The short term, deceleration in the global volume growth of Apple's flagship products — iPhone and iPad — may not hamper Redington India, its major distributor in the country, given the increasing popularity of these products. A bigger concern for its investors, however, is the changing distribution strategy of the global smartphone giant in its one of the fastest-growing South Asian markets.
In the past three months, Redington's stock has fallen 24%. Most of the loss was incurred after Apple expressed willingness to set up its own shops in India thereby, dealing directly with consumers. If that happens, Redington will face the heat since it derives over one-fourth of the India revenue by selling Apple products. In addition, its Indian business, which accounts for 40% of the total revenue, is more profitable than the overseas operations.
A wider distribution and increased penetration due to the strategy of offering older phone models at lower prices has improved Apple's reach. This is expected to continue given that Apple recently slashed prices of some of its phones by as much as 20%.Therefore, the global decelerating trend in Apple's volumes may not be visible in the Indian market for quite some time. This leaves investors with the gruelling issue of Apple's changing stance on how its products will be distributed in India. In 2015, it added another major distributor taking the total to three. If Apple sets up direct sales channels, it would dampen Redington's top line and margin.
Redington commands a premium valuation considering its dense distribution channel and its hold over the large accounts such as Apple. It trades at a trailing 12-month P/E ratio of 21. Its future performance will depend on how quickly the company reduces its dependence on Apple.
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