Buy HCL Infosystems for One Year - Good Returns Expected
Investments with a one-year horizon can be considered in the shares of HCL Infosystems, considering its well-positioned business in the domestic IT infrastructure market and very reasonable valuations. At Rs 137, the stock trades at 7 times its expected 2007-08 earnings, with a 5.8 per cent dividend yield also providing a cushion against downside.
Strong positioning in the domestic desktop and laptop markets, scope for higher margins on system integration deals and recent e-governance initiatives hold promise for the company.
Compared to MNCs in these segments, HCL Info’s pricing is fairly aggressive and may position it to capture further market share, considering that PC penetration is very low in India. The company manufactures and markets its own brand of desktops and laptops. Over the last four years, HCL Info has captured an estimated market share of 15.5 per cent in the desktop and 7.4 per cent in laptops. HCL Info’s tie-up with Microsoft to provide low-cost laptops also holds promise; the laptop market has expanded two-fold in 2007-08, according to a recent IDC survey. Because of the hardware-intensive nature of the business, the operating profit margins have been in the 5 per cent range, but hold scope for improvement.
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