Rashi Peripherals
- Rashi Peripherals is coming out with a 100% book building; initial public offering (IPO) of 2,03,38,983 shares of Rs 5 each in a price band Rs 295-311 per equity share.
- Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
- The issue will open for subscription on February 7, 2024 and will close on February 9, 2024.
- The shares will be listed on BSE as well as NSE.
- The face value of the share is Rs 5 and is priced 59 times of its face value on the lower side and 62.20 times on the higher side.
- Book running lead managers to the issue are JM Financial and ICICI Securities.
- Compliance Officer for the issue is Hinal Tejas Shah.
Profile of the company
Rashi Peripherals is among the leading national distribution partners for global technology brands in India for information and communications technology (ICT) products in terms of revenues and distribution network in Fiscal 2023. The company was incorporated in 1989 and has more than 34 years of experience in distribution of ICT products in India. The company commenced operations with manufacturing of peripherals. With the liberalization of the Indian IT sector in 1991, it transitioned to distribution of ICT products of global technology brands in India. It has been instrumental in facilitating the entry of a number of global technology brands and was among the select players that led the formalization of the fragmented and unorganized ICT products distribution in India. Over the years, it has continually expanded its operations and between Fiscal 2002 and the six months ended September 30, 2023, the company distributed 311.89 million units (including shortages of certain items, and items given free, if any) of ICT products.
The company primarily operates into two business verticals; i) Personal Computing, Enterprise and Cloud Solutions (PES): Under this vertical the company distributes personal computing devices, enterprise solutions, embedded designs/ products and cloud computing; and ii) Lifestyle and IT essentials (LIT): This includes the distribution of products such as (a) components that include graphic cards, central processing units (CPUs) and motherboards; (b) storage and memory devices; (c) lifestyle peripherals and accessories that include keyboard, mice, web cameras, monitors, wearables, casting devices, fitness trackers and gaming accessories; (d) power equipment such as UPS and invertors; and (e) networking and mobility devices.
The company’s Pan-India distribution network comprises 50 branches that operate for sales and as service centers and 63 warehouses, as of September 30, 2023. Through its branches and warehouses, it is able to cover 680 locations in India, as of September 30, 2023. It distributes products primarily through the three channels: i) General Trade: Includes Hybrid Resellers who sell to online marketplaces and retail channels, regional distributors (RDs), stockist partners or sub-distributors, retailers, brand stores, system integrators (SIs), original equipment manufacturers (OEMs) and corporate resellers who sell to corporate customers, all of which are collectively referred to as Channel Partners; ii) Modern Trade: Includes large format retail (LFR), multi-format retail (MFR) and small format retail (SFR) chains; and iii) E-Commerce: Includes certain of India’s leading online marketplaces.
Proceed is being used for:
- Prepayment or scheduled re-payment of all or a portion of certain outstanding borrowings availed by the company.
- Funding working capital requirements of the company.
- General corporate purposes.
Industry overview
With increasing penetration of internet connectivity across the geographies of rural and urban India, the number of smart phones, social media users and online shoppers in India is on the rise. Supported by various government initiatives under Digital India Initiative to strengthen the existing digital infrastructure, affordable internet services in which primacy of mobile internet as major feature of digital landscape. IT penetration in non-metro cities in India have increased due to penetration of smartphones, Government enabled village knowledge centres leading to increased awareness which in turn is driving demand for ICT products for personal consumption. Non-metro cities and other rural geographies are becoming centre of consumptions for ICT products like personal computers, smartphones, internet devices, networking devices and hence there is requirement for ICT distributors and resellers having pan India presence. India is expected to grow continuously across the digital use-case funnel which will be driven by the affordability of Internet, continuous improvement of in telecommunications infrastructure, increased adoption from Tier 2+ cities and rising popularity of social media and growing trust and adoption of online payment platforms.
The ICT sector significantly contributes the country’s GDP; ICT sector includes value arising from Information Technology enabled Business Process Outsourcing (ITeBPO), e-commerce, domestic electronics manufacturing, digital payments, digital communication services (including telecom), etc. The role of ICT has been shifted to business model transformation and revenue growth from cost optimization and process automation. From Small and Medium Businesses (SMBs) to global organizations, companies are embracing digital transformation to achieve their business objective. Key themes driving the ICT investments include omnichannel client experience, zero touch operations, digital workplace, and digital product engineering. Hybrid cloud adoption including cloud consulting, deployment, and management services and even more pervasive. Companies are embracing digital technologies to align their cost structures, increase business resilience, personalise experience for their customers and employees which have been accelerated because of COVID-19 pandemic.
The ICT products industry witnesses intense price competition, owing to which gross margins are typically low. Globally, the Electronics and ICT products market is expected to grow at a CAGR of 14% between 2020 and 2025 and is projected to cross approximately $350 billion in sales by 2025. Growth in demand for storage devices, laptops, accessories, networking devices and artificial intelligence machines are expected to drive the demand for ICT products in India going forward. India’s IT Spends includes the IT spends on the products (hardware, software) and services. In 2022, all sub-segments within IT spends have depicted growth, however devices, enterprise software and IT services have grown fastest in last two years owing to the positive impact of the pandemic on technology industry. IT Spending is projected to reach a value of Rs 10,870 billion by 2025 growing at a CAGR of 10%.
Pros and strengths
Leading and fastest growing Indian distribution partner for information and communications technology products: The company is among the leading technology integrated national distribution partners for global technology brands in India for ICT products in terms of revenues in Fiscal 2023. The company is also one of the fastest growing national distribution partners for global technology brands in India in terms of revenue growth between Fiscal 2021 and Fiscal 2023. Its revenue from operations grew at a CAGR of 26.32% from Rs 59,250.48 million in Fiscal 2021 to Rs 94,542.79 million in Fiscal 2023 and were Rs 54,685.10 million in the six months ended September 30, 2023. It distributes a range of ICT products such as personal computing, mobility, enterprise, embedded solutions, components, lifestyle, storage and memory devices, UPS and accessories, manufactured by global technology brands. It also distributes cloud computing solutions. The wide variety of products of global technology brands that it distributes has helped it to achieve economies of scale and provide Channel Partners with a single sourcing point.
Pan-India and multi-channel distribution footprint: As of September 30, 2023, the company had one of the largest ICT products distribution networks in India. It operated branches in 50 cities that operate as sales and service centers and warehouses, covering 680 locations in 28 States and Union Territories in India through an ecosystem of 8,407 customers, as of September 30, 2023. The company act as one-stop shop catering to business-to-business (B2B) customers. It maintains a multi-channel mix to avoid risks associated with dependence on any single channel. The company’s channel mix primarily comprises General Trade, Modern Trade and E-commerce channels. Its multi-channel mix also allows it to serve a diverse customer base.
Long-term relationships with marquee global technology brand: The company maintains long-term relationships with several marquee global technology brands from whom it procures ICT products that it supplies to its customers. As of September 30, 2023, it served 52 global technology brands. Global technology brands undertake continuous research and development and introduce new products from time-to-time. These global technology brands also have extensive supply chain capabilities which ensures availability of their products. In its experience, these factors result in greater brand recall for such global technology brands which facilitates the sale of their products.
Diversified and comprehensive product portfolio and solutions: Between Fiscal 2002 and Fiscal 2023, the company distributed 311.89 million units (including shortages of certain items, and items given free, if any) from global technology brands, enabling it to satisfy customer requirements for seamless product availability and meet end-user demand for multi-vendor and multi-product IT configurations. Over the years, it has continuously added products across sub-segments like lifestyle, components, networking, personal computing, storage and memory, mobility, enterprise and embedded solutions. Its support services are intended to link its customers and global technology brands with it as a one-stop provider of ICT products and related services. It also provides cost-effective services such as arrangements for financing support and project-based finance through third party financial institutions.
Risks and concerns
Significant revenue comes from products manufactured by global technology brands: The company imports ICT products of certain global technology brands. The ICT products that the company returns to global technology brands owing to defects or quality control concerns are reflected in the audited financial statements of the company as ‘exports’. Further, (i) products that are sold by its Subsidiary incorporated in Singapore, Rashi Peripherals Pte. Ltd., to countries outside Singapore, (ii) products that are sold by its Subsidiary incorporated in India, ZNet Technologies Private Limited, to countries outside India, and (iii) products that are sold by the company’s branch located in Singapore, to countries outside Singapore, are each recorded as exports. The company’s inability to handle risks associated with import and export of products could affect its business and revenue from operations.
Dependency on global technology brands: As of September 30, 2023, the company was a national distribution partner for 52 global technology brands that include ASUS Global Pte. Ltd., Dell International Services India Private Limited, HP India Sales Private Limited, Lenovo India Private Limited, Logitech Asia Pacific Limited, NVIDIA Corporation, Intel Americas, Inc., Western Digital (UK) Limited, Schneider Electric IT business India Private Limited, Eaton Power Quality Private Limited, ECS Industrial Computer Co., Ltd., Belkin Asia Pacific Limited, TPV Technology India Pvt Ltd., LG Electronics India Pvt. Ltd. and Toshiba Electronic Components Taiwan Corporation. In Fiscals 2021, 2022, 2023 and the six months ended September 30, 2022 and September 30, 2023, the revenue from the top five global technology brands whose products it distributed was Rs 42,906.45 million (72.42%), Rs 65,445.03 million (70.27%), Rs 64,115.41 million (37.82%), Rs 34,647.66 million (68.97%) and Rs 36,711.89 million (37.13%), respectively. The company is not involved in the innovation of products, or in quality control of products manufactured by the global technology brands that it distributes. If the company fails to maintain its reputation or increase positive awareness of ICT products, or the quality of products declines due to its global technology brand partners being unable to maintain the required quality at their end, its business, financial condition and results of operations may be adversely affected.
Reliant on its relationships with certain online marketplaces: The company is witnessing a growth in competition from online retailers who have been able to offer products at competitive prices. E-commerce has emerged as the most preferred channel in last six - eight years owing to the availability of brands and their entire product range along with competitive pricing, when compared to any offline point of sale. E-commerce platforms have led to an increase in demand of technology products in the country by allowing ease of browsing, product availability and timely delivery. The company is reliant on online marketplaces for the sale of a portion of the products that it distributes, and in Fiscals 2021, 2022 and 2023 and the six months ended September 30, 2022 and September 30, 2023, Rs 11,088.69 million, Rs 12,896.05 million, Rs 12,192.35 million, Rs 7,734.71 million and Rs 11,115.42 million or 18.71%, 13.85%, 12.90%, 15.40% and 20.33%, respectively, of its revenue from operations was derived from its sales to online marketplaces.
Significant credit exposure to its Channel Partners: The company extends credit to its Channel Partners and other customers for a significant portion of its sales to them. Resellers have a period of time, generally 30 to 60 days after the date of invoice, to make payment. As a result, it is susceptible to the risk that its customers will not pay for the products they purchase. In Fiscals 2021, 2022 and 2023 and six months ended September 30, 2022 and September 30, 2023, the company has initiated legal action to recover Rs 49.70 million, Rs 43.54 million, Rs 6.24 million, Rs 4.09 million and Rs 18.34 million, respectively, or 0.08%, 0.05%, 0.01%, 0.01% and 0.03% of its revenue from operations, respectively, of products which it had provided to customers on credit. The company’s credit exposure risk may increase due to liquidity or solvency issues experienced by its Channel Partners or customers as a result of an economic downturn, including the current downturn, or a decrease in ICT spending by end-users. If it is unable to collect payment for products distributed by it to customers or if such customers are unable to pay for the products in a timely manner, it will be more difficult or costly to utilize receivable-based financing, which could negatively impact its297 cash flow and liquidity position.
Outlook
Rashi Peripherals is a company that distributes global technology brands in India. It specializes in products related to ICT or Information and Communication Technology. The company's service offerings include value-added services such as pre-sales, technical support, marketing services, credit solutions and warranty management services. As of September 30, 2023, the company is the national distributor for 52 global technology brands and has 50 branches, and 63 warehouses across India, with 8657 distributors across 680 locations in 28 States and Union Territories in India. On the concern side, the company earns a significant portion of its revenue from operations from products manufactured by global technology brands that it imports into India. In addition, its Subsidiaries, Rashi Peripherals Pte. Ltd. and ZNet Technologies Private Limited, and its branch situated in Singapore, are engaged in export of products. The company’s inability to handle risks associated with import and export of products could affect its business and revenue from operations.
The company is coming out with an IPO of 2,03,38,983 equity shares of face value of Rs 5 each. The issue has been offered in a price band of Rs 295-311 per equity share. The aggregate size of the offer is around Rs 600.00 crore to Rs 632.54 crore based on lower and upper price band respectively. On performance front, the company’s total income increased by 1.58% from Rs 93,219.21 million in Fiscal 2022 to Rs 94,689.47 million in Fiscal 2023, primarily due to an increase in its revenue from operations and other income. Moreover, the company’s restated profit after tax was Rs 1,233.43 million in Fiscal 2023 compared to Rs 1,825.11 million in Fiscal 2022. The company currently commands a certain wallet share of such global technology brands and there is potential to grow its wallet share. As part of its strategy, the company intends to leverage its existing distribution capabilities, offerings and experience to increase wallet share from existing global technology brands. With its multiple warehouses present across India, the company can stock additional inventory and also facilitate faster delivery of the products. The company’s understanding of the ICT industry and relationships with its vendors will enable it to expand the scope of its current services as well as provide additional services in new areas and segments to such global technology brands. Going forward, the company intends to increase its geographic penetration of existing global technology brands into different states and in particular focus on tier II and tier III cities. In regions where it intends to grow its share with a particular vendor, it plans to engage in focused marketing activities and introduce additional programmes.
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