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INVESTORS with a medium term perspective can consider an exposure in the HCL Infosystems stock at current price levels. It remains a good option for those seeking a diversified portfolio in the IT market.

The stock is trading at a price earnings multiple of 11.5 times its annualised per share earnings of Rs 68 for 2004-05. Any price weakness in line with the broad markets may be used to step-up exposures.

Given the low PC penetration levels in the country, the scope for growth in the domestic PC market remains quite strong. As the latest Budget has provided a level playing field for the domestic manufacturers, PC makers such as HCL from the organised sector may stand to gain an increased market share. For the calendar year 2004, in desktop computers, the company has increased its total market share by over 4 percentage points to nearly 14 per cent. With the extensive PC range and its distribution reach, the company is well positioned to ride the growth in PC penetration. Besides this, the continued momentum in the GSM mobile subscriber additions also adds to the attractiveness of the stock.

At the consolidated level, HCL Infosystems operates two key segments: Computer Systems and Office Automation/Telecommunications (run by its wholly owned subsidiary, HCL Infinet).

For the nine months ended March 31, 2005, the Computer Systems segment contributed about 25 per cent of the revenues, with the rest coming from Office Automation. In the later segment, it has a long-standing partnership with Nokia for national distribution of handsets. As expected, computer systems has a much higher profit before interest and tax margin at 7.5 per cent compared to 2.5 per cent from the other division.

Krishnan Thiagarajan

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