In a recent filing made to exchange, Smartlink announced it is applying to RBI for change in categorisation to 'NBFC'. Being a cash-rich holding company its primary source of income would be from investments; it had earlier transferred all operating businesses to three of its wholly owned subsidiaries.
Filing Link: http://www.bseindia.com/corporates/anndet_new.aspx?newsid=727353c8-a3bf-4500-9581-8d94364f5aff

This is just a cosmetic change which is mandatory as per RBI Guidelines. We have spoken to the top management and got a clarification that Smartlink does not intend to get into lending operations.

When an IT Hardware company with no prior experience of lending announces that it has applied for an NBFC license and market rewards it by spiking the price to almost the upper band (~19% intraday), one can make out the level of frenzy market has for NBFCs. Otherwise why wouldn't market doubt ability of the company that makes routers to lend responsibly and make money in an otherwise competitive and risky business.

We would have surely disliked that move, Smartlink makes good networking products and they should stick to their core competence given huge opportunity and not put this surplus capital to risk. What we have always appreciated about this promoter is their ability to sit on such a huge pile of cash for so long despite low yield and do nothing, its a rare trait.

The recent 25% buyback only strengthened opinion about their capital allocation skills. The best course of action is to scale up base business and do further round of buy-backs, we expect one next year as well.