The Hindu Business Line : ‘Let’s not psyche ourselves’

If the depreciating rupee is aiding the export-oriented software and IT services industry, it is having a dramatically contrary effect on the hardware sector. This year, the PC industry has initiated at least two rounds of price hikes across various product categories such as desktops, laptops and select peripherals. Add to that the general weakness in demand in the SME segment and troubled retail and BFSI space, and the going is anything but easy for the IT hardware ind ustry. But Ajai Chowdhry, Chairman and CEO of HCL Infosystems believes that while people are exercising some caution while buying, the company’s distribution business in the digital lifestyle arena, as well as its exposure in ‘defensive sectors’, are unaffected by the general slowdown. In fact, Chowdhry sees the IT hardware industry growing at 15-18 per cent this fiscal. eWorld caught up with Chowdhry recently to find out more about the mood in the Indian hardware industry and the impact of the overall slowdown on IT spends and demand. Excerpts:

The industry initiated price increase for multiple hardware categories in early October when the rupee was hovering at around Rs 48.38/43. Are you anticipating another round of price hikes now?

We have already accounted for about Rs 50 (to a dollar). And I hope that the rupee will not depreciate any further. What is worrying the hardware industry today is volatility, not the rate. If the rate stabilises at Rs 45-46, we can be more predictable.

As a dominant player in the industry, have you started seeing any slump in the demand for products in the consumer category?

If I talk about my distribution in the digital lifestyle arena, frankly, I am not seeing anything. I believe we are psyching ourselves out. First, it is more a caution that people are exercising today, rather than not having the money to spend. Second, if you look at projects in India that have already been funded, there is going to be no change. It is the large projects in the infrastructure sector which are out there waiting for financial closure ... they could see a slowdown of 4-6 months. I do not think this problem will last beyond April- June next year.

Finally, if you look at the IT hardware market, 30 per cent of the market is consumer – of this close to 20 per cent needs funding through consumer financing. I would say 8 or 10 per cent of that has been affected due to banks becoming a lot more conservative. That is the only piece that I see as an issue. But if you look at our systems integration business, I don’t see any great change.

So there’s no impact whatsoever on enterprise spending on IT?

We at least have not seen any major change in demand. Fortunately for us, in terms of strategy we are closely aligned to what we term as ‘defensive sectors’. That is what is helping HCL today. We are clearly aligned to areas in the systems integration business which are least affected by the slowdown. With the exception of some impact in banking and retail, other sectors such as telecom, e-governance, cooperatives, the Railways, power, airports and ports, defence, health and education have not been hit.

Fortunately, our strategy was correct. We have seen some cautious spending by some of the private corporates and they are cautious because they really do not know the extent of the problem. That is where I have been saying that we should not psyche ourselves out. We should be very positive considering that ours is the only country growing at 7 per cent.

Does that mean HCL would continue to invest, in spite of the current environment or would you prefer to be cautious in expanding the current manufacturing capacities, the Uttaranchal plant included?

I have such a tremendous opportunity in this country … it is such a low-penetration country. Why should I worry? However, as a company we already have enough hardware capacity, we have created capacity for the next five years. So we do not have to go in for new investment.

What are the demand drivers for HCL Infosytems in the current financial year? Also, how long do you expect the overall downtrend to last?

Systems integration remains very critical for us. We have a backlog of about Rs 800 crore as of the end of last quarter and we continue to see business coming in. In the B2C space, the only part that has got affected to an extent is a portion of the computing business. In B2B there is some caution where private corporates are concerned, but the impact of that on us would not be substantial because we as a company are deeply involved in the government and public sector business, and in some of these sectors we also sell hardware. So we do not see any impact.

In exports, our growth is clearly towards West Asia and Africa and those markets continue to grow. I think in 5-6 months’ time, things would start to settle down so far as the liquidity situation or the cautionary stance is concerned. If you see, there was over-enthusiasm (in the market) a year ago and now we are going exactly the other way.

What growth rates can the industry realistically look to achieve this year, given the environment?

From an industry standpoint, in the domestic hardware business there should be a growth of 15-18 per cent. Here I am referring to the total IT hardware business.