Should large IT distributors enter e-Waste Recycling

Is Rashi Peripherals, among the largest IT distributors in the country, missing a trick by not having entered the e-waste recycling business?

Rashi’s market cap could well get overtaken in 2025 by a e-waste recycling company: Eco Recycling. See the table below. Rashi’s market cap at ~Rs 2800 crore while Eco’s market cap is around Rs 2000 crore. What is astounding is the difference in size (see table below).

Rashi’s net profit is more than 8x the net profit of Eco, while its revenue is 70x greater. In stark contrast, its market cap is just 40% more than Eco. Eco is has risen nearly 3x in 2024, and now quotes at a ~80x, and EV/EBITDA multiple of over 70x.

So why is the market in love with Eco and is giving such high valuation? Among the reasons could be its EBITDA margin, which at 65% is higher than just about any listed company. It is reporting a return on equity of around 30%. These numbers are much lower for Rashi. As a hardware distributor, Rashi operates at an EBITDA margin of 2.3%, while its RoE is around 12%. Also, the market may believe there is tremendous growth potential for e-waste recycling, which is just now beginning to take off.

Now that Eco, the only listed e-waste recycler, has shown that there is good money, and even better valuation, in e-waste recycling, it makes eminent sense for large hardware distributors like Rashi (or others like Redington, Savex etc) to get into recycling. They have strong vendor relationships and access to corporates, which are the two main critical legs of the e-waste business. Corporates can supply old hardware in bulk, while vendors need to act upon e-waste recycling under the Extended Producer Responsibility (EPR) regulations. In fact, we would argue that companies like Rashi are much better placed to do e-waste recycling compared to standalone recyclers, who essentially have a factory for recycling. Setting up a factory is the easy part, the harder part is getting adequate supplies of hardware.

Expect strong competition to mushroom in e-waste recycling. It is not that competition is not there presently. There are 400+ firms registered with the Central Pollution Control Board (CPCB), which is the nodal authority that regulates recycling. However, all these firms are small local companies. Organised companies could be in the process of rushing in to top into the gold rush. Rashi presently talks about a tie up with a firm called Hulladek Recycling. We suspect it could soon be doing this business directly.

 

 

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