In FY2009, HCL Info’s net sales remained flat at Rs12,378 crore. The top line growth in the computer system & other related product business (up 5% year-on-year to Rs3,413 crore) was offset by a decline in the telecommunications (telecom) and office automation (down 1.6% y-o-y to Rs8,875 crore).
The operating profit margin (OPM) declined by 30 basis points to 3.3% in FY2009. The net income dropped by 20.1% y-o-y to Rs239.9 crore in FY2009 due to a poor operating performance and a lower other income (Rs10.8 crore in FY2009 vs Rs49.9 in FY2008).
Going forward, the company is witnessing a recovery in the computer system and other related product business driven by the enterprise segment and increased order closure in the system integration (SI) space.
Raising funds through QIP
HCL Info is planning to raise funds aggregating up to Rs825 crore. Out of this, the company is looking to raise Rs500 crore through qualified institutional placement (QIP) and Rs325 crore through warrant conversion by the promoter.
The company is seeking shareholder’s approval in its extraordinary general meeting scheduled on 23 September. These funds would be utilized for organic and inorganic growth initiatives.
At the current market price, the QIP and warrant conversion would expand the company’s equity base by 30.9%. However, we believe the company would do the QIP and warrant conversion in tranches and hence the earnings dilution is likely to be lower in the near term.
HCL Info has reported a subdued financial performance for FY2009. However, the company is expecting a recovery in the computer system and other related product business driven by the enterprise segment and increased order closure in the SI space.
Furthermore, in the telecom and office automation business, the company is witnessing great opportunities in the education vertical. However, its fund raising activity is likely to dilute its equity (though we believe it is likely to take place in tranches).
At the current market price, the stock is trading at 11.1x FY2009 earnings and 9.6x FY2010 consensus earnings estimates. At the current level, the stock offers a HEALTHY dividend yield of 4.2%.