Funding is not strong in industry

PS Neogi, president, Redington, India's second largest IT distributor, talks to The DQ Week on the recent developments in the company, credit policy of IT and future strategies.

Challenges in the credit policy

Investments plays a key role in any business and IT is no exception. It is necessary that every player in the supply chain invests in the business from vendor to partner to customer. Over the period of few months, the cost of money has gone up drastically which has affected the credit policy to undergo big changes in the market.

While elaborating on Redington's credit policy, Neogi says, "Redington's credit policy is desinged keeping in mind the products and customer segments where the products are getting sold. Our credit policy is same for all the channel partners including large retailers."

Further elaborating on the risk involved in credit, Neogi pointed out that vendors need to understand distributors and partners on the credit risk, payment delays and cost of money. Usually, what happens is a distributor extends credit to its partner mostly for a period of 30 days and then the distributor waits for the payments due from partners. The distributor approaches partner for his payment on the due date, but the partner requests the distributor not only to extend his credit period but also asks for more goods so that he can recover both his margin and the rate at which the partner had agreed to pay back.

"That becomes difficult for us as witnessing delay in payments cost us also and industry too. Also the funding is not very strong for us. We are charging less than 20 percent of cost from the partners still the problem persists. However, Redington has tight monetary policy by banks which put pressure on working capital availability with partners," he added.

Further explaining he said that some partners may require more prudence while structuring their business and credit offering to their own customers; purchases by partners in excess of their capacity to rotate capital all this may lead to challenges to a distributor in maintaining his credit cycle. He said, "But over the period of time, we have noticed that our channel partners have also matured a lot and understand the requirements of control and due diligence on the part of the distributor."

Earlier, while speaking to the DQ Channels on the credit policy vs cash n carry policy, Neogi said that There can not be any disadvantage of a cash n carry policy. The issue is that the expectation of the extent of cash discount from a distributor is not in line with the actual cost of funds. Distribution margins do not allow for cash discount disproportionate to the cost of funds. Hence, Redington very rarely transacts business on cash discount. A cash n carry policy would offer security with very thin margins. A credit policy retains much better margins at a high risk.

Developments in Redington

In June this year, when the Tier-4 data center services provider CtrlS appointed Redington to distribute its cloud services in India, Redington's growth in the cloud services sector has been significant. Neogi said that while cloud services still needs to gain user acceptability across the domain, it is very essential for distributors to understand the whole dynamics of cloud services and in the future they will have a key role to play in the cloud economy.

Speaking on the growth in infrastructure and enterprise IT projects, Neogi said that Redington is seeing much growth in India II segment where the current growth rate is approximately 28 percent. He says, "We have active partners which are around 7,000 quaterly and we are planning to add more partners in the furure."

Redington added several new customers to its fold by focusing on creating value for its partners. The cost-effective management of logistics helped the bottomline. Redington sees high potential in SME segment in the days to come. It also wants to concentrate on tier-II and tier-III cities where it expects business to grow exponentially. From products perspective, the second largest distributor of the country sees potential in storage, packaged software and Internet-based products.

Future strategies

Neogi pointed out that Redington has plans to focus on cloud infrastructure services in the future and also on developing enterprise and networking business. "We are seeing much growth in enterprise and networking business in the coming years and therefore, our focus will be more towards these areas."

"We will continue to augmnent our credit policies and improving our relationship with channel partners. We have moved our business to smaller cities and we are hoping to get profit from these areas too," he added.