Redington could gain as memory shortage reshapes ICT distribution; brokerage sees 20% upside

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ETMarkets.com

Redington could gain from rising memory prices.

The brokerage has re-initiated coverage on Redington with a Buy rating and a target price of Rs 470, implying nearly 20% upside from the current market price of Rs 392. It expects the company to benefit as constrained, high-value inventory gets increasingly routed towards large distributors, while smaller players either reduce their scale or exit.

The brokerage expects DRAM and NAND prices to remain elevated for at least the next two years, with most new capacity expected to come online over CY27 and CY28. DRAM and NAND prices have already risen around 5x and 4x, respectively, since the end of CY24.

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Why the memory shortage could favour Redington

The shortage is not simply a supply issue for device makers. It is also changing the economics of the distribution channel.

With product prices rising, distributors need more capital to fund inventory. DAM Capital estimates that industry growth is already running above Redington's self-funding threshold of around 10-12%. The brokerage sees Redington's net debt-to-equity below 0.5x, an A1+ credit rating and a 16-year record of provisions below 0.3% of revenue as key advantages in funding this cycle.

DAM Capital expects this to drive further consolidation among distributors, with vendors favouring players that have scale, strong balance sheets and the ability to support inventory and payment cycles. It believes the resulting market-share gains could be structural because lost vendor relationships, credit lines and channel presence are difficult for smaller players to rebuild.

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India, software business add another layer

Redington's opportunity is not limited to the memory cycle. The brokerage expects India's SISA region to increase its share of revenue to around 62% by FY29E from 55% in FY26, supported by faster growth and a structurally lighter working-capital cycle. At the same time, the Software Solutions Group, or SSG, is expected to rise to around 24% of revenue from 17%, adding more recurring revenue to the business.

DAM Capital expects Redington's revenue to grow at around 17% CAGR over FY26-29E, with FY27E growth largely price-led before volumes take over as deferred replacement demand returns. PAT is expected to grow at around 20% CAGR, while RoCE could rise by about 500 basis points to around 21% by FY29E.

The brokerage therefore values Redington at 13x FY29E EPS and arrives at a target price of Rs 470, arguing that the company's stronger mix, improving returns and balance-sheet advantage justify the premium.