Recently the scrip has been hammered from Rs 670 (March 23) to the current level of Rs 422.5. Despite the fall, the HCL scrip has given a return of 238 per cent on year-on-year basis. Similar returns are unlikely in future, 25-30 per cent will be more realistic and the downslide is limited.

According to Manish Shukla, analyst at KBS Capital, ``If the general sentiment is good for the software sector, the stock should appreciate by 20-30 per cent. Since institutional investors have already entered the stock, an appreciation in the range of 60 to 70 per cent is unlikely.''

The Rs 700-crore HCL Infosystems manufactures personal computers (PCs) and undertakes systems integration contracts - which enables bundling of software services and support. It also undertakes softwareprojects and outsourcing of support and implementation.

The company has three basic line of businesses - hardware, software development and service. With a definite and distinct focus on enterprise solutions and personal computers, HCL Info has direct customer service centres at 143 locations and two state-of-the-art manufacturing facilities.

Among the branded computers, HCL Infosys has 24 per cent of the installed base in business segment and 32 per cent of households. Its brands `Busybee', `Beanstalk' and `Infiniti 2000' corporate PCs are undisputed leaders in their segments. It has a market share of over 16 per cent in desktop PCs and last year, it sold more PCs than the combined total of second-placed Compaq and third placed Zenith. ``No other Indian company can offer an investor better IT exposure of domestic market as HCL. No-one knows Indian market better than HCL Infosystems,'' says Aditya Sinha, analyst at SSKI Limited.

However the margins are very low in hardware business. ``The problem withhardware is no-one seem to be making money in it. Further, there is no scope for exports,'' says an analyst with a leading brokerage house. Realising this company is trying to reduce its exposure to hardware to only 70 per cent, for fiscal 1998 hardware accounted for 86 per cent of the turnover.

Although some marketmen are of the opinion that HCL should sell off its hardware division like other players but an analyst feels, ``The company's gradual and concerted realignment towards the services business should result in consistent positive growth. The company's decision to have a 70:30 hardware-software & service mix should also reduce the risk from the cyclic nature of the business.''

If hardware is low margin business then why stick to it? The market for computer hardware and PCs is all set to grow in future especially in the home, banking and financial services sector. The small office and the home office segments together account for nearly thirty per cent of the PC market. Moreover, growing interestin the internet will also provide push to PC sales. So will new concepts like E-commerce, enterprise solutions, networking etc will fuel demand for PCs. HCL Info has recently unveiled a unique solution, Cybernet, for internet cafes and kiosks for small and medium-sized business and entrepreneurs. Cybernet is the first and the only kind end-to-end ready-to-use solution in the country. ``This product will give a big boost to HCL's E-commerce business,'' says an analyst with a leading asset management company.

In the software segment, though the major revenue will continue to come from exports, in the domestic market the company is targeting the government sector in a big way. HCL's e-governance solutions are primarily aimed at improving the efficiencies of government agencies. As a result, the company was able to book orders worth Rs 105 crore alone in the month of March 1999. It has bagged orders from the central and state governments, defence sector, Bhel, IFCI and other corporates, such as Asian Paints,IPCL, BPL, Sun Pharma and NIIT. Another established customer segment, that of banking, also witnessed key accruals from private and public sector banks.

But all is not well with the company. On one hand the margins are very low compared to other IT players and on the other, there seem to be overlap of business interest among the group companies. Other two group companies namely HCL Technologies and NIIT are also engaged in software business. But the current attractive valuations and limited downslide makes the investment almost risk free. Analysts expect the company to report a net profit of Rs 60 crore for the fiscal 1999. On an equity base of Rs 31.9 crore the earnings per share works out to be Rs 18.80. With the share currently ruling at Rs 422, the future earnings discount the price by 22 times.