HCL Infosystems Ltd’s shares rose by over 8% last week, with investors getting excited about the company’s new distribution partnership with Dell Inc.’s Indian arm.
Not too long ago, HCL decided to exit the PC and laptop manufacturing business. It appears that the decision has helped bring Dell on board.
Earlier, there may have been a concern about conflict of interest since HCL was distributing its own competing products as well. Of course, the partnership with Dell is no game changer, as the company’s shares reflect.
Despite the rally, the firm has a valuation of about one-third of the levels reached last September. Back then, investors were enthused about the company’s prospects under the new asset-light strategy, devoid of its loss-making manufacturing unit.
But the results of the last few quarters have belied those hopes.
In the past three quarters, the company’s pre-tax losses have amounted to ₹ 159.4 crore, slightly worse than the loss of ₹ 153.7 crore in the comparable year-ago period.
A large part of this was owing to interest costs worth more than ₹ 100 crore. While the hardware products business hasn’t yet fully wound down and has contributed to a part of the losses, the rest of the business isn’t doing very well either.
Revenues of the distribution business have fallen by about one-fourth, year-on-year, in the past three quarters, thanks largely to changes in Nokia’s product portfolio post the acquisition by Microsoft Corp. Nokia’s Symbian phones accounted for a sizeable chunk of its sales in India, and HCL said in a presentation to analysts that although the sales of Windows phones have risen at a fast pace, they haven’t been able to offset the decline in the other categories.
Earlier this year, Nokia India extended its tie-up with the firm for distribution of its phones for another three years, taking the relationship to over 20 years.
For the first 10 years of the tie-up, HCL had enjoyed sole rights for distribution, which was later curtailed to roughly half in terms of geographical reach. The other half was handled by Nokia directly.
HCL’s shares have gradually declined since Nokia announced it will take over part of the distribution. While the firm has added brands in its distribution business, it hasn’t yet recovered from that blow.