The Hindu Business Line : Handset distribution business — HCL Info, Nokia in new 5-year deal

HCL Infosystems, the sole distributor of Nokia mobile phones in India, has entered into a revised agreement with Finland-based Nokia to split the distribution business.

Under a new five-year agreement, both the companies will jointly distribute the mobile handsets in the country. The existing exclusive distribution agreement of HCL with Nokia is set to expire in August.

Over the next 18 months, in a phased manner, HCL expects the business volumes from the sale of handsets to be split equally between HCL and Nokia in phases. Mr Ajai Chowdhry, Chairman and CEO, HCL Infosystems, said that since the mobile subscriber growth is set to grow exponentially, even with lower volumes, the revenues, profitability growth and margins of HCL will be unaffected. "If you put in two competing distributors, then margin erosion takes place. Nokia will sell at the same price and terms that we will. It will maintain a balanced mix all over the country," he added.

Under the terms of the revised agreement, Nokia will be selling its handsets along with HCL, based on the bifurcation of territories that is yet to be worked out. Mr Chowdhry said, "We will be running a pilot in two cities and based on the progress, the bifurcation will be decided over a period of 18-24 months." HCL is expected to continue its exclusive relationship with Nokia, and not sell the handsets of other vendors.

For the half-year ended December 2005, out of consolidated revenues of Rs 5,091 crore for HCL, the distribution of Nokia handsets accounted for 76.4 per cent at Rs 3,890 crore.

This was in continuation of the trend seen for the year ended June 30, 2005, in which out of consolidated revenues of Rs 7,783 crore, the contribution of Nokia's handset distribution stood at 71 per cent.

The margins for the Nokia distribution segment have not been disclosed separately, but are clubbed with the overall contribution of the office automation and telecom segment. Based on the contribution of this segment, the profit before interest and tax margin works out to 2.7 per cent of the revenues for the half year, marginally higher than 2.53 per cent for the year ended March 31, 2005.

In the light of this development, the HCL Infosystems stock was hammered at the bourses, losing 30 per cent to close at Rs 180.10 during the day's trading.

It, however, recovered from a low of Rs 154.85 earlier in the day, as finer details were announced by the company.

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