Buy GNG Electronics Ltd for the Target Rs 635 by Motilal Oswal Financial Services Ltd
Compounding through sourcing and scale
* GNG Electronics is a scaled, B2B-focused global refurbishment platform for enterprise IT hardware, operating across ~46 countries with an integrated model spanning sourcing, in-house refurbishment, and institutional distribution.
* Its end-to-end operating model enables better control over supply, quality, and channel execution, supporting scalable growth in a fragmented and supplyconstrained market.
* Industry tailwinds remain favorable, led by widening price arbitrage compared to new devices, increasing enterprise acceptance of refurbished hardware, and a gradual shift toward organized players.
* We expect GNG Electronics to deliver Revenue/EBITDA/PAT CAGR of ~26%/~31%/~36% over FY26-28E, driven by volume growth and network expansion. EBITDA margins are expected to improve ~90bp to ~11.3%, supported by favorable mix and operating leverage, while lower borrowing costs support stronger PAT growth.
* We initiate coverage with a BUY rating and a TP of INR635, premised on ~30x FY28E EPS (~22x EV/EBITDA), implying ~44% upside from current levels.
Key risks and concerns
* Revenue concentration remains elevated, with ~66.7% of FY25 revenue routed through the UAE subsidiary, creating meaningful exposure to a single geography despite operational advantages.
* Working capital intensity has increased, with net working capital days rising to 178 (vs 136 in FY25), reflecting higher inventory and receivables and driving reliance on external funding.
* Related-party exposure remains material, with transactions across AEPL (~6.6%), KKOC (~5.4%), and EB Inc. (~8% sales/~7.5% purchases), alongside advances that indicate continued dependence on the promoter ecosystem.
* Supply remains inherently lumpy and non-standardized due to dependence on corporates and ITAD channels, impacting volume visibility and input quality consistency.
* Product concentration persists, with laptops contributing ~75–80% of revenue, limiting diversification and increasing sensitivity to demand and pricing shifts within a single category.
View and valuation
* GNG’s competitive positioning strengthens with scale because sourcing access, refurbishment capability, and institutional distribution reinforce each other over time.
* Larger procurement volumes improve supplier relationships and access to higher-quality devices, which support better recovery rates and realizations.
* Stronger distribution enables faster inventory rotation and procurement visibility, allowing the company to handle larger sourcing programs more efficiently.
* This creates a reinforcing operating loop where scale improves supply access, recovery economics, and distribution efficiency simultaneously, making replication increasingly difficult for fragmented refurbisher.
* We expect GNG Electronics to deliver Revenue/EBITDA/PAT CAGR of ~26%/~31%/~36% over FY26-28E, driven by volume growth and network expansion. EBITDA margins are expected to improve ~90bp to ~11.3%, supported by favorable mix and operating leverage, while lower borrowing costs support stronger PAT growth.
* Nevertheless, business remains structurally working-capital intensive (~45% of revenue), constraining near-term cash conversion, with cumulative CFO of ~INR1.4b over FY26-28E with an FCFF of INR1b.
* We initiate coverage with a BUY rating and a TP of INR635, based on ~30x FY28E EPS (~22x EV/EBITDA), implying ~44% upside, supported by strong earnings and improving capital efficiency.
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