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According to media reports, the CBI is investigating a contract between MTNL and HCLI as part
of a broader probe on Commonwealth Games contracts. While we are unable to assess the final
outcome, the immediate implications on the stock are negative
Commonwealth Games contract from MTNL falls under CBI scanner
According to media reports, India's premier investigation agency, the Central Bureau of
Investigation, is investigating possible irregularities in a contract awarded by MTNL to HCLI.
HCLI was awarded the contract through a tendering process for deployment of an MPLS and
IP based backbone infrastructure for the Commonwealth Games that was held in New Delhi
in October 2010. According to the Hindu Business Line, the CBI has registered a case under
Sec 120-B (criminal conspiracy) of the Indian Penal Code and 13(2) r/w 13(1)(d) of
Prevention of Corruption Act 1988. The media report mentions that CBI has alleged that
MTNL awarded the work at an inflated price of Rs.5.7bn by manipulating the specification in
such a manner as to make them tailor-made for HCLI versus an initial cost estimate of
Rs314m based on optic fibre transmission, thereby resulting in a huge loss to the exchequer.
The report mentions that cases have been registered against several former and present
officials of MTNL and certain unidentified employees of HCLI.
HCLI has issued a statement of fulfilment of contractual terms
HCLI has issued a statement confirming that officials of a government investigating agency
have visited its officials from the project team of MTNL and collected some information. The
company also stated that it was selected after fulfilling technical specifications and
performance criteria, which was scrutinised by an expert panel from the Government.
According to HCLI, the project was executed as per the contractual terms, and the entire
infrastructure created has been redeployed in Mumbai and Delhi, which can generate followup revenues for MTNL.
The System Integration business is heavily public sector dependent
HCLI's Systems Integration business is heavily dependent on the public sector. We believe
government orders constitute over 70% of its order book. At this stage, we are unable to
assess the merits of the CBI's case, as reported by the media. However, this does raise a
worst case scenario, in our view, in which if irregularities are proven in the proposal
terms/contract award, it could impact bidding for public sector projects. We also note that the
SI business is a key growth driver going forward, as HCLI faces challenges in the handset
business, due to Nokia's market share loss.
Given the current environment, the stock could fall sharply on this news
We await more details on the CBI's investigation in the days to come. However, we believe the
investigation could take quite some time to come to a conclusion. Stocks of several telecom/real
estate in India that have been associated with the 2G license/spectrum allocation investigation
have already borne the brunt of the negative publicity. While we expect an immediate negative
reaction, we believe HCLI's stock could also remain under pressure till clarity emerges
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
According to media reports, the CBI is investigating a contract between MTNL and HCLI as part
of a broader probe on Commonwealth Games contracts. While we are unable to assess the final
outcome, the immediate implications on the stock are negative
Commonwealth Games contract from MTNL falls under CBI scanner
According to media reports, India's premier investigation agency, the Central Bureau of
Investigation, is investigating possible irregularities in a contract awarded by MTNL to HCLI.
HCLI was awarded the contract through a tendering process for deployment of an MPLS and
IP based backbone infrastructure for the Commonwealth Games that was held in New Delhi
in October 2010. According to the Hindu Business Line, the CBI has registered a case under
Sec 120-B (criminal conspiracy) of the Indian Penal Code and 13(2) r/w 13(1)(d) of
Prevention of Corruption Act 1988. The media report mentions that CBI has alleged that
MTNL awarded the work at an inflated price of Rs.5.7bn by manipulating the specification in
such a manner as to make them tailor-made for HCLI versus an initial cost estimate of
Rs314m based on optic fibre transmission, thereby resulting in a huge loss to the exchequer.
The report mentions that cases have been registered against several former and present
officials of MTNL and certain unidentified employees of HCLI.
HCLI has issued a statement of fulfilment of contractual terms
HCLI has issued a statement confirming that officials of a government investigating agency
have visited its officials from the project team of MTNL and collected some information. The
company also stated that it was selected after fulfilling technical specifications and
performance criteria, which was scrutinised by an expert panel from the Government.
According to HCLI, the project was executed as per the contractual terms, and the entire
infrastructure created has been redeployed in Mumbai and Delhi, which can generate followup revenues for MTNL.
The System Integration business is heavily public sector dependent
HCLI's Systems Integration business is heavily dependent on the public sector. We believe
government orders constitute over 70% of its order book. At this stage, we are unable to
assess the merits of the CBI's case, as reported by the media. However, this does raise a
worst case scenario, in our view, in which if irregularities are proven in the proposal
terms/contract award, it could impact bidding for public sector projects. We also note that the
SI business is a key growth driver going forward, as HCLI faces challenges in the handset
business, due to Nokia's market share loss.
Given the current environment, the stock could fall sharply on this news
We await more details on the CBI's investigation in the days to come. However, we believe the
investigation could take quite some time to come to a conclusion. Stocks of several telecom/real
estate in India that have been associated with the 2G license/spectrum allocation investigation
have already borne the brunt of the negative publicity. While we expect an immediate negative
reaction, we believe HCLI's stock could also remain under pressure till clarity emerges
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