HCL Infosystems' stock surges

Shares of HCL Infosystems surged over 20 per cent on Tuesday on a media report that China’s Lenovo Group was in talks to buy a 50.1 per cent stake in the Indian firm for around Rs 500 crore.

HCL shares jumped 20.50 per cent, or Rs 7.45, to close at Rs 43.80 on the Bombay Stock Exchange (BSE). The company’s stock was the top gainer on the exchange. The benchmark Sensex shed 0.27 per cent to close at 17,631.71 points.

Meanwhile, HCL, which has business interest in personal computer (PC) manufacturing, distribution and systems integration, denied the reports. In a clarification to BSE, it said: “The company is not aware of any such development about promoter intending to sell stake in the company and as a company policy, do not comment on market speculation.”

Promoters hold 50.77 per cent stake in the company, according to the details filed on June 30 on BSE. Of this, 42.85 per cent are held by HCL Corp, headed by Shiv Nadar.

“We are a Rs 10,840 crore company. The PC business constitutes about 10 per cent of our total revenues. Why would someone (like Lenova) want to buy a Rs 10,840 crore business when the PC business is just about 10 per cent,” asked Rothin Bhattacharya, executive vice-president, strategy and merger and acquisitions, HCL.

Bhattacharya also denied reports that the company was planning to sell off part of its manufacturing plant in Pondicherry. “We are not selling any part of our manufacturing unit to Lenovo. Our PC business has been going through a rough patch and has been slow in growth due to the rupee depreciation and the government sector going slow, but it continuos to be part of our long-term strategy,” he added. HCL has one manufacturing unit each in Pondicherry and Rudrapur in Uttrakhand.

When contacted Lenovo India office, an official spokesperson said: “We don't have any comment on this. We would not like to comment in any rumour or speculation.”

In an earlier interview to this newspaper, Ajai Chowdhry, chairman HCL, had said: “We have been severely impacted by the rupee devaluation. In some of the products that we have designed ourselves the import cost is sell. But in standardised products like PC and laptops, import component is high. Even for us it is 60-80 per cent. Our challenge is that our factories do not have enough business to sustain them to run. The impact is that we are not accepting new orders.”

The company saw its profit erode in the computing business in the first two quarters of 2011-12 due to foreign currency fluctuation and floods in Thailand, following which there was a buzz that HCL might altogether exit the hardware business.

In June, HCL hived off its computing products manufacturing into a wholly owned subsidiary. The announcement was part of the company's decision to renew focus on its hardware business. “We believe that the PC business has its own lifecycle. PC business is just 10 per cent and the other business is 90 per cent. We decided that let’s focus on the computing business but keep it at an arms length. When we see our services or SI business we want to be brand agnostic,” said Bhattacharya.

He feels that the company’s PC business is a long-term strategy. “We have a strategy in place for our PC business as well. In the consumer computing space, we will soon announce a brand ambassador. We think Tablets are a natural progression in the computing life. PC penetration in India is still low. Broadband penetration is still in single digits,” he said.

According to the latest Gartner India PC market review, HCL’s PC market share saw a flat growth of 0.2 per cent for the second quarter of 2012, and its market share dropped to 5.6 per cent. This when players such as Lenovo, Acer, and HP continued to grow their market share.