Ladies and gentlemen, good day, and welcome to Redington Limited Q1 FY 2024 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. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Rajiv Srivastava, Managing Director, Redington Limited. Thank you, and over to you, sir. All right. Thank you. Good morning, everyone, and a very warm welcome to our earnings call, for Q1 FY 2024. With me in the room, I've got my Global Chief Financial Officer, S.V. Krishnan, and I've also got Deepika, who is the Chief Analyst, over here on this call. Good morning. I'm going to just give you a bit of a summary on how the quarter went by, and how we see the market over the near term, and then we can open it up for Q&A if that is okay. We are pleased to report another strong quarter of sales and gross profit growth, supported by solid execution across businesses and geographies. Redington continues to gain share and secure new opportunities in the markets that we compete in. At INR 21,251 crore, our overall global revenues have been the highest ever for any Q1, growing by a very strong 26% YOY. At INR 1,248 crore, we have registered our highest-ever Q1 gross profit with a 17% YOY. Our EBITDA decrease by 1%, our PAT decrease by 21%. This quarter has been a clearly a tale of two geographies for every financial parameter. Let me give you the figures for the two geographies that we operate in, namely SISA, which is Singapore, India, and South Asia, and ROW, which is the Rest of the World, all the other countries, the Middle East, Africa, Turkey, that we operate in. Our revenue for SISA grew 24%. The Rest of World revenue grew 29%. Our gross profit for SISA grew 24%, and the Rest of World gross profit grew 11%. Both are a very, very positive sort of margin. Our EBITDA for SISA at INR 266 crores grew 19%. Our Rest of World EBITDA at INR 217 crores was a degrowth of 17%. Our SISA, EBITDA of INR 246 crore is a 17% growth. The Rest of World EBITDA at INR 194 crore is a 19% de growth. PAT of SISA at INR 149 crore is a 2% growth, and the Rest of the World, PAT at INR 99 crore is a 41% de growth. Clearly, like I explained, the two geographies are doing differently. Redington achieved record revenue and- Excuse me, sir. Sir, we are not able to hear you. Ladies and gentlemen, the management's line has been disconnected. Kindly stay connected while we try to reconnect them. Thank you. Ladies and gentlemen, thank you for your patience. The line of the management has been connected. Over to you, sir. Where did I lose you? I kept reading my, my commentary. I don't know where I lost you. Should I start all over again or? Sir, can you please start it again? Okay, all right. I will do that. Thank you, sir. Yeah, thanks so much, and great, good morning, and welcome to everyone for joining this call. Our apologies for this technical glitch early morning. I was going on reading my s-- my commentary, and I didn't realize that we were disconnected. I hope you can hear me loud and clear, and let me just give you a sense of what and how the quarter went by. Like I said, we are pleased to report another strong quarter of sales and gross profit growth, supported by solid execution across businesses and geographies. Redington continues to gain share and secure new opportunities in the markets that we compete in. At INR 221,251 crore, our overall global revenues have been the highest ever for any Q1, grown by a strong 26% YOY. At INR 1,248 crores, we have registered the highest ever Q1 gross profit with a 17% YOY growth. EBITDA grew by 1%, and PAT grew by 21%. This quarter has been a tale of two geographies, pretty much across every financial parameter that we measure. Let me give you the figure. Revenue for SISA. We report results around SISA and rest of the world. SISA is Singapore, India, and South Asia. Revenue for SISA grew by 24%. Revenue for rest of the world grew by 29%. Gross profit, SISA was 24%, rest of the world was 11% growth. EBITDA for SISA at INR 266 crores was a growth of 19%. EBITDA for rest of the world at INR 217 crores is a negative 17%. EBITDA, EBITDA for SISA at INR 246 crore is a +17%. EBITDA for rest of the world at INR 194 crore is a -19%. PAT at INR 149 crore for SISA is a 2% growth. PAT at INR 99 crore for rest of the world is a -41% growth. We did achieve record revenue and profit margins for Q1 of the year as our continued investments in improving our tech capabilities, building deeper partner relationships, making the breadth of our offerings more comprehensive and innovations in business models begin to pay off. You know, You know, we made significant changes to our business model as well. For the first time ever, we've had five consecutive quarters of 25+% growth. Revenue has been broad-based, with all our operating regions contributing to growth. All our theaters, India, Middle East, Africa, Turkey, have been pretty robust from a revenue growth perspective. PAT is down 21% YOY with the increased interest and factoring costs that we've seen due to all the financial disruptions that we have been through. Outside of that, our PAT would have grown by 9%, if you take the downside away. It is largely impacted in the rest of the world, while SISA has delivered a PAT growth of 2%. Just to give you a bit of a qualitative, Redington's digital transformation has been a key factor, a key growth catalyst, as we transition from the role of a traditional distributor of supplying products to a much more technology aggregator, becoming a more holistic tech solutions provider. We are addressing the market demand for consumer devices and smartphones, for hybrid work and hybrid learn environments, for small and medium businesses, for enterprise technology solutions, including cloud infrastructure for server, storage, networking, and security. We are also responding very strongly to the emerging technology environments, fueled by the growing adoption of 5G, Internet of Things, edge computing, and generative AI. You all know generative AI has been so disrupted already, and we see many impacts that are happening, and it is only fair for us to have a very strong pivot on generative AI. While technology distribution has been a core value proposition, we are focused on building competencies and capabilities to provide managed services for private and public cloud, security, and audits. Our initiatives ensure that we continue to increase, enhance the value that we offer to our customers, thereby serving them better and gaining share and accelerating our growth momentum. Business dynamic during the quarter has been mixed. The quality demand related to work from home and learn from home has been subdued. It has actually, in fact, degrown. You would have followed the IDC results for global PC industry that came out very recently, that PC industry globally has declined 13.4% year-on-year. Smartphone shipments have declined globally by about 15%. In fact, PC and smartphone industry now pretty much is at 2014 levels, which is way back, and I'm hoping that that tide will swing and turn in the positive very soon, shortly. However, the demand has been very robust for data center infrastructure products, for server, storage, networking, software, and security, and also for cloud products. As we, as people get back to office, back to office has already necessitated data center procurement to happen. Migration to cloud has been obviously a very strong catalyst. Thanks to our improved engagements with enterprises, the good market, and SMB customers and partners, more than made up for the device drop in market size that we saw. We have grown our enterprise products by about 40%, and we've grown cloud by 44% in Q1. Obviously, in our portfolio, new technologies are the ones which are leading. As I mentioned to you last time as well, the geographies we operate in are largely consumption and investment driven, with most GDPs showing a positive growth trend. Although the guidance for growth in each GDP in each country has been reduced, this will continue to grow in the positive territory. Clearly, there has been a negative to stable business climate, and governments have been a very strong spender in times like these. We're also sure that the financial situation across the world continues to be volatile and there are obvious headwinds. Let me call out a few. I mentioned about GDP. Global GDP growth rates have been called down, as per analysts, there continues to be a chance of recession in some leading economies of the world. For inflation, even though inflation seems to be cooling off at 7.2% globally, it continues to be high in most parts of the world. Very high inflation regime, high commodity prices, and increase in interest rates. Therefore, the cost of capital has gone up very significantly. In fact, the interest rates are the biggest gap between last year and now, that have created such a huge cost of capital increase, which has gone up significantly. The borrowing rates, you would know, are the highest right now since September of 2007. We can go back more than 15 years, and that's how the borrowing rates have been. These impact demand and margin impact in PBT and PAT. There has been some currency devaluation in some of the operating countries of ours, mainly Egypt, Nigeria, Kenya, Ghana, Turkey, Sri Lanka, and Bangladesh. All these countries are seeing a good devaluation of the currency. While there continues to be a delay in delivery of certain networking products impacting the project business, good news, we are out of the shortage situation of the technology industry, and that has eased considerably. Very, very significantly. Any procurement which is non-project, we will find that the fulfillment becomes that much more speedier, that much more, lesser time to fulfill the project requirements. Sometimes in the networking products, we continue to get challenged on, on delivery. Overall news has been some good and some not so good, the financial indicators, and we do expect these to balance out. We will be watchful, as we've always been, and cautious over the next few quarters. As we project ourselves into the future, we do anticipate a constrained demand environment, as we are seeing right now, in certain categories like access products, which is a PC and networking and smartphone. Better in other, other categories, much better in other categories like data center, cloud, services, and accessories. We therefore expect to sustain a reasonable revenue and margin growth from our recently implemented, implemented operating improvements amid the backdrop of geopolitical and financial instability. We've demonstrated that despite an evolving macroeconomic environment and difficult conditions for the technology industry, we remain well-positioned to continue our growth, to grow our business profitably by helping our customers and helping our suppliers navigate an increasingly complex market, which is getting more complex from a technology perspective. Net-net, in summary, I would say our strategic initiatives, our execution capability are delivering for us, and that does make us extremely optimistic about the future. At this moment, I'm going to step back, and stop and open it up for question and answers, so that we can interact. Thank you very much, sir. Thank you. Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star 2. Participants are requested to use handsets while asking your question. Ladies and gentlemen, please wait for a moment while the question queue is set. We have the first question from the line of Nitin Padmanabhan from Investec. Please go ahead. Yeah. Hi, good morning, everyone. First, if you could give us some context to the drop in margins in the ROW business. Both other expenses and employee costs are all up. If you could give some context there, anything to do with provisioning and so on, so forth. The second question is, maybe a little more philosophical question, is that our growth has been consistently very strong. At the same time, I think, we have sort of hit a, you know, working capital days of around 40 days, which we have not seen in quite some time. Historically, we have had this risk-adjusted growth philosophy. If you could just give some context to what we are seeing in the numbers, right? Usually, we would sort of slow down on growth in a bad environment. Just wanted your thoughts on, about this. Thank you. Okay, I think great questions, Nitin. What I'm going to do is, I'm going to take the first question, which is context to margin drop, and then I'll hand it over to SVK, which is SV Krishnan, I'm sure you know him, to talk to you about risk-adjusted growth and the working capital and how that's gonna pan out. Okay, so let me just give you the sense. You know, if you, if you look at our EBITDA in, in Q4, for instance, Q4 at 23 sequential previous quarter at 2.69%, our EBITDA now at 2.27%. Our gross margin between last quarter and this quarter has just seen 12 bits, sort of a difference in, you know, in the positioning on the cloud. That's pretty much what is, what, what has taken place between 5.99%-5.87% is the gross margin, so it is 0.12%, which is that, that the only drop in gross margin. How do we... This gross margin will translate to about INR 48 crore of a gross margin drop. That's all that, that took place in this, in this quarter. For those two, we had that gross margin drop, which, which you see is coming to about INR 25 crore, and we made technology investments into our business at about INR 22 crore. Those choices are available to us to continue with the technology investments or should we or should we not? We think to secure our future, it is important for us to stay on our tech investment curve, because all the platforms that we are investing in have been extremely, extremely robust, and they are giving us the benefit of expansion of our growth, expansion of our territory, expansion of our geographies that we are seeing in now. We chose to make the technology investments, and that's how the whole margin equation plays out. Now, if you think of it this way, we maintain a very, very strong business momentum. Okay? We maintain largely our gross profit maintained, and despite the tough, you mentioned about the tough economic situation, despite the tough economic situation, we maintain our gross profit, we maintain our business momentum very, very strong. Just sort of well, back to your question that, are you doing very much so and all that. Just for a 10 basis points drop in our gross margin, I don't think we should be reducing our business at all. It is a difficult territory, but I think we managed our business extremely, extremely well, to get to the point that we did. There are elements around, around business that you go forward. I think those are the elements that, that we were focused on, and I'm, I'm glad it all played out extremely well from our perspective. SVK, you want to talk to him about the, the working capital? Okay. Let me first address, Nitin, your, your third point. I think it is, it is very important that you get a comfort. We haven't compromised on the risk-adjusted, risk-adjusted growth at all. The way in which we need to look at, the quarters that, that we are in. On the back of the last three years of very high demand, which has led to every constituent growing at a very fast pace and quite profitably, with all the balance sheet factors in a best of the case situation. Now, in some segments and, and in some markets, there are some challenges that are coming up. It's important we need to decide how we play our game with the brand. The chance is, when we find some of the smaller players are having difficulty and having a good chance of even exiting the market, that's where we need to be more aggressive. I mean, it is a, it is a very balanced role. We haven't left the, the risk factor out of, out of place. Having said that, we think it's important that we need to be very material, very important for the vendor. I'm sure Rajiv can articulate, many of the brands are talking in terms of strategic alignment with us, which would not have been possible if we are growing everything better than the market. I just want to give you a comfort that there is no letup on this side. Let me move on to the, the other, other expenses. See, there are a few factors that have, that have come in place which had impacted other, I mean, other expenses. It started standing out in the beginning of last year, and it, it, it actually continues, it continues to be so. Ideally, we need to look at for this, the quarter-on-quarter, which is between Q4 and now. I would want to call out a few, few reasons which are, are, are important. One, as Rajiv mentioned, is in the form of... Okay, I hope, I hope I'm, I'm, I'm audible. One is the investment. One is the investment part. We, we have a choice. Definitely, we have a choice that could have helped us in terms of better operating profit. We thought from a long-term perspective, in terms of structural change that's happening in the industry, some of these investments are non-negotiable. We have, we have gone ahead, and we are very clearly on track. There again, I mean, I want to mention, we are not going too aggressive. We are being very balanced, knowing that this is, this is our profitability, and this is what we can afford. Second is the, the, I mean, the factoring charge. See, in some of the markets like Turkey, it's very unfortunate. I mean, there are serious challenge in terms of getting bank loans. There are regulatory changes that are happening very, very frequently, which pushes us to start raising the funds in various forms. One such model, which has become quite constant in the last few quarters, is factoring. This is coming at a higher cost. If we want funds for the business, we have no choice. That's something which builds up into the operating, sorry, other, other expenses. Let me, let me ... Uh, just, uh, two follow-ups, actually. Um, so one is, uh, over the last two quarters, the other expenses is up by eight, eighty-eight, eighty-nine crore. Uh, largely, most of this would pertain to, uh, tech investments, and when are they likely to sort of ebb off? Uh, the second one, uh, was, uh, on the, uh, what are the pro- what is the provisioning, uh, for this quarter, uh, on, uh, receivables and all of those things, inventory and all of those? So that was the second one. Okay, I think on the first question about tech investments and how much we will continue and how much then we do sort of, at that, I think this is a very critical investment in our business. I do see those tech investments continuing for some more time because the way we are making our investments, and, you know, our desire is to become the number 1 digital distributor in the world. As the world is moving towards more digitally-oriented business models, that digital distribution, that vision is unique for anybody else. I'm so happy that a lot of the businesses already started shifting to our digital distribution model, which will bring us far more efficiencies in operating leverages over the course of the next two quarters. I do see it as a two-three quarter, so two or three quarter initiative. Furthermore, for it to become 100%, by the end of this year, I think we, we should see this to be completely, completely, rolled out, in, in with all the features and functionalities. It is already working right now. 20% of our business is shifted there, but we get more functional reach as we go forward. The other initiative that you know, is the cloud platform that we created. That cloud platform is working so well now with companies, with hyperscalers like Amazon, Google, and Microsoft, all three of them. That is typical investment, investment we made to make sure that we can do our cloud business in a much more automated fashion. These investments are really right up there in the right manner. Some of the investments we are making are also internal, because we also need to become internally most automated organization as the world shift towards digital. All our internal processes have to be digitally oriented. We, we see those investments continuing over the course of next this, this, this financial year. That's something which, which is very complete. In terms of provision. Yeah, provisions. The inventory provision as a percentage of revenue for the quarter is about 9 bit. It is slightly higher than our long-term average of about 6 bits. AR provisions, again, as a percentage of revenue, is about 11 bit, which is broadly in line with what has been there in the past. Sure. Thank you so much. All the very best. Thank you. Thank you. Ladies and gentlemen, in order to ensure that the management will be able to address questions from all participants in the conference, please limit your questions to two per participant. Should you have a follow-up question, please rejoined the queue. Thank you. We'll take the next question from the line of Vivek from DSP Mutual Fund. Please go ahead. Good morning. My question again will follow up on the working capital and inventory. You'd actually guided for higher working capital as it goes from work from home to work from office. Now, on the inventory, would you, you know, maintaining inventory in a slowing environment is a tough challenge. So you've increased the provision. Is it stage one provisions that NBFCs make, standard asset provisions? Is that the way you look at it in terms of increasing provisions? That's point, question number one. Question number two is, how much of the inventory is protected for any losses? You know, what can be the potential losses that can come from inventory? Those are my questions. Thank you. Let me, I, and I'll, I'll leave it to SVK to handle a bit, but I'm just going to give you a bit of a sense on the inventory and how the market is shifting in the buying patterns. Just to give you a broader sort of a context of the market. There are two kinds of inventories we carry. One, we carry inventory for regular runway stock and sell business, which obviously has a chance of being thrown into repricing and losses, if you have to. If we carry that inventory, what I would always think is, is, has got potential of being repriced. We carry a lot of our inventory is on the basis of back-to-back business. That back-to-back business comes from customers at fixed prices. We carry that inventory, we order that inventory, we carry to them, till the time we get all the balancing equipment, so that we can supply to the customer in one single shot, and the project can get completed. That back-to-back inventory does not get a, have a chance of getting repriced, because it is a fixed price end customer contract that we are going to execute. I hope it gives a sense and differentiation on those two, those two inventories. Krishnan is going to take it now. Okay. Just wanted to clarify from the perspective of the working capital increase. I mean, we see if you find why there is a 12-day increase. I'm talking year-on-year between June 30 of last year and now, from 28 to 40 days. A significant increase is come on account of lower AP days. It's not on account of increase in AR days or increase in inventory days. And unfortunately, as we are coming out, as Ravi said, from the shortage period, the, the high demand period, the COVID period, et cetera, vendors also are rolling back to the, the earlier, earlier credit models, the, the recent credit period. Some of the higher benefits that we could enjoy is, is going away, which we think is, is more sustainable. Maybe then your next question is, how will we control the working capital? We think there are levers available in, in all the three components in terms of making sure that we improve on that. Second is also a big change where, I mean, the vendors where we get less credit period had performed better, but also has contributed. It is not on account of inventory, I thought I should clarify. Secondly, just to supplement to what he, what Rajiv said, what we have seen in the past is, I mean, the provision are sufficient enough to cover up for any dilution in the value of the inventory. There is a consistent provisioning model, and that's something which is, which is standard. There are no exceptions that are, that are considered. We have found the experience that these are sufficient, and we are, we are, we are hopeful. As we move forward, some of these getting paid, we should get, we should get back many of these into the, into the P&L. Inventory protection, yes, that, that continues to be so. Any, any price drop which are, which are initiated by the vendor, we are completely protected. In, in some of the products where obsolescence risks are high, there is also stock rotation that's possible. Broadly, we are protected. I wouldn't say 100%, if you make a mistake in stocking call, obviously, that's something that you need to handle. Even in that case, we can go back and negotiate with the vendor, and whatever support we get beyond that is something that we should take. This is where we have the inventory protection. I hope I have answered you. Yes, sir. Thank you, thank you very much. Just one follow-up question. In terms of, you know, you had mentioned there are two kinds of inventories that you keep. Bulk could be the, larger project type inventory. Would that be right, or how, how would be? That is, that is right. That is right. Okay. Thank you very much. Wish you good luck. Thank you. Thank you. We'll take the next question from the line of Aejas Lakhani from Unifi Capital. Please go ahead. Congratulations on strong execution. It speaks about your execution capabilities. Mr. Lakhani, your voice is not clear, sir. There is an echo. Can you please use your handset? Yes, is it better now? Thank you, sir. Please continue. Yes. Congratulations, team, on, on a strong sales quarter. It speaks about your execution capabilities. Krishnan, could you quantify what has been the factoring cost increase quarter-on-quarter? When is Turkey likely to settle? When do we see these factoring charges going away? What is the interest rate regime in that constituent? Okay. For first quarter, we had a factoring cost of about INR 49 crore, which has moved up to INR 60 crore. That's the increase between Q4 and now. These, as I said, these are costly and, and, and mainly in Turkey. As you know, Turkey interest rate in the normal situation itself is quite high. It ranges between 25%-30%, and the factoring cost is even more than that. It is, it is, it is a bit, I mean, bit of a volatile, volatile market in various sense. I need to tell you that credit to the team there has managed to ensure there is a growth and also maintained, I mean, maintained profit. I won't say good profitability, but, but they haven't, I mean, they haven't. They have been profitable. Yeah, they have always been profitable. Let me put it that way. Perfect. Well, Krishnan, Raj, how do you expect the year to pan out? Because we have INR 150 crore of passing charges in FY 2023 from your annual report. How are you expecting the year to play out in Turkey? We think for one more quarter, this will continue. The reason why I'm saying this is because, I mean, there was a presidential election, 1.5, 2 months back. The existing government is continuing. However, some of the economic policies are changing. There are new people who are coming in the finance ministry. They have increased the interest rate on one single date by 6.5%, which was kept artificially or artificially at a low level. So we think some sense is coming in into the market. There are demand in the market that now is now less free. So maybe about a quarter more, we may have to go through. After that, I won't think it will come back to normal. It will definitely be better than this, sorry about that. Yeah, no, I think you're right. I think we expect Turkey to turn around because some of the new decisions that the government has made after the election are very, very positive. Aligning the inflation to the global markets, aligning what are the real figures, aligning the interest rate to the real figures, all of those are extremely positive statements because it inculcates so much of, generates so much of confidence in the general investment community, that now the situation of Turkey from economic perspective is far more real than it ever was. It's not artificially held up. Once you have a situation which is far more real, you get more investments into the country, and you get far more robust economic growth rather than you get. I think Turkey has been extremely, we continue to be very bullish in that area. Just to give you a number, for the quarter, Turkey had a revenue of about INR 3,200 crore. All these are in crores. They have made a profit after tax of about INR 12 crore. I mean, it's not, it's not great, but, but to maintain INR 12 crore when interest rates are at what it is, is something which is, is notable. Right. No, good. you know, Rajiv, my next question is to you. You've been, you know, since you have come in, your strategy has been to create a parallel sales organization. We wanted to understand what this, you know, parallel sales ecosystem that you've been building has really been doing, and how this will impact, you know, the future. Today, what sits in your employee cost is a% of cost that is opposite to this sales team, which is, which is, you know, in the clean-up mode. Could you please clearly quantify, you know, what is the HR cost, which is going towards, you know, the current products, infrastructure and what is being built for the service infrastructure? Okay, I may not have answers to all your questions, Aejas, but I'll give you an answer to some of them at least here. I don't know what you mean by a parallel sales organization. We are creating a sales organization which is focused on customers and partners. We used to be very brand focused. We used to be product-centric organization, not so much centered on how the requirements or demand to the market are changing, what solutions customers are wanting. What we've done now is, we've built the sales force to become, for example, sales force, which will fulfill the requirements of all kinds of products, but from the requirements of customers as well. These sales people will go to partners, and they will go to customers as well, and talk the full portfolio of Redington and supply the full portfolio. This is a very significant change. If you think of it earlier, one person will go to a partner or to a customer and talk exactly one product and nothing else. Now, a salesperson from Redington goes to a customer or a partner, talks the full solution, full portfolio of all the products we have got across PC, printer, server, storage, network, security, cybersecurity, cloud, every single thing. All that is talked about by one person. Now, that's a futuristic organization. That is an organization that requires investment in training, development, and upgrading the skills of our partners, of our people, and also requires a lot of new people as well in the company. That's the reason you will see that our employee cost is going up, because we are reskilling, and we are also redesigning and... We are also hiring new people for the new way of doing business. A lot of our growth, in my opinion, is now coming because we are now so much more focused on our customer requirement, of course, rather than product onwards. That is a significant shift, and we believe that that is what is really rewarding. It allows us to become visible to far more opportunities, much higher level of opportunities in the market, and hence, being able to fulfill those opportunities as we, as we talk. That's the reason we are shifting our business model from a traditional product distribution to a much more technology aggregator. That aggregation model has to have a mandate of shifting to the employees, to this integrated sales force model as well. What we're also supplementing the sales model is through business model shifts. One shift, like I said earlier, we made was trying to become the best digital distributor in the world. Excuse me. We've got a one Redington, Redington digital platform, Redington Online digital platform, which has started to function. More than 20% of our business in India has shifted to the digital model now already, which is a very, very significant shift. No company does that. A B2B shifting of 20% in less than one year, it's a very, very profound shift. As we go forward, you'll find that customers will get to see much more product solutions and services being offered through the platform in a very consultative sales model. That's something which is important to us, to make it really happen. The other, other, other model that we did was the cloud. Because the market is shifting to everything as a service. They're wanting to buy products as an OpEx model or a subscription model instead of buying a CapEx model, and our, our cloud platform exactly enables that. What we're doing here, the shift in the model is towards a customer-centric, customer choice model. Customers are wanting to buy products in very, very different formats today: outright, OpEx, subscription, as a service. We as Redington, stepping up the game and saying, "Look, we've got technological tech capabilities to fulfill or to engage with our customers in every single domain, in every single manner that we do." Our investments in people are orientated towards the new ways of doing business. They are orientated towards service, building service capability of cybersecurity, of migration in the cloud, and implementation of cloud services. They are oriented towards doing e-commerce business, which is Wipro Online. They are oriented towards getting more certified people in the cloud domain. All in, in employee cost now the cost of employees in our core business has gone down by 1.5% overall last year, year-over-year, okay? Between last year and this year. Whereas the cost of employees in the growth business has gone up by 25+%. That's a significant shift, and I'm, I'm glad that we are getting the benefit of the lift of that shift. Rajiv, thank you. That's, that's very helpful. I'm Aejas's colleague. Just a quick second on this subject. My name is Sharad. You know, we, we understood what you just said. I think we understood it, and it's hard for us as outsiders to really appreciate the depth of what you're doing. I'm sure you're doing the right thing. To simplify for us, I'm sure you have some roadmap of when the significantly higher costs, which have significantly impacted P&L, will justify themselves to P&L. Please give us some roadmap of that. I think that roadmap is available to us. We've got our P&L, we've got an ROI basis. The way we make investments in our company is very ROI-driven. We assess the market, external market, and make the changes and shifts to our to our model. Of course, the next 36 quarters, you will see that each of these investments will be paying back significantly. Our services portfolio has already started to make a bit of a difference to our lives right now. Services have become 3% of my overall cloud business, has become services business now, which is significant. Our, our desire is that over the course of the next three to four years, our services should become 10% of the overall cloud business. The total cloud business is going to be INR 1,000 crore, 10% of that should be services. That services business will come at a very differentiated gross margin profile, maybe 30% or 35%, and that really significantly alters the profile of the overall business of the organization. While the investments start to pay off in the next quarter to quarter very strongly, the overall services transition that we are talking about will take a longer time of three-four years, because services is a domain game. It's not a very, it's a domain game. Okay. You said you work on a return on capital rather than a margin basis. Can you give us how you think about this? When you make a project decision, what time frames and what return on capital metrics does the company work with? Different projects will have different capabilities, depends upon the gestation time that the project will take. Our services business projects have a little bit longer gestation period, because it is such a strong capabilities domain. It's everything capabilities domain, so it will take a longer time in services domain, like I said, three to four years is the time that we are trying to make the shift. That's not about, that's not about getting the returns on, on the services domain. That's about shifting to my goal of services becoming 10% of my cloud revenue. That's a three to four year goal, okay? It's not linked to what investments and what capital becomes relevant, but it's just a shift because it's a very profound shift. When you go to a digital model, a digital model has got two dimensions. It's got a dimension of different shape of the existing business, and then it's got the, the business of expanding outwards into different geographies, into different territories, getting more cross-sell and up-sell, getting more partners coming in to sell, and that, that's a different model. It's a very, very broad model, and I, I think I gave you that in the first call as well. That's the way the model operates. It operates in a very strong business fundamentals of, looking at the project and making sure that those projects are running over the, over the time of the, time of the project. Okay. We'll take a separate call with you then, because we'd like to understand how you are thinking about spend versus, you know, the outcome. Yeah. And we- I would love that. I would love that. I would love that. We please, please set it up. I would love that, because I think you'll get a good sense of how our future is... You know, when we talk about becoming the number one digital distributor in the world, when we talk of becoming the number one provider in the cloud services in the world, how is that vision manifesting itself? You'll get a very, very good sense of that. Okay. We'll get back to you and talk to you later. Thank you so much. Thank you. A reminder to all the participants, kindly limit your questions to two per participant. Should you have a follow-up question, please rejoin the queue. Thank you. The next question is from the line of Kushagra from Old Bridge Capital. Please go ahead. Yeah, hi. Thanks for the opportunity. Just two questions. One, is more of a clarification on the earlier participant's response, which is on the high interest rate environment. Just wanted to get your perspective on the competitive intensity. I mean, you did highlight some strategic initiatives in this high interest rate environment, I just wanted to understand, are you using this time to probably sort of gain more market share by taking in more working capital on the books, which your vendor would also like, which is visible in your credit card deal, probably something which some of your smaller peers may not be able to do? Is this something which can probably lead to more consolidation between the top two players, or you don't see much change in the working capital side of things, and it will largely be a function of how the segment and mix changes? One question I would like to attach with this broader question is, in this whole process, probably, are you also getting work which you otherwise would have avoided, and it may entail higher investments, higher discounts, higher provisioning? Just wanted to get a perspective on this whole thing. That's my first question. Yeah. You got one first question, you got four questions over here, Michael, I'm gonna be taking a shot at each one of them. The first question was on complete intensity and how is it playing out in the markets in which we are operating. Distribution is a very localized business. It operates departments or the competition that we face in India, we don't face in Middle East. The ones which we face in Middle East, we don't face in Turkey or Southeast and all that. It's a very localized sort of a business. As the market conditions have become tougher, in the last one year, one and a half year, we have seen that the space is up for consolidation. It is already happening. We've seen some competitors, even in India, I can share you names with you separately, that we've seen competition in India trying to sell out, cash out, or not being able to function in this relatively market scenario. It's exactly playing out the way, same way, in Middle East and Africa as well, in Turkey as well. You know, the competition which is up for grabs, which can be consolidated, or they are not able to pay their differentials, and by virtue of that, that criteria is becoming. We are getting a, because of share gain or bit of our market gain, also because some of the competition has actually become weak. This happens all the time. When the market conditions become difficult, not every company has the ability or leadership capability, leadership there, to navigate a different environment, so some competitors go away. Our, our, our gaining of, you know, our desire is not to do business, and, and gain share by compromising our profit, or compromising our impact loading of that nature. It's just that since the conditions have become a little better, the receivable cycles from partners are becoming a little longer. The payments from customers have got delayed. The payments from vendors, like Prashant mentioned earlier, have become tighter. All of those conditions are coming together right now in a, in a way where some of these working, working capital gets expanded or extended, just because in at, at the moment, the point in time that we are in right now, all these parameters are working in a certain direction, which is not the direction in which they were working with a 4% or a 5%. Hence, the working capital goes up. It's not about taking a business like that, because that would be irresponsible, and we would never do that as a company. We know that, we know us long enough. Obviously, there is the way in which the customer are paying, the partner ability to pay, and way in which vendors are, they can start with it. If you follow the, if you follow the results of organizations like Dell, Lenovo, HP, IBM, Acer, Microsoft, Apple, Google, you'll get a very, very good example of sense of exactly what I'm talking about from a payment perspective. That's one. The second one, the segment and mix changes. We know for sure when we saw this, in our business model today, there is a shift in the segment. There is a shift in the business mix. Because we used to be more dependent upon more dependent upon our Axis Communications products business earlier, and our growth was a little less in the enterprise products, we've seen a shift taking place. When the learn from home and work from home has reduced, which means the consumer product business has gone down. This is whole industry, okay? We were fortunate or we were, I think, foresight enough to pivot our model towards the more commercial, which is more SME and more enterprise, more government business model, where you have security of projects and security of business and security of payments, all three of them are being secured. That led to a big lift in our TSG, which is technology solution business, which is data center products and solutions and services. That's the reason our growth in TSG this quarter is about 40%. That's a mix shift. Our growth in ASU, which is end point, which is consumer PC and printers and all of that, that is much less. I think you've seen a business mix shift, but all to the advantage of it, because we are able to deliver higher products, higher quality and higher value, and a more value, value distribution for the enterprise and the cloud kind of products, offerings. Next thing will take place. It will continue like this because that is the reality market. Got it. That's, that's quite helpful. The second question is, again, more sort of getting more clarification on your other expenses over a longer term. Last few quarters, you have been speaking about investments in digital currency disruptions and certain geos adding to your cost, right? If I sort of look at your -- if I went through your annual report, two-third of your increase from INR 700 odd crore to INR 1,450 odd crore, is largely on account of bank charges or forex losses and factoring all three put together. If I add travel, 80% of the incremental expenses gets covered. The question really is that FY 2023 was largely investment on account of bank charges, factoring, and FX effect. The digital initiatives, which we have been speaking about, probably, a good part of it will come in FY 2024. There are certain other expenses, like, let's say, rent, warehouse, and sales, promotion, and freight, which has not largely grown. Other expenses remaining flat from FY 2019-2022, and now probably, we will see these other expenses also sort of from, from 14, 15, going forward. Just wanted a, you know, a heads-up or some sort of a color as to how, how, how do you see these growing over the next two, three, four years as well? Yeah, that's my second question. Thanks. Okay. First, let me do a correlation between the investments that Rajiv talked about and the other expenses. Investments will get spread across multiple components. One, investment in people in their new age businesses like the cloud, digital, digital, platform, et cetera, will be part of that, as, as, as compensation. Some part of the investment will be as part of depreciation because these are capital invested. It's just not in other expenses, it's also there as part of the other expense. Second, yes, I mean, we did discuss about factoring charges. With respect to forex and bank charges, very clearly, there are multiple markets which are going through stress in terms of dollar availability, as well as, in terms of the, the depreciation in their currency, and this is across multiple markets. I mean, we discussed about Turkey, Egypt is going through a stress, Sri Lanka was going through a stress. Even now, yes, Bangladesh, Nigeria, and many of the East African markets, I'm only talking about markets where we have presence. With that, it is important, wherever there is a forward contract, it's possible we go for a plain vanilla forward contract. Then that is part of the policy. We have models where it becomes a natural hedge. The challenge comes when you are not able to the U.S. dollar. You have sold, you have realized, the customer has paid you as the realized today. After that, we are not able to repatriate. We are getting stuck in where we have to incur these product losses and the corresponding, the bank charges for remittance, et cetera. Some of these are very unique situation. We are, we are trying to manage as much as possible. I didn't say that it is, it is, it is the best of the situation. We think it will take some time before, before all these get clear, because, I mean, all of us know this is linked to the global, economic situation, and some of these are going to take time in terms of coming out. Wherever we see some product challenges, we are downsizing our business quite significantly, and whatever growth that you see is in spite of that. That is something that we are trying to play in the balance part. Sure. Thanks, Anup, for this. Thank you. We'll take the next question from the line of Pritesh Chheda from Lucky Investment Managers. Please go ahead. Yes, sir. Now, I still, after the whole call, I still don't understand one part, is where, you know, one side you mentioned that your investments will continue for 4-6 quarters. I just want to know the quantum of investments which are running through the P&L. You know, until Q3, we were looking at about 2.5% as kind of a more stable state margin. But what we see now is a substantial difference. So it will be very helpful, first, you quantify the exact amount of these investments, so we can check the, you know, the P&L ex- of these investments. If you could call out to what extent or what timeline these investments are gonna run through the P&L. We're extremely happy with your revenue growth. You know, it's a commendable achievement. When there are deviations in margin like this, you know, it's like a 30%-40% deviations in EBITDA. If you would call out clearly, it would be very helpful for any one of us to understand. Yes. Yes, thank you, Pritesh. If, if I need to tell you the costs of investment across various components, it would be about, between INR 25 crore-INR 30 crore per quarter. That doesn't explain the, the deviation in margins from, you know, you know, what we are seeing. The residual costs, other than the investment, you know, are a more regular cost built up now, which we see in your P&L? Yeah, those are regular costs, but those are inflated now, and we have discussed those components. See, you need to look at it when, when you talk about the operating margin, look at it from the perspective of the gross margin. There is some dilution in the gross margin we discussed. Second is the OpEx increase. The OpEx increase, there is an investment portion, and there is a regular business portion, where some costs have gone up, which over a period of time, will get corrected. We, we talked to you, Pritesh, earlier. What we mentioned to you was there's a gross margin turn-up, which took place, points-. Sir, I understand the GM impact. It's not a substantial number. What you are then saying- Let me, let me complete, let me complete that, so that you get a good, good sense of it. Okay? You talked, you're right, the GM impact, it does get to about INR 30 crore, INR 30 million, that, out of which the GM is INR 25 crore, which is 0.12%, then the balance of INR 20 crore is technology investment, the way Krishnan mentioned, 25%-30% of technology investment in the quarter. Then there was, like you said, the business mix shifting all around. We've seen this situation of Q1, which is unique because normally you don't have such a strong telco business. This is mixed in Q1, which happened for us in last quarter. It will happen. I think we are at a point in time in our journey right now, where this was, this happened, and we are going to be getting back, normally going back to the business mix becoming better and the bottom flattening out and, and we going back to our normal levels. While you may think that this is a new norm, but this is not a new norm. The new norm is going to be where we used to be earlier. I think you'll find us getting back, going back in a very good way. I hope that will round up from your perspective. It's just not a single dimension in business. Can I clarify one thing? The business mix would have flowed or impacted your GP, right? At least, that clarification you could give. Yes. Yes. Okay. Right, other than GP, it's an INR 25 crore cost for tech, which you have called out. Just to conclude here, all the other costs which have got inflated, barring the tech cost and barring the GP, 5 bps because of mix. All the other costs other than the tech use, you are calling out that they will normalize in a subsequent quarter? Yeah. When you say subsequent quarter, I don't want you to take it as Q2. Quarter. We mentioned quarter. Yes, that's the way it is. Yes. Your subsequent was four to six quarters. Yes, that's right. Right. Now, I want to just ask, why are these costs inflated then? As we can understand the tech cost part. No, no, we did, we did now discuss, right? This is in terms of the factoring costs, the cost of, I mean, the products, that, that there was a question about it. These were some of, the one-off issues that are there, being present in multiple markets and this is something that we need to handle. The external environment really is, is not very conducive from a, from a business stand. Okay. Lastly, sir, on the working capital cycle, some quarters back, we had mentioned that we will revert back to the peak, which is a normal number, which was 27-30 days. No, 35 days. Which are 35 days. Okay. There were a few quarters where we mentioned it, no problem. Now these numbers are even higher than that, so where would, where should be working capital stable? Okay. See, what we need to understand, the case is, there is a serious slowdown in the markets, and we have a choice to go with the market or try to outperform. These are some of the levers that are available, as definitely the pendulum is, I mean, as there is a normalization, in a slowdown environment, unfortunately, the pendulum shifts to the other end, and then it will get normalized. We will see this, this getting corrected to as a positive territory, but it will take some time. We are okay. Be rest assured. Okay, sir. Thank you very much. All the best to you, sir. Thank you. Ladies and gentlemen, we would take that as the last question for today. I would now like to hand the conference over to Mr. Rajiv Srivastava for closing comments. Over to you, sir. Okay, all right. Look, I think, thanks so much. I think this is a very, very good engagement, interaction. Appreciate all the questions. If you have any more, more than happy to make sure you please do send them back to us, and we'll be more than happy to clarify or respond to at least every question that you might have. We, like I said, we did have a very robust quarter on, on, on revenue growth, on gross margin. We made sure where we are headed. We exactly have the understanding of where we are headed from a profitability perspective and how to plan it out. We'll come back to, to normalcy very, very quickly because the, there's levers available to us. This is a scale business. This clearly is a business that requires scale. It's clearly the business where it's a winner-takes-all sort of a situation which happens in this business. We've got to be, we've got to be mindful of making the right trade-offs, all the time in business. Trading off, 0.12% of GM, just because, it was a very, very responsible thing, because we wanted to make sure that, we can maintain our business momentum in a difficult environment and demonstrate, the lead that we have. That lead becomes so much more beneficial to any organization, the moment the situation start to become normal in the external financial world. That's exactly the way it is going to play out. We've seen that happen multiple times, and we will see that happen one more time. I'm glad that we maintained the momentum. I'm glad we maintained our gross margin in the, in the ballpark range, and we seem to have a very strong inventory process. India is a very, very good growth. The revenue on all financial parameters did very well. The rest of the world was more challenged because it's different countries behaving, impacting differently. Turkey behaves differently than Nigeria, Egypt. We are making sure that we don't run a financial losses or that or not product losses. All of those got impacted in, in the, the company or this company. I think it is in a very sensibly, very balanced manner to make sure that we stay healthy for the future. Appreciate the interaction, and please reach out if there are any questions. Thank you so much. Thank you. Thank you very much, sir. Ladies and gentlemen, on behalf of Redington Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.