Better-than-expected results at HCL Technologies, India's fourth-largest technology services exporter, went a long way in assuaging investors who were concerned about the health of the Indian information technology sector, especially after the poor showing of bigger peer Infosys earlier this week.
The growth in revenues was driven by the strong performance of the infrastructure management services vertical, as well new business in Europe. But as in the previous quarter, the Noida-based company's headcount shrunk slightly. In an interview, CEO Anant Gupta told ET that HCL continues to be bullish on the outsourcing market and the company's deal pipeline is 40% higher than a year ago. Excerpts:
Your hiring has been anaemic for sometime and the headcount has shrunk. What is HCL's strategy there?
There is a continuous focus on driving non-linear growth (where revenue expansion is not linked to increase in headcount numbers). These are trends that have been going on, it's just that they are surfacing a lot more significantly now. In design and engineering, we are participating in the risk-reward model (where cost structures have to be kept low). In enterprise application services, we are using templates based on our intellectual property — they act as an accelerator and produce more nonlinearity. On one side, you are seeing that. Also, there is 4.2% shift towards outcome-based models.
The billion-dollar worth of orders you booked this quarter, when will they start reflecting in revenues?
Most of these deals are from the rebid market. About half would be integrated deals, which are across multiple service lines such as infrastructure plus something or infrastructure and business process outsourcing. These are non-discretionary spends, but with a flavour of transformational embedded within them. The deal duration would typically be three-five years and depending on the complexity, the revenue start coming in after an average of two quarters.
How would you describe the near-term market demand outlook? We hear differing commentary from companies.
The reason there is mixed commentary is presumably because of the business mix of each organisation. From an HCL standpoint, the ISG data shows that there is good potential for restructuring and re-bid deals this calendar year, and going into next calendar year as well. A large portion of this re-bid market is IT outsourcing. We continue to feel bullish on that market and we are making investments in sales, presales, customer acquisition. Concerns around discretionary spend continue, which are standalone kind of services. There are a lot of conversations around consolidation, social, mobility, but whether they will translate to large-scale programmes is yet to be witnessed.
It's been a while since you acquired Axon. Are you looking at any acquisitions now? Both TCS and Infosys have done acquisitions in continental Europe.
We continue to look at white spaces — gaps in a certain skill or market — where we can acquire. It is a continuous exercise. A key reason for a little conservative approach around this area is that the client profile of the acquired entity is an important aspect that needs to dovetail into our overall strategy, just as Axon was very complementary. Our strategy is not completely based on an inorganic play. We have also been early movers in continental Europe so we don't see the need to do any blockbuster deal there. Having said that, there will be white spaces, which we will fit from a competency or specific industry or domain point of view, which we will continue to look at and enter.
Healthcare and telecom continue to drag. When do we see overall growth across verticals?
I would not take one quarter as the reason to draw any conclusions. Public services, which for us include utilities, energy, logistics and government, is the only sector where we still see large untapped potential. But it's got its own constructs around 'offshoreability' and the value proposition. So, I wouldn't say it's the blockbuster going forward. I would say they are all doing well except for telecom, which is a question mark from a turnaround perspective.
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