HCL Infosystems Presentation

HCL Infosystems Presentation

HCL Infosystems Analyst Presentation

HCL Infosystems Analyst Presentation

HCL Infosystems - Target - 83

HCL Infosystems - Target - 83

HCL Infosystems - Re-rating on Cards

HCL Infosystems - Re-rating on Cards

HCL Infosystems

HCL Infosystems

HCL Infosystems

HCL Infosystems

Infotech Enterprises, HCL Infosystems, Hexaware, Infotech Enterprises

Infotech Enterprises, HCL Infosystems, Hexaware, Infotech Enterprises

HCL Infosystems

We recommend a buy in HCL Infosystems from a short-term perspective. It is evident from the charts of HCL Infosystems that after forming a bottom reversal pattern (double bottom) between November 2008 and April 2009, it began to move northward. However, within this uptrend, the stock was on a medium-term corrective downtrend from Rs 132 to Rs 98. Taking support around Rs 100, the stock resumed its uptrend in middle of July. Recently the stock breached its 21- and 50-day moving averages. Both daily and weekly relative strength indices (RSI) have entered the bullish zone from the neutral region. We are bullish on the stock from a short-term perspective. We expect the stock’s up move to continue until it hits our price target of Rs 130. Traders with a short-term perspective can buy the stock while maintaining a stop-loss at Rs 112.

via BL

HCL Infosystems

Investors can retain their holding in HCL Infosystems, keeping a two-three-year horizon, in light of the company’s ability to tap into domestic IT hardware market, especially from the government and banking sectors.

At Rs 115, the stock trades at nine times its likely 2008-09 per share earnings, which is about the levels which its peer CMC is trading at despite the fact that the latter enjoys much higher profit margins. HCL’s EBITDA margin stands at 4 per cent as against the 22 per cent margins enjoyed by CMC.

The HCL stock, however, gave a dividend yield of nearly 5 per cent at its current market price. Hardware, especially personal computers, shipments have gone down significantly in October-December 2008 for most players across the world and may take a few quarters to pick up. Penetration levels in PC, telecom and office automation products in India, are still very low in India and hence the demand is likely to be much higher compared to western geographies.

Given that HCL Infosystems continues to make inroads in most e-governance initiatives and win substantially large deals (in the range of Rs 500 crore), its intact leadership in desktop PC sales in India and improved contribution to revenues from high-margin services component augur well for revenue visibility and margin expansion. These apart, the company’s partnership with Nokia (leader in domestic mobile handsets) for handset distribution, which now includes selling Nokia’s value added services, may provide volume growth given that mobile subscriber addition is still robust.

In the recent March quarter, HCL saw its revenues grow by a marginal 0.5 per cent to Rs 2,996.2 crore over the same period in 2008. But in terms of segmental revenues, its computer systems and products division has witnessed a 5 per cent growth in revenues over this period. But revenues from its telecom products and office automation division, which predominantly involves reselling of hardware has witnessed a marginal decline.
Computing products and solutions shine

HCL continues to be among the top three players in the Indian computer sales (desktops and laptops) business. It enjoys a combined market share of 9.6 per cent in computer sales and shares the top slot with HP in desktop sales with a 10.6 per cent market share, according to a recent IDC report. Given that laptop sales are increasing and the fact that HCL has tied up with Microsoft to provide low-cost laptops (which enjoys higher margin), there is scope for profit margin growth.

According to IDC, the domestic IT Hardware market in 2009 is expected to grow by 7.1 per cent over 2008 to Rs 63,703 crore. This is likely to be driven by government spending on IT enablement across various ministries, e-governance initiatives and spending by verticals such as banks, power, railways and the like. HCL Infosystems with existing relationship is likely to gain substantially from catering to these segments.

Recent large deal executions for various segment such as the railways for ticket-vending kiosks, BSNL for convergent billing and the Airforce for building VoIP network, Himachal State Electricity Board for billing solutions, meter reading etc, a government of India project executed in Africa are testimony to the fact HCL has a wide-ranging capabilities across sectors. Most of these deals are over Rs 100 crore; some of them are very large in the Rs 500-crore category.

In the private sector, the company has deal wins from several banks and insurance companies and media and entertainment companies (including broadcasting) which are end-to-end in nature and provide long-term revenue visibility.

The repeat order scenario also looks favourable to HCL. These include orders from the railways, banks, insurance companies, state electricity boards and media companies. HCL has also won a deal to automate judiciary operations across the country.

In all these cases, given the transaction intensive nature of businesses, HCL may benefit from updates and upgrades that may be required periodically.

Another interesting development over the last one year has been the thrust on system integration based deals that involve substantial service components and enjoys relatively higher margins. In the recent March quarter, services revenues were up by 48 per cent over 2008 and stood at Rs 193 crore.

Finally, with the re-election of the UPA government, e-governance initiatives may continue at a faster clip, which gives HCL an edge in furthering its relationships,
Telecom products to drive volume growth

HCL’s distribution of Nokia handsets albeit within a smaller geography may rake in volume led growth for the company. The fact that telecom operators continue to add around 8-9 million subscribers every month, further amplified over the last four-five months after Reliance Communications’ GSM foray, may bode well for the company as Nokia enjoys market leadership in the mobile handset space.

The relationship between Nokia and HCL is set to strengthen further with the formation of a JV that would be engaged in selling value added services for mobile customers.

The company sells a whole host of ‘digital lifestyle’ products of global brands such as Apple, Ericsson, Kodak, Microsoft, and Toshiba.

Recently, it has tied up with Cisco Linksys, for distributing networking products. Although hardware sales around the world may slow down, in India, this may not be as pronounced, given that IT and hardware enablement is still nascent.
Risks:

Competition in government deals, especially from Wipro Infotech which has won a large number of such orders, is a factor to watch out for. CMC which has shifted focus from pure hardware sales to system integration deals may offer price competition.

via BL

HCL Infosystems

We recommend a buy in HCL Infosystems from a short-term trading perspective. It is evident from the charts of HCL Infosystems that it was on a long-term downtrend from its January high of Rs 299 till it found support at Rs 64 – its 52-week low – in November. However, after finding support, the stock reversed direction triggered by the positive divergence in both daily as well as weekly relative strength index (RSI).

In early December the stock breached its long-term down trend-line which was in place since January. The stock has been on a new medium-term up trend since its 52 week low. On December 24, the stock penetrated its 50-day moving average by gaining 4 per cent, reinforcing the bullish momentum.

The daily RSI has entered in the bullish zone from the neutral region and the weekly RSI is on the brink of entering the neutral region. Moreover, the daily moving average convergence and divergence (MACD) has entered in to the positive territory. Our short-term forecast is bullish for the stock.

We expect HCL Infosystems to move up until the stock hits our price target of Rs 93 in the forthcoming trading sessions. Traders with short-term perspective can buy the stock while maintaining a stop-loss at Rs 78.

HCL Infosystems

HCL Infosystems

HCL Infosystems

HCL Infosystems

HCL Infosystems

Investments with a one-two year horizon can be considered in the HCL Infosystems stock, considering its strong position in the domestic IT infrastructure market and reasonable valuations. At Rs 272, the stock trades at 14 times its estimated 2007-08 earnings.

This is at a discount to competitors such as CMC, partly explained by the low earnings before tax, depreciation and amortisation (EBITDA) margins (about 4 per cent) that HCL Info enjoys. But considering its integrated operations across the IT hardware segment, strong deal wins and reasonable growth expected from the relatively new forays, margins could improve.

The company is in the entire gamut of IT infrastructure offerings such as desktops, laptops, servers, storage solutions, security, and networking solutions. This integrated operation helps the company cater to a wide range of clientele.
Business Drivers

Computer sales holds promise: The company has its own brand of desktops and laptops. Over the last three-four years, HCL Info has managed to expand rapidly and capture an IDC-estimated market share of 15.5 per cent in the desktop and 7.4 per cent in the laptop segments in the Indian market.

Compared to other MNC players in these segments, HCL Info’s pricing is fairly aggressive and may position it to capture further market share, considering that PC penetration is very low in India. Several governmental agencies have heightened spend on computing devices, presenting a potential market.

As the cost of hardware components that are imported to assemble desktops and laptops reduces, the company may be able to further bring down costs, expand margins or, alternatively, play the volume game. A substantial increase in the relatively high-margin laptop sales may also help margins.

Nokia GSM phone sale rights: The company had rights to distribute Nokia’s GSM phones through HCL Info’s channel and retail stores.

Nokia’s position among the top mobile handset players in India helped the company in terms of revenue growth. But this contract has been re-negotiated in 2006 and HCL Info will be transferring 50 per cent of the country-wide distribution area to be handed back to Nokia by this year-end. The transition period has seen a blip on the revenue front. But with GSM phone sales expanding at a rapid pace, growth may continue at a reasonable pace once the transition-related issues are sorted out.

Increased focus on system integration: The company seems to have increased its focus on the high-margin system integration projects. Recent deal wins such as that with BSNL for convergent billing and setting up data centres, the setting up of VoIP network for Defence through BSNL, valued at over Rs 500 crore each, reiterate this point.

This apart, HCL Info has strong client relationships with PSU banks, e-governance agencies, and the power segment. All these segments are likely to witness increased IT spends in the domestic context, which the company is well-positioned to tap.

In addition, media and entertainment sectors have also been added to the portfolio. This includes a presence in the high-growth FM station business, where it provides radio design and implementation services. TV broadcasting is another area where the company has won a deal.

These apart, new forays have been made into segments such as railways, airports, retail, healthcare — all of which have growth potential.

Other new forays: The company has obtained rights to sell a wide range of gadgets and digital equipment through its retail outlets. These include the highly successful iphone, Kodak’s digital cameras, Toshiba’s laptops and the rights to sell Dish TV packages as well.

These offerings, though at a nascent stage, are expected to gain momentum in the near future. The company has also forayed into the training business with a focus on hardware. With a wide-ranging product experience, this new venture of HCL Info can be watched for sustainable revenues.

Risks: The company may face stiff competition from players such as CMC, Datacraft and Wipro Infotech, which may create margin pressures. The company’s operations are import-intensive as it imports products for reselling. Any depreciation in the rupee, after the significant appreciation in recent quarters, is a risk to margins.

As the reliance on government clientele increases, which is a strong possibility, the receivables cycle may be longer, thus increasing working-capital requirements.

Thermax, Banking, HCL Infosystems

Thermax
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs700
Current market price: Rs610

Price target revised to Rs700

Result highlights

• Continuing its growth run, Thermax reported an increase of 101% year on year (yoy) in its consolidated sales to Rs713.6 crore during Q1FY2008.
• The operating profits jumped by 106.8% yoy to Rs76.5 crore. Increased raw material cost and higher proportion of lower margin project business restricted the operating profit margin (OPM) growth only to 30 basis points to 10.7% in Q1FY2008.
• The energy business recorded a robust growth of 101% yoy in revenues and bettered the profit before interest and tax (PBIT) margins by 70 basis points to 11.3%. Environment business also reported PBIT margins improvement by 130 basis points and contributing Rs119.2 crore to the top line.
• The consolidated net profit grew by a whopping 114.5% to Rs55.9 crore in Q1FY2008 much ahead of street expectations.
• In order to meet the rising demand company plans commissioning of two more manufacturing facilities in Salvi (Gujarat) and Zehjiang (China) which phase-wise will be fully operational between March-June 2008.
• The consolidated order book at the end of Q1FY2008 stood at Rs3,057 crore which is equivalent to 1.3x its FY2007 net revenues, which gives a clear visibility of earnings.

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SECTOR UPDATE

Banking

RBI uncomfortable with IHC structures
The Reserve Bank of India (RBI) has expressed concerns over the intermediate holding company (IHC) structures planned by Indian banks. It has released a discussion paper with a view to review its suitability in the Indian context. RBI has kept the discussion panel open for the next three weeks. RBI's main concerns are regarding regulatory supervision, risk assessment and legal aspects involving the parent, IHC and other subsidiaries.

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VIEWPOINT

HCL Infosystems

Technically sound
HCL Infosystems reported a tepid growth of 3.5% in its gross revenues to Rs11,855 crore for the fiscal ended June 2007. The growth was largely driven by a revenue growth of 13.9% in the computer systems segment to Rs2,614.5 crore. On the other hand, the revenues from the telecommunications & office automation (telecomm) segment remained flat at Rs9,049.5 crore largely due to the revision of agreement with Nokia.

Thermax, Banking, HCL Infosystems,