RBS:: HCL Infosystems – Sells loss making subsidiary

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HCL Infosystems – Sells loss making subsidiary


HCL Infosystems announced the sale of its Infinet subsidiary, as part of a business consolidation
exercise. While transaction details were not disclosed, we view this development positively, given
that Infinet had a 5% drag on consolidated net income in FY10.
Event - HCL Infosystems to sell its Infinet subsidiary to Tikona Digital Networks
HCL Infosystems (HCLI) announced the sale of its Internet Services subsidiary, HCL Infinet,
to Tikona Digital Networks.

Infinet started ISP/NLD operations in 2000 and serves enterprise customers.
Financial details of the transaction were not disclosed.
Internet services business has been making operating losses since FY07
The Internet Services segment (largely HCL Infinet) reported revenues of Rs768m in FY10,
growing at a 24.4% CAGR over FY07-10.
However, the segment has been reporting operating losses since FY07. In FY10, Internet
Services reported a negative EBIT margin of -18%.
On a legal entity basis, HCL Infinet reported PAT loss of Rs121m in FY10.
The sale does not impact top line materially, but provides a bottom-line booster
In FY10, Internet Services contributed just 0.6% to HCLI's consolidated revenues, hence a
sale does not impact top line materially.
More importantly, as per HCLI's FY10 Annual Report disclosure on subsidiaries, Infinet
dragged consolidated PAT by 5.0%, and hence the sale has a meaningful bottom-line impact.
We await further details from HCLI in terms of sale consideration and likely timing of closure
of the deal.
Management's review of weaknesses in business portfolio is also strategically positive, in the
light of recent pressure on operating margins - at 1.9% in Sep-10 qtr versus long-term
average of 3.1% as a result of significant opex costs incurred in new growth initiatives.