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HCL Infosystems in talks to get strategic partners: Harsh Chitale

CEO says the company may look at selling the PC business if a good offer comes its way
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First Published: Wed, Feb 06 2013. 09 07 PM IST
In India, the traditional PC market still has headroom 

because the penetration is not so high, says Chitale. 

Photo: Ramesh Pathania/Mint
In India, the traditional PC market still has headroom because the penetration is not so high, says Chitale. Photo: Ramesh Pathania/Mint
Updated: Thu, Feb 07 2013. 12 24 AM IST
New Delhi: When Harsh Chitale, a 14-year veteran from Honeywell Process Solutions, was handed the reins of India’s biggest personal computer maker HCL Infosystems Ltd in October 2010, the company’s mainstay personal computer business was hurting and it was under pressure from violent currency swings; its systems integration segment was suffering from delay in decision-making in government projects. Two-and-a-half years on, Chitale, who has just finalized a restructuring plan for the company by splitting it into five units, is candid in saying the company may look at selling the PC business if an attractive offer comes its way; as tablets become the computing device of choice for many first-time buyers, they could give laptops a run for their money. Edited excerpts:
There were recent reports about Roshni Nadar, daughter of HCL founder Shiv Nadar, taking over as the chairman of HCL Corp. How does that change things for you?
HCL Corp. is his (Shiv Nadar’s) personal investment company, so as HCL Infosystems it does not mean any change for us.
Do you have some visibility about what Roshni Nadar’s future role in the HCL group companies is going to be?
No. Shiv himself has not been actively involved in the company for many years now. He is one of those promoters who have left the company completely to professionals to run. He plays the role of an accessible mentor to the professionally-run company. We do interact with Roshni on some of HCL’s CSR (corporate social responsibility) initiatives like Shiksha. Interaction with Mr. Nadar happens once a quarter or once a month if there is something important. It’s in the same way as you would (interact) with the board and key investors of the company.
Was it your’s or Nadar’s idea to restructure HCL Infosystems by splitting it into different subsidiaries?
The restructuring started 18 months back. This entire thing was conceptualized with the thought that we are running many companies in one, and at times one company comes in the way of the growth of the other company. So, first we reorganized them into divisions and then we realized that it was not sufficient, so we needed to take the next step to reorganize it into multiple subsidiaries. This was debated by the board, which took the final decision.
What has been the overall response to the restructuring?
I have not heard negative commentary about it. Some employees, of course, have concerns about what it means for them, etc. But, it’s business as usual. For example, those who are part of system integration will continue to be part of system integration but in a different entity. In any case, for the next seven months, it is not happening as it has to go through the court, shareholder and other regulatory approvals. Not just to employees, but we are trying to communicate to channel partners, alliance partners, etc. that it is business as usual now and we expect business as usual plus better in the future.
What is your long-term vision for the PC business which has not been doing well?
On the PC business there’s nothing to hide. We don’t have global scale and every competitor of mine makes 40-50 times more PCs, and it’s a very thin margin and highly commoditized business. Keep the tablets out of it because that is a very, very high-margin, high-growth business. In India, the traditional PC market is not growing at the rate at which it should, but it still has headroom because the penetration is not so high. If you see today registrar filings of every PC company in the country, they are all in the red. So, will I ever get that scale? No. So, PC is an area where we’ll have a selective play and we may have good sourcing arrangements where we will not necessarily make every product to make our portfolio complete. Does that give some more clarity?
Are you in talks with strategic investors to sell it?
We are in dialogue to get strategic partners. I would still not use the word strategic investors there. Having said that, because someone had asked me in the past, and I’ll reiterate what I’ve answered there, if somebody were to come and make a good offer for PC, we as a board would consider it.
Are you considering it right now?
No. As of now, is there a deal there? No. Are we open for a strategic partnership there? Yes. And that status has continued.
India has such a low penetration of PCs and consumer sentiment is down. How do you expect this to pan out? Do you think tablets will be the first device in the future?
It’s becoming the first device for many already. I actually see more challenge to laptops than desktops because desktops are still needed to make it your home computer or in banks where you don’t allow data to move out, etc. So, there’s a base level market for the desktop. Interestingly, for the last two quarters in the developing world, laptops market has shrunk but not desktops.
But, don’t you think that this Rs.3,000 to Rs.4,000 category of tablets which is flooding the market right now is giving a bad name to the category as it is initiating these first-time buyers into computing through a very bad user experience?
It is not doing justice to the category, but the good thing is that it’s pushing guys like us to look at our costs and bring it down. Because there was that Rs.3,000-4,000 tablet Aakash, which though it didn’t happen, made all of us sit up and say, one day it could happen, you better keep looking at your costs and make the tablet more affordable.
What was the idea behind splitting the businesses?
So, distribution and computing products was the first separation that we did. Then the other three, which happened recently, include the solutions business (systems integration, office automation and the traded solutions), the learning business, etc. The solutions business is under severe stress for us. Almost Rs.1,200-1,300 crore of receivables is stuck. A lot of the projects are in the public sector space and are not moving. In fact, I am very vocal in saying that some of these government entities which are critical in success of India as a whole, like BSNL, MTNL, ITI, state power discoms, they are biggest sources of industrial sickness because they have almost Rs.100,000 crore of receivables of companies like me. Lots of IT companies which are only focused on domestic system integration business are going through a lot of trouble right now because of this.
HCL Infosystems has been going through a bad patch for a few years now. When do you expect a turnaround?
So, there are five different businesses that we have created. Our turnaround is going to happen when distribution and services business become a significant contributor to our company’s bottomline as opposed to our traditional businesses as they are already doing very well and are very high growth and margin.
This entire restructuring is a way to create additional focus and un-constraining of growth, but those businesses are going to take two to three years to ramp up, in the meantime we do have to continue to invest to make that ramp-up happen and continue to deal with the stress part of the business which is the hardware solutions business. I finally expect this stress situation to sort itself out as the capital investment happens and the government economy starts to move. The turnaround should happen in the next two to three years.
How do you look at the overall industry growth? Is demand picking up?
When it comes to new capital investment in the country, I am not seeing the actual investment begin. The right kind of noises are being made, but some of the high capital investment sectors today are totally choked, like telecom, infrastructure and power. I am also seeing signs of strain begin in the consumer durable sector as last Diwali was not as good as previous years. But spend is going strong in healthcare, education, financial services, etc. In fact, the entire financial inclusion (concept) through the direct cash transfers is creating a completely new market for low-cost technology solutions to make this concept work. This could be close to Rs.10,000 crore of technology-enabled services spend where none existed.
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First Published: Wed, Feb 06 2013. 09 07 PM IST