The India operations of Acer, the global electronics hardware major, are suffering mainly on account of the order that it has won from Electronics Corporation of Tamil Nadu for the supply of 200,000 laptops.
Last year, the Tamil Nadu Government, through its wholly-owned company, Electronics Corporation of Tamil Nadu (ELCOT), floated a tender for the supply of 900,000 laptops. This tender was a part of a much larger ‘free laptop distribution’ scheme promised in the election manifesto of the ruling AIADMK Government. The scheme would cost the State Rs 10,200 crore over a five-year period.
Lenovo, HCL, Acer, Wipro, HP and a Kolkata-based company called RP Infosystems won orders. Lenovo, which quoted the lowest, got to supply 300,000 laptops, while HCL and Acer got 200,000 each.
The rating agency, ICRA, which went into Acer India’s financials in rating the company’s non-fund based bank limits, noted that the company’s profitability “declined significantly” due mainly to the sharp depreciation of the rupee, the burden of which could not be passed on to customers due to intense competition.
“The performance in the first quarter of the current year was worse, with the company incurring a net loss,” ICRA said in a statement, without disclosing any numbers. This was primarily due to the ELCOT order.
Since the agreement with ELCOT does not have a currency escalation clause, the company had to bear the losses due to significant depreciation in rupee since the award of the order, notes ICRA.
Further, since only 40 per cent of the ELCOT order was executed in Q1 and the remaining would be executed in Q2 of the current year, the company is expected to post losses in the second quarter too, ICRA said.
While revising the rating, ICRA has also taken note of the poor financial performance of AIPL’s parent, Acer Inc, during 2011 and Q1-2012. The company incurred a net loss of $219 million in 2011 and a marginal profit of $11 million in Q1-2012. The poor financial performance is attributed to several factors including sales discount and allowances offered by Acer to clear the inventory built up in Europe, slowdown in the economy and competition from media tablets.
Besides, the ratings continue to be constrained by the competitive nature of the industry and the technology obsolescence risk associated with the sector, ICRA said.