In end-September 2001, it entered into a JV by acquiring a 51 per cent equity stake in the holding company of Deutsche Software — Deutsche Bank's IT subsidiary in India.

This JV provided HCL Technologies access to the banking and financial services domain, the largest end-user segment in the IT services space.

In less than a year, the success of this JV can be gauged by the fact that Deutsche Software recorded a 17 per cent and 18 per cent sequential rise in revenues and earnings after tax in the fourth quarter of 2001-02.

The company can acquire the remaining 49 per cent at the end of three years from Deutsche Bank.

Following this JV deal, HCL Technologies went on an overdrive. Starting with the strategic alliance with British Telecom for providing IT enabled services, it has entered into a flurry of joint ventures, acquisitions and strategic investments over the next nine months.

As of the year ended June 30, 2002, these non-linear initiatives have contributed around 11.4 per cent of the consolidated revenues of HCL Technologies.

As HCL Technologies has the scope for acquiring the joint venture partners, the possibility of higher growth in the future is fairly good.

Then, it articulated a clear strategy to rebalance its services portfolio. In the analyst meet for the second quarter, Mr Shiv Nadar stated that HCL Technologies was in the process of rebalancing its service portfolio and has identified four focus areas of growth — Products and Engineering, Enterprise Solutions, Application Solutions and IT Enabled services.

Since then, client rationalisations, clear domain focus spread across nine verticals, focus on enterprise and application solutions and strategic alliances in CRM, enterprise applications and enterprise application integration have provided the right organic thrust to HCL Technologies' revenues.

In an encouraging trend, in the fourth quarter of 2001-02, end-user applications contributed to 28 per cent of revenues, reducing the emphasis on the technology domain.

In addition, HCL Technologies has also used an indifferent financial year to enforce strict provisioning norms for accounts receivable and mark down its strategic investments in venture capital funds.

In the consolidated income statement, for 2001-02, the company made a provision of Rs 61.2 crore towards these heads.

Recommendation

Though HCL Technologies has staged a rebound in the fourth quarter, the slower technology spending, pressure on billing rates, intense competition from its frontline peers and elongated decision cycles may contribute to sluggish financial growth in the coming quarters.

To a large extent, investors may be better off waiting for the confirmation of a turnaround in the company's operations in the performance for the first quarter of 2002-03.

Till the global economic picture improves, HCL Technologies is likely to perform only in line with the broad markets. In this backdrop, shareholders may retain their present holdings, but avoid fresh exposures in the stock.

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