be more cautious. Clearly, the walls that are going on, the exchange rate movements in various geographies in Africa. We already know the Nigeria situation, the Egypt situation, and now [ Sinais ] also part of that. So both the exchange rates and the dollar stability and the liquidity, everything will be impacted because of the wards and the oil prices, et cetera. So we're just cautious, and we are looking at it very corky to make sure that we are playing in a way that we are not taking excessive risk. That's the point I wanted to make. So we don't see a big impact, but we want to play consciously in the second half so that we are not -- as a distributor, there's always been very focused on managing risk well, we want to be sure that we are not taking any undue risks. You want to add to the question?

Just other people can add. So it is about $1 billion business, Africa sultry for us, which for our current overall price is about 10 percentage of our 2 business. As Hari said, while there are concerns, we will navigate capital. But for us, risk management is far more critical. Growth is something that's available even otherwise. I mean you would have seen in the first half, we added about $1 billion incremental revenue in our total numbers. So there is growth opportunity, but we would want to make sure that the balance sheet in this challenge in his proper.

[indiscernible] that because of the geopolitical tensions in asserting...

So it could be there, which is why we are calling out. And one is Africa and another one, definitely what's happening in Middle East because of Australia ASA. So both, we need to see how those pans off. It's important for us to call out upfront what challenges that lie in front of us. We have discussed about 30 in the past, and that continues to be a worry for us. So we will handle it carefully, but these are some challenges that are there in the overseas markets.

Sure. And sir, what would be our total growth this quarter, if you can to some numbers or just highlight something on the Turkey subsidiary of -- what would be the growth number on what would be the fast margin like you mentioned last night.

In fact, there is a good growth that we had seen in terms of revenue across markets. So can we say 17% year-on-year growth, 1% quarter-on-quarter growth is just not at the consolidated level. This is true with India. This is the Middle East Africa is too with Turkey. All the markets are growing well. And in terms of profitability in the challenged markets, obviously, the profit percentage could be lower, and which is where we would want to be [ capturing ] in terms of how do we do the business.

The next question is from the line of Nikhil Choudhary from Nuvama.

My first question is regarding the investment we are doing particularly still running some of the investments we have done in the last couple of years. Can you please give us color in terms of which other areas where we are seeing investment getting trend? And what will be the cost point?

Yes. Okay. Nikhil, we are doing various investments, but I would want to categorize that into 3 broad categories. One is the digitalization initiatives that has become very important and as [indiscernible] the earlier question, it has become very important for so and we are giving a change to the ecosystem, and we have to bring in change internally as well. So that investment is happening in terms of automation, in terms of within analytics, et cetera. That is something that would continue. So we are now differentiating our investment into need to have and like to have. We need to have something that we would want to pursue on that something which is fundamental for us, like to have something why we think directionally is important. We want to make sure that we phase it out in the impact is not set in the immediate quarters. Second is in the cloud business, there are investments that are required, both from the platform perspective, as soon as from the resources perspective, on the platform, it is important because that's the way to deliver and reach the market. In terms of talent, we will be careful as we are growing the business, how much do we need to invest on the talent part of it. But as you have heard from Hari, definitely, this is a segment that we are focused on. The third part of the investment is in the digital platform while this is definitely important, maybe we may have to slow down the pace of investments just to make sure that we are all in terms of the required pro IP. So we are focused on this, and we will make sure that it is properly calibrated.

My second question is regarding that you mentioned that we are seeing selling in global geography. And we are looking at profitable to in growth. This quarter, we have seen growth coming from outside apatite world grew faster than [ Sika ]. So I just want to understand how we are thinking in terms of maybe spilling back some of our investment in those current geographies in the third quarter, we just like to mention that affecting cost that was so high. So just want understand how we should think about the coming quarter given change state happened in the middle of the quarter.

Okay. See, these are difficult markets. We are not making any new investments in those. These are regular business that we are doing. What business do we appropriate, what we would want to limit on the table is something that we need to decide basis the expected profitability and the capital protection. As we have said for us, profitable growth and capital efficiencies is the mantra. We would want to make sure those are properly in place. But having said that, there are growth opportunities. We would want to be relevant and we would want to be important for the global brands. As you know, this is something which is very important for us to make a statement. In India, we have become #1 today. So in the past, we used to be #1 distributor in Middle East and Africa as a region. And today, it is also there in India. So except for Turkey, where we are #2. In all of our markets, we hold a leadership position, and that's something which we would want to protect, but at the same time, subject to the risk management properly in place.

Sure. Just last one from my side. In you about EBITDA margin to be just the current thing. Just hard to understand, is there an assumption that you'll see further in basically rollback in terms of provision when you guided for that EBITDA margin? Or do you expect telecom in some other expenses?

As I've answered, I don't think we need to look at the increase in EBITDA margin is on account of inventory position towards because all the inventory provision hasn't got flowed down into [ Bidapart of it went towards ] -- I mean, selling the product at a reasonable price. As we move into the future, we think this will get protected rise there is an inventory provision reversal or not. But potions something that's to available only for some time that cannot be continued for long, but we are confident about protecting the margins.

[Operator Instructions] The next question is from the line of [ Atul from DAM Capital. ]

So first question, just continuing on the managed services within cloud. You did talk about the investment bid, but can you also talk about what kind of an annual run rate, it is on revenue and cost currently?

Okay. So managed series today about 4.4 percentage of our total cloud business, which has improved from 4.2 percentage last quarter. So that's where we are. In terms of profitability, while gross margins would be better in this, the cost that we need to invest in talent is high. We will not see high profitability at this point in time. Once we get the scale, we should see the profitability being better.

I just wanted to just get a sense that currently would still be margin dilutive? Or is it at least positive on EBITDA? That's one sense I want.

So I just wanted to give you a sense of how we are thinking about it. So I'm sure you understand the cloud part that is resell and just driving consumption and then the uses services piece. So we are approaching the services piece in a way the bundled services with the cloud can drive more consumption. So we are driving those areas that drive more consumption. So either I can look at it stand-alone, but it can also drive more consumption, which drives more retail and more margin there. So you have a double effect when you are doing the managed services on top.

Got it. Second question, I just wanted to understand how we look at working capital debt on the balance sheet as a percentage of total liabilities back during just immediately after COVID when working capital data dropped a lot, I think most of the working capital has been financed with cash on books. So can we go back to a level where cash and the balance sheet fund a larger portion of working capital over taking short-term debt? Basically, can we go to net cash sailing the next 2 to 3 years?

This is the working capital intense business assets. When you see a growth of this nature in a working capital [ incretin ] industry, obviously, there will be absolute amount in increasing more capital and accordingly increase in debt. We are focused on making sure that the leverage in the balance sheet is within an acceptable level and that we are very confident we don't foresee a challenge. But I think we can go back to positive cash balance that was more during the COVID period and being well off.

And if I may add, it is important both from a brand vendor with sector and business perspective entail and grow our market shares within acceptable limits. And we have joint plans with brands and vendors, and we are driving those well, maintain our position in the growing market. So we have really balanced about the factors and the kind of risk we are taking in terms of profitable growth.

And initial as turn on capital implied is attractive, our objective between 18% and 20%, that's something that we are focused on. So that you know what money is getting invested, there is an adequate return.

Got it. Good question. Just I think I missed one or last part of your previous statement. Did you talk about positive net cash will eventually reach, right? Or did I hear that wrong?

I said there will be debt, but you will see returns.

Okay. And just lastly, the factoring costs that you mentioned earlier. So where is the books in the P&L? Is there a part of OpEx because factoring by nature is sale of receivables, it cannot be there as part of interest cost. It is there as part of OpEx. This INR 86 crores, what I had mentioned is part of the OpEx that's there in the book.

[Operator Instructions] Next question is from the line of Sunny Shah from Investec.

I had 2 questions. One is, can you provide some color on the performance of ProConnect in this quarter?

Okay. ProConnect performance is mediocre in a way of. We are making some corrections in the form of streamlining the revenue streams. We have been degrowth, but we have grown either. And we have a neutral profit situation. But having said that, the outlook for the next 2 quarters definitely looks positive. And I'm sure this will come back into the [ Whitecoats Crown Jerl ]model in the next few quarters.

Okay. And sir, another question to have on the earlier person question was that you mentioned the other expenses or renewed in the range and the benefit of the inventory provision is not something that you can focus on. So how do you expect the EBITDA margin to improve to 2.4% to 2.5% from the current 2.2% level?

This will happen in the form of higher gross margins. We know there are possibilities to increase the gross margin. It's not easy. It's going to take time. But if you ask where is the leader, the leader will come in the form of better margins.

The next question is from the line of [ Dinesh from Vito ].

Did you say that Africa is $1 billion alias? So my question was that I just wanted to understand, if you it correctly that Africa is a $1 billion business on an annualized basis.

Yes, you are right.

And sir, which would be the bigger countries here?

It could be Nigeria, Kenya, Senegal in the dollar.

Okay. The second question is on this presentation deck, Slide 17, when you have the half yearly performance region-wise. So the rest of the world, gross margins are up, EBITDA is down. So one of the reasons is factoring and one of the reason is higher investments. So can you just briefly explain that how much is the drag coming from the 2 individually is quantified to the extent possible?

It will mainly be in the factory because Turkey comes under the rest of the world, which is where we have seen very high cost fee, you will be surprised. The factoring cost today ranges between 50% to 55%. That's the cost of funding that's where in Turkey. In fact, every numbers of Turkey will look very mind-boggling for us. The inflation rate is about 61.5%. The government announced interest rate that's available for the consumers and for SMBs is about 35%. And then we were there in 30 weeks back, on that day, it got increased from 30% to 35%. So at it is a bit different difficult market. But I need to tell you to the full credit of the team out there, we have still been growing. We are still not losing money. We are still making profits. Whether the profit is attractive or not, that's a different question, but we are still making profits, we are will drop the bar. So that's something which we would gone.

Sir, what I wanted to understand was that if you see H1 FY '24, INR 1,500 gross profit versus 134. So almost INR 170 crores higher, we are making gross profit. But the EBITDA is down about INR 85-odd crores. So this we just quantify this [ INR 255 ] crores extra OpEx is gain between gross profit and EBITDA. How much of that is coming from factoring and how much of that is coming from investments that you might be making...

Okay. I may have to connect it independently. I don't have exactly the numbers for me to answer you time. For H1, the factoring cost is INR 147 crores.

147 for H1. What was it in the base H1?

It would be about INR 47 crores.

Extra INR 100 crores is explained by this.

Yes. Start to see the increase in costs, increase in normal OpEx.

Increase in normal OpEx. This is also higher versus the baseline because earlier the last call, you've seen maybe some investments may have be in that journey and when they would normalize?

Investments are mainly India focused and some could be at the global level, not necessarily at the rest of the world. See, some of the things that may explain this increase is also the ForEx loss that we had talked about last time in few markets, increased AR provision that would be there. So some of these are factors that constitute tetra. But we can discuss the number one on one [ EBIT ].

The next question is from the line of Devang Patel from Sameeksha Capital.

So the growth that we've seen in rest of world has been higher than in CISA, if you see the working capital, the improvement is again higher in [ Redington ] as compared to CISA. Can you talk about why this -- what explains this?

Can we repeat the question? Sorry, we will follow that.

We've seen a higher growth in rest of oil segment, revenue growth y-o-y in yet or Q2 and yet the margin improvement is better in rest of world compared to CISA. Can you give some color on where have you been able to have better working capital improvement in rest of world despite a higher growth?

Okay. See, there is a better working capital management in Middle East during the last quarter. And that's one of the reasons why our overall working capital base has come down. And this is something which has happened in Middle East, but I'm sure it will happen in other places as we go forward.

Sir, and just to put this in context of the pendulum effect you were talking about in the previous call. So can you say that the worst is over for us in terms of working capital pressures because now you are expecting the other geographies also to be stable or improve.

I would not want to say that, Devang, the current the volatility, the level of volatility is definitely high, and there are some specific segments in the industry, which are also, as Hari explained, are very challenged in terms of demand. I do not think we can pick the current level into the future, you have to wait and see. But we are on top of it. For us, the capital efficiency is very key.

Okay. Sir, lastly, could you just explain again inventory provision reversion on how much this quarter versus how much it is usually for us.

Inventory provision reversal in the current quarter is about 29 bps.

And on average, it tends to be about?

On an average, if you take the last 15 years, it's about 6 bps, 0.06.

That would be similar in the first quarter also? So roughly…

Quarterly [indiscernible].

Thank you. We will take that as a last question. I would now like to hand the conference over to Mr. V.S. Hariharan for the closing comments. Please go ahead.

Yes. Thank you so much for attending this call and asking a lot of really good questions, that's a good thing. And we will continue to do a good job for you. And we are looking forward to the Q3 presentation, which will happen in 3 months and hope to deliver good results. Thank you.

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