X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
HCL Infosystems: Repositioning - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Feb 10, 2001

    HCL Infosystems: Repositioning

    Being a pioneer no longer suffices. HCL Infosystems (HCL) one is one such example. The company promoted by the Shiv Nadar group was one of the pioneers in the branded Personal Computers (PC) market in India. Even then its revenues stagnated for a continuous 3 years (1995-1997). But that was 1997. Cut to 2001 and HCL Infosystems finds place in the prestigious NSE Fifty Index. How did this happen? Let’s take a look.

    HCL Infosystems started operations in 1990. Due to its quality and service the company soon became a market leader in the PC segment. However, the company faced a double whammy. The branded PCs are priced for the premium sector and therefore, were out of reach of the retail customers. Therefore, when the business segment started stagnating HCL had tough times. The primary reason for the stagnation in revenues was the fierce competition from multinationals like Hewlett-Packard and Compaq on one hand and local assemblers on the other hand, which had resulted in falling margins and almost flat volume growth.

    Faced with this scenario, the management decided to change its strategy and made a thrust towards software. The move towards software was started about four years ago in 1997. Ever since, the company has been making conscious efforts to increase the contribution of software services. The strategy showed results. The contribution from services to its revenues increased to 23% in the first half of fiscal year 2001, as compared to 12% in fiscal year 2000. Encouraged by this, the company is now looking to be an end-to-end (E2E) solution provider.

    (Rs m) 1QFY01 2QFY01 Change
    Sales 2,926 2,826 -3.40%
    Other Income 21 4 -82.60%
    Expenditure 2,703 2,600 -3.80%
    Operating Profit (EBDIT) 222 226 1.90%
    Operating Profit Margin (%) 7.60% 8.01%  
    Interest 4 10 160.00%
    Depreciation 27 31 14.70%
    Profit before Tax 212 189 -11.00%
    Tax 20 14 -30.00%
    Profit after Tax/(Loss) 192 175 -9.10%
    Net profit margin (%) 6.60% 6.20%  
    Diluted number of shares 31.9 31.9  
    Diluted Earnings per share* 24.1 21.9  
    *(annualised)      

    But success in software did not mean that the company overlooked its hardware business. The company still had a market share of 15.5% in PCs during fiscal 2000. However, worries on the volume growth continue to haunt it. HCL managed to push its PC volumes by a mere 12.5% in a year when PC shipments, according to International Data Corporation (IDC) estimates, crossed the one million mark and the home PC segment grew by a significant 88% in unit terms. The overall PC market grew by 37% during the period.

    The company plans to offer solutions right from IT consulting to hardware to facilities management. This is a strategy that has one of the best chances of success. As increasing number of large organisations (Fortune 500) are looking towards outsourcing their IT needs, they are looking at partners who can take care of all their IT requirements. But the space is clearly divided amongst hardware and software companies. Infosys can provide software solutions but it is definitely not into hardware. But HCL Infosystems, is in the unique position to offer both software and hardware solutions together.

    Another market that has just started to grow is the application service provider (ASP) market. Due to the nature of the services, the industry in going to be a low margin one. The only way companies can make profits are by cutting costs.

    HCL has the advantage of in house hardware, thus resulting in low infrastructure costs. HCL is going to leverage in this space through HCL Infinet, a subsidiary, which provides services in the B2B and B2C space. HCL Infinet’s offerings include Internet services, virtual private network and co-location web hosting. The division will soon start B2B exchanges and ASP services. Once this is done the company will be able to provide B2B infrastructure (datacentres, hardware software network support services), its software (like ERP and CRM) and a platform to transact on for its clients. It will score over its competitors in the areas of infrastructure cost and experience in facilities management.

    Due to a drop in PC sales HCL’s topline dropped in 2QFY01. However, the services have shown a healthy growth of 50% year on year. The increased contribution of services has managed to improve HCL’s margins by 40 basis points.

    HCL Infosystems plans to increase its services revenues to 25% of its total revenues in the next couple of years. With for hardware, the contribution of services is expected to increase to 50% in about five years time.

    The positive for the company is that it has been and still is a leader in its area of operations in face of severe competition. Its foray into services will serve as the icing on the cake.

     

     

    Equitymaster requests your view! Post a comment on "HCL Infosystems: Repositioning". Click here!

      
     

    More Views on News

    Tech Mahindra: Our Revised View (Quarterly Results Update - Detailed)

    Aug 2, 2017

    A better than expected turnaround in performance results in a change in view.

    Wipro: A Decent Start to the Year (Quarterly Results Update - Detailed)

    Jul 27, 2017

    Digital services drive growth for Wipro in 1QFY18.

    Infosys: A Decent Start to FY18 (Quarterly Results Update - Detailed)

    Jul 14, 2017

    Infosys starts FY18 on an encouraging note with a stable performance.

    TCS: Currency Volatility Plays Spoilsport (Quarterly Results Update - Detailed)

    Jul 14, 2017

    TCS starts FY18 decently despite an adverse currency impact.

    HCL Tech: Ends FY17 on Expected Lines (Quarterly Results Update - Detailed)

    Jun 29, 2017

    Volvo partnership caps a good year for HCL Technologies.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    HCL INFOSYS SHARE PRICE


    Aug 21, 2017 (Close)

    TRACK HCL INFOSYS

    • Track your investment in HCL INFOSYS with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks

    HCL INFOSYS 8-QTR ANALYSIS

    Detailed Quarterly Results With Charts

    COMPARE HCL INFOSYS WITH

    MARKET STATS