Kapal Suresh Pansari, Managing Director, Rashi Peripherals Limited

7 Feb 2024 , 09:18 AM

Help us understand the business and revenue model of Rashi Peripherals.

Rashi Peripherals is a prominent and rapidly expanding value-added distribution company within the IT sector. Our company has achieved an impressive Compound Annual Growth Rate (CAGR) of 23% over the last two decades. Additionally, our infrastructure is unparalleled, encompassing 50 city branch offices equipped with warehouses and service centers.

Rashi Peripherals is exclusively dedicated to the IT industry, commonly referred to as the Information and Communication Technology (ICT) sector.

Could you please clarify the comparison between Rashi Peripherals and Redington listed as your peer in your RHP?

The overlap in our businesses is miniscule. One key differentiator is our exclusive focus on IT distribution, unlike other companies that deal in various products, including mobile phones. Furthermore, within the IT sector, our business approach is comprehensive and all-encompassing. We provide a 360-degree solutions, starting from pre-sales activities to managing the entire sales process, including logistics, and even extending to providing warranty services. This holistic approach ensures that our customers receive complete support throughout their journey with us. It is this dedication to offering comprehensive pre-sales and post-sales support that truly distinguishes us from our competitors.

As retail investors, how can we assess valuations and compare Rashi Peripherals with others in the absence of strictly comparable listed peers?

Certainly, there are three key factors we need to consider:

Firstly, we need to assess the IT penetration in India, especially in comparison to mobile and smartphone penetration. Currently, while smartphone penetration stands at an impressive 80%, IT penetration is relatively lower, hovering around 12 to 13%. This indicates a substantial growth potential in the IT sector.

Secondly, the ongoing digitization efforts across the country are driving an increasing demand for IT products. As India embraces digital transformation, the demand for a wide range of IT solutions is expected to rise significantly. This presents a lucrative business opportunity for Rashi Peripherals.

Another crucial aspect is our diverse product range. We boast a portfolio of over 10,000 products, catering to a broad spectrum of needs and budgets. From affordable pen drives priced at ₹400 to an artificial intelligence machines exceeding ₹one crore per piece, our comprehensive product offering aligns with the growing market demands spurred by digitization.

Moreover, our business has exhibited robust growth over the past two decades, with a remarkable Compound Annual Growth Rate (CAGR) of 23%.

Currently, our company operates through 50 branches, serving approximately 7,000 customers across 680 towns in India. Our mission is to expand our coverage even further, reaching beyond the current towns and cities. Every year, we add more 10% more customers and 10% more towns in India. This indicates the business opportunities for us which eventually also translate into valuations.

With this macro background in place, what are the growth strategies of the companies for next few years?

Our growth strategy revolves around five key pillars. Firstly, we aim to expand our market share within existing business segments. For example, in the CPU and pen drive segments, we already command substantial market shares of 40% and 50%, respectively. Our goal is to further increase these shares to strengthen our market position. Also, we are exploring new business avenues, such as laptops, desktops, and servers, where our current market share is relatively low at around 10%. This presents a significant growth opportunity for us.

As per several third party reports, the IT market is likely to post at least by 10-12% annually over the next few years. So, even if we do not increase our market share, we will continue to grow at a healthy pace.

Third, once every two or three years, we keep on adding newer verticals. This also means that we add newer products to our portfolio. For instance, four years back we started our enterprise vertical which caters more to enterprise customers, governments and enterprise partners. Wherein server and storage were the major products that we introduced. So that business is now thriving with very high growth. Similarly, three years back we started our semiconductor vertical. At that time, semiconductor word was not that popular but today everyone is aware about it. We are already the distribution partner for Micron who are setting up a testing facility in Gujarat. These are two examples of newer verticals, hence newer products.

Our fourth strategy is that we try to get same product at different price points, catering to various customer segments. By providing entry-level, mid-range, and premium options, we enhance customer satisfaction and loyalty.

Lastly, we are committed to expanding our customer base and geographical reach. Each year, we aim to onboard 10% more customers and expand our presence in 10% additional towns and cities, thereby tapping into untapped markets.

Overall, these strategies, supported by our robust SAP ERP system, have been instrumental in delivering consistent growth in the last two decades.

What are the key factors that move the margins of the company?

This industry is driven by pretty stable and consistent margins. This is a structured distribution wherein prices are predefined across the chain, ensuring stability in margins. It is essential to note that this industry is characterized by a working capital-intensive nature.

Our margins are significantly influenced by the credit component received from the global brands we distribute. As a B2B company, our sales transactions occur on credit terms with our customers, enabling them to maintain inventory and subsequently sell to their customers. This intricate process results in a net working capital cycle spanning approximately 50 to 55 days.

In terms of financial performance, our EBITDA margin typically ranges from 2.5% to 2.8%, highlighting the operational efficiency and stability of our business. Furthermore, the Profit After Tax (PAT) margins fall within the range of 1.5% to 1.8%.

What is your take on environmental, social and governance (ESG) strategy of the company?

When we consider the impact of our operations, there are two crucial dimensions to address: social impact and environmental responsibility. Beginning with our commitment to social impact, Rashi Peripherals has a robust Corporate Social Responsibility (CSR) policy. We allocate a substantial amount towards CSR initiatives, actively involving our employees spread across the country.

On the environmental front, we have implemented an effective e-waste collection strategy. All 50 of our branch service centers serve as e-waste collection centers. This initiative extends beyond our customer base, inviting any individual residing in India to walk into any of our 50 warehouses or service centers and deposit e-waste free of cost. Internally, we have established specific targets for monthly and yearly e-waste collection, contributing to environmental sustainability.

Additionally, we conduct awareness campaigns to educate individuals on the proper disposal of e-waste, discouraging its indiscriminate dumping. These campaigns target various stakeholders, primarily our 7,000 customers. By reaching out to our customer base, we aim to create a ripple effect as they, in turn, propagate these responsible practices to their customers. Moreover, these campaigns are instrumental in fostering general awareness within the broader community.