Technology firm HCL Infosystems Ltd has acquired a 20% stake in Dubai-based distribution company Techmart Telecom Distribution FZCO for an undisclosed sum, gaining a toehold in the distribution business in West Asia and Africa.
Techmart Telecom has a partnership with Finnish mobile phone maker Nokia Oyj for distributing its products through its regional distribution network in 50 cities across West Asia and Africa.
Harsh Chitale, chief executive officer of HCL Infosystems, refused to divulge financial details of the deal, citing a confidentiality agreement with the company. He said Techmart Telecom’s revenue for the month of December is expected to be in the range of $40-50 million (Rs.179.6-224.5 crore), adding that distribution was a “low profit margin” business.
“We have taken another step in further expanding into emerging markets of Middle East and Africa,” he said.
The deal marks HCL’s second acquisition in West Asia. In July, the company acquired a 60% stake in NTS Group, a Dubai-based information technology services and solutions company.
HCL bought the stake in Techmart Telecom through a Singapore-based special purpose vehicle. The company will also have the option of acquiring up to 51% of equity in Techmart Telecom.
“We are new in that area and first need to get comfortable in the space before increasing the stake,” Chitale said.
In India, HCL Infosystems has a robust distribution network through which it distributes products of firms such as Nokia, Apple Inc. and Hewlett-Packard Co.
“We will leverage on our competency that we have gained from the distribution business in India,” said Chitale.
For the three months ended September, the company reported a profit of Rs.74 crore on revenue of Rs.2,990.7 crore. Nearly two-thirds of the firm’s revenue comes from the distribution business.
Over the last few quarters, the company which operates in three areas—manufacturing its own computer hardware, providing software services, and distributing the products of other companies—hastaken a hit in the distribution business. That is partly because of a decline in the market share of Nokia, a key customer.
On being asked if the latest acquisition made sense, given that the distribution business is highly dependant on the performance of customers, Chitale said the risk was higher if a distributor was dependent on one single customer.
“We will try and expand the business to get a portfolio of partners through the new acquisition in Middle East and Africa as well,” he said.
HCL Infosystems stock rose by 0.8% to Rs.115 on Thursday on a day the benchmark Sensex index of the Bombay Stock Exchange gained 0.7% to close at 20,389 points.
Source: Liveimint