Monday, February 20, 2006

Analyze that !!! - HCL Infosystems

HCL Infosystems plunged more than 30% today !!!!

The business stats of the stock are enclosed -
Share Capital - 33.44 crs
Loans - 81.31 crs
Investments - 122.77 crs
NCA - 340.60 crs
FV - 2.00 rupees per share
Dividend per share - 6.20 rupees
LY Profit - 132 crs

Thus, we have the following estimates -
1. I estimate the total profit for this FY for HCL Infosystems will be close to 105 crores. At a CMP of 180 rupees (close of day - Feb 20th 2006), that amounts to a P/E of 28.66 (profit may be more, but I'd rather be conservative)
2. Consequently, the dividend yield for this scrip will be at 3.44%
3. From a value perspective, NCAV for the stock is only 22.85 however, please note that this is an IT and ITES company which doesn't hold incredible amounts of NCAs .. barring maybe cash. The cash per share held by the company is however 8.67 rupees per share.

At 180 rupees, HCL Infosystems is rather enticing. The enclosed graph may stun you ... (see at the extreme right) ... for a stock which was comfortably between 240 and 260 for most part of the year.












Enclosed are two news stories you may like to read for a better understanding of the events that led up to this bloodbath -

[1] Nokia deal hits HCL Info as brokerages downgrade stock

[2] No reduction in revenues: HCL Infosystems

A very interesting case to analyse and make an investment decision.

3 Comments:

Blogger Vishal Mittal said...

my take on this - not exactly mouth watering, but nice margin of safety for a growth stock, especially in today's markets...
i think its 80 cents on the dollar...

Rgds

11:01 AM  
Blogger Prasanth said...

Also keep in mind that HCL Infosystems is not a "Software development/services" company like say Infosys for example. They are mainly into Hardware and infrastructure services. For example, at the place i work, the IT support desk (PC maintenance, netweork maintenace) etc is maintained by HCL infosystems. It was previously handled by Wipro but this year, HCL outbid them. The profit margins in this business is not as high as a pureplay software services company and hence it is trading at a discount to companies like Infosys /Satyam etc.

5:19 PM  
Blogger Shankar said...

This is a simple case of calculating profitability ....

Check - http://www.hclinfosystems.com/unaudited-ond-05.pdf

In segment revenue - Office Automation and Telecommunication earns the company 2243 crores of revenue .. out of 2800 crores of total revenue (80.17%). At 50% agreement between Nokia and HCL, we can say a revenue of 1100 in the next 12-18 months.

In segment profit - Office Auto and Telecom earns 61.69 crs out of 88.04 crs. (69.88% of total pie) ... again 50% of that brings profit from telecom to 30.8 crores and total PBIT to 47.3 crs for the quarter.

After all appropriations for interest, dividend, taxes etc. .. and at a CMP of 180 ... the P/E should be around 28.66 (at total profit of 105 crs for the yr).

At P/E of 28.66 and a rather uncertain future ... a CMP of 180 rupees is shaky.

Warm Regards
Shankar

7:21 PM  

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