Rashi Peripherals (RPTECH) Q1 FY26: Beyond the Headline Decline, A Strategic Growth Story Unfolds

Rashi Peripherals Limited (RPTECH) recently unveiled its Q1 FY26 earnings, and while the headline numbers might initially raise an eyebrow, a deeper dive reveals a company executing a strategic shift that could set the stage for sustained growth. As an expert financial analyst, let’s unpack the key takeaways and what they mean for RPTECH’s future.

Unpacking the Numbers: A Tale of Two Revenues 📈

At first glance, Rashi Peripherals reported consolidated revenue of INR 31,521 million, a seemingly significant 26% decline year-on-year (YoY). But hold that thought! The real story lies in what management termed the “core distribution business.” When you exclude a massive project deal from Q1 FY25 (the NMDC Yotta deal, worth approximately INR 1,500 crores), RPTECH’s underlying revenue actually grew by a robust 11.4% YoY. This immediately tells us that the company is consciously prioritizing profitable, repeatable business over one-off large projects, a move often favored by astute investors.

This 11.4% growth aligns well with the broader Indian economic narrative of strong domestic demand, as the company primarily serves the rapidly expanding Indian IT and electronics market.

Orders and the Path Ahead: Choosing Quality Over Quantity

Unlike many B2B businesses, RPTECH operates a significant run-rate business, but large project orders do play a role. In Q1 FY26, the company made a strategic choice to not execute sizable large project orders, a stark contrast to the previous year. This decision, as management explained, was driven by a focus on better margins inherent in their run-rate segments.

However, this doesn’t mean the project pipeline is dry. Management indicated that “multiple opportunities for large deals are in the pipeline for Q2, Q3, and Q4.” Crucially, RPTECH is now evaluating these opportunities with a sharper eye on Return on Capital Employed (ROCE) and margins, acknowledging increased competition in this space. This shift suggests a more disciplined approach to capital allocation and profitability, which is a positive sign for future earnings quality. The pending government 10,000 GPUs order is also something to watch for in Q2.

Sales Performance: Volume, Price, and Strategic Tailwinds

The underlying 11.4% sales growth in the core business is a testament to strong market positioning and execution. This growth is being propelled by several macro and micro factors:

• PC Market Revival: The domestic PC market is a key driver for RPTECH (Personal Computing & Peripherals segment is 57% of revenue). With global players like Dell and ASUS pushing AI-powered PCs and Lenovo focusing on local manufacturing, the market is ripe for growth.
• Windows 10 End-of-Life: Microsoft’s planned end of support for Windows 10 in October 2025 is anticipated to trigger a major upgrade cycle in H2 FY26. This is a significant tailwind, potentially boosting market growth by 12-14%.
• New Business Verticals: RPTECH’s strategic expansion into new areas is also bearing fruit:
  • Surveillance Business: Gaining “significant traction,” expected to grow to “much more than a 3-digit figure in crores” annually.
  • Quick Commerce: Leveraging existing infrastructure for 15-20 minute deliveries, this business is projected to more than double this fiscal year.
  • Embedded Vertical: Demonstrating robust growth of over 30-35% YoY in Q1 FY26, driven by the automobile sector and project wins.
• Strategic Brand Additions: Four new brands (MSI, Norden, Riello, ALOGIC) were added, complementing the existing portfolio and enhancing growth potential.

This multi-pronged approach to sales growth, driven by both market trends and new initiatives, positions RPTECH as a fast grower in its segment. The emphasis on volume growth from both traditional channels and new segments looks promising.

Earnings: Margin Expansion and the Sustainability Question

RPTECH truly shone on the profitability front in Q1 FY26:

(Note: Q1 FY25 EBITDA margin, excluding large deals, was 2.68% as per management.)

The EBITDA margin significantly expanded to 3.5% from 2.1% (or 2.68% adjusted) in Q1 FY25, and PAT margin rose to 2%. This impressive jump was primarily attributed to the focus on higher-margin run-rate businesses, growth from regular channels and organized retail, and favorable exchange rates.

However, management provided a tempered view on the sustainability of this high margin, guiding for a long-term annualized sustainable EBITDA margin in the range of 2.5% to 2.7%. While this means the Q1 margin might be an outlier, a consistent margin in the 2.5-2.7% range would still represent healthy profitability for a distribution business and demonstrate operational efficiency. The earnings growth is clearly driven by revenue growth and improved margins, with no mention of significant ‘other income’ contributions. This positions RPTECH as a company committed to core business profitability.

Working Capital: A Temporary Blip?

Working capital days increased to 73 in Q1 FY26, up from a typical average of 50-55 days. Management attributed this to two key factors:

1. A sizable debtor payment delay (around 8 days impact), which is expected to normalize within 10-15 days.
2. Strategic moves to avail early payment incentives from brands, leading to reduced creditors (4-5 days impact).

The company clarified that these are not structural issues and the working capital cycle is expected to normalize within a quarter. For a distribution business, efficient working capital management is crucial, and investors will want to see this normalization in the upcoming quarters. Receivables should not outpace sales growth, and management’s commitment to normalizing this indicates proactive financial management.

Financing: Steady Course

As of June 30, 2025, RPTECH’s gross and net debt stood at approximately INR 1,190 crores. This level of debt, in the context of their business scale and profitability, appears manageable. There were no major shifts in the capital structure or new equity/debt issuances highlighted, suggesting a stable financing approach. The company’s ability to fund its CapEx (if any, though not explicitly mentioned for Q1) and working capital needs will be key moving forward.

Other Strategic Moves and Clarifications

• ZNet Technologies Disinvestment: RPTECH divested its 51% stake in ZNet Technologies. The rationale was clear: the cloud business subsidiary did not achieve profitability within the expected timeframe. This pragmatic decision to exit a non-performing asset reflects disciplined capital management and a willingness to course-correct, while still exploring future cloud opportunities.
• Contingent Tax Claim: A contingent liability of approximately INR 400 crores related to GST inquiries was addressed. Management confidently stated that they are “fully compliant,” replies have been satisfactory, and they “don’t see any concern in future or any risk.” This suggests a standard regulatory inquiry rather than a material financial threat.
• Inventory Obsolescence: The company maintains “minimum risk” on inventory obsolescence due due to brand support, competitive repricing, and advance warnings for new technology. While provisions are made, historically, “no significant actual write-backs” have occurred, which is reassuring.

Investment Insight: A Growth Story with Nuances

Rashi Peripherals is certainly charting a course for growth, targeting 2x the market growth for FY26 (aiming for double-digit growth against projected market growth of 6-9%). This ambition, coupled with its strategic focus on high-margin run-rate businesses, new vertical expansion, and effective cost management, positions it as a fast grower.

Key Takeaways:

• Strong Underlying Growth: Don’t be misled by the reported revenue decline; the core business grew impressively by 11.4%.
• Profitability Focus: The significant margin expansion in Q1 demonstrates a conscious shift towards higher-margin business, though sustainable long-term margins are guided lower.
• Strategic Positioning: RPTECH is well-placed to capitalize on the upcoming PC upgrade cycle and digital demand from non-metros, aligning with India’s domestic-growth themes.
• Disciplined Capital Allocation: The scrutiny of large deals and divestment from ZNet Technologies highlight management’s commitment to profitability and efficiency.
• Working Capital Watch: Keep an eye on the normalization of working capital days in the next quarter.

Overall, Rashi Peripherals’ Q1 FY26 performance paints a picture of a nimble, strategically evolving company. While the distribution business inherently operates on tighter margins, RPTECH’s focus on profitable growth segments and operational discipline makes it an interesting play in the robust Indian IT distribution landscape.

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