India, China No. 1 Strategy for Next 5 Years for H

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HCL Technologies believes it is well-positioned to leverage the structural shifts in the marketplace which, in turn, has started showing signs of economic recovery. With the action building-up, the company sees India and China contributing strongly to revenue growth over the next five years.
The Chief Executive Officer of HCL Technologies, Mr Vineet Nayar, says that the company plans to be on an aggressive footing where lateral hirings are concerned. Business Line caught up with Mr Nayar to find out more about pricing pressures, 2010 IT budgets and overall hiring strategy.
Excerpts from the interview:
HCL Tech's Q2 revenue has jumped 22.8 per cent over the corresponding period of the previous year. What factors fuelled the growth?
The revenue line grew as we had decided that recession is an opportunity for us to increase our market share, by focusing on total IT outsourcing and employees-first policy. So if you look at calendar 2009,[link widoczny dla zalogowanych], we have grown 23 per cent over 2008 — that indicates success of our strategy. The horizontals that drove revenue were application development and infrastructure because of total IT outsourcing. The dominant verticals were media,[link widoczny dla zalogowanych], publishing and entertainment, financial services and life Sciences.
But your margins have slipped in the second quarter…
We were able to grow the EBIT by 13.9 per cent on year-on-year basis — we are perhaps the only company growing that at this rate. The quarter-on-quarter drop of about 8.1 per cent in EBIT has been due to salary hikes for which we had already guided that there will be a 130-basis point impact. Also, there has been an impact of rupee appreciation which was mitigated to some extent by the better utilisation.
You mentioned earlier that the shape and size of the industry will be very different in 2015. Can you elaborate?
Take, for instance, the consumer…there is a shift in the way he consumes and purchases music, video and content…There is a structural change happening in your industry, the retail industry and in every industry. The consumer behaviour is changing. Where IT services are concerned, earlier CIOs used to discuss in terms of IT outsourcing and applications outsourcing – those classification services will no longer be relevant. There will be new classification services like the business transaction-based services. All these changes will happen in the next five years so we have to restructure ourselves.
What is HCL's recruitment strategy going to be for 2010?
Our policy has been just-in-time hiring; we will continue with it. The environment will become hotter so we have to be more aggressive in hiring the best quality people. Our aggression will not be in numbers. The reason why I am saying there will be a shift in the industry is because we tend to measure everything in volumes whereas people are going to measure it in term of quality of services you deliver. As discretionary spends come out, it is not the freshers who are going to be transforming discretionary spends…Change in business will involve lateral hires which is what we are interested in. The lateral hiring strategy of HCL indicates that we believe that next phase of growth will be around discretionary spends.
Any targets for hiring…
We do not give projections but it will be higher than in calendar 2009.
Are you spotting some early signs of how IT budgets are going to shape-up for 2010?
There are three ways to look at this. I believe most of our customers will start making profits in April-June this year – this is based on the S&P 500 data. So April-June is positive from economic indicators point of view. IT budgets are going to be positive 4-5 per cent, according to tech research firms. The critical question, therefore, is, what does it means for us. We grew 23 per cent when both these indicators were going down – so these service lines are no longer relevant when both the indicators begin to move up. I am saying HCL is re-orienting to catch hold of the two indicators. I am also saying that these two indicators going up does not necessarily mean that everyone will start growing.
Will IT budgets be flat in 2010?
Yes.
Are there verticals and geographies that are poised for a stronger growth?
In the next financial year, media and entertainment, life sciences and BFSI will continue to grow and manufacturing will also turnaround. Asia and Europe will drive growth in terms of geography.
Do you expect any improvement in pricing going forward?
I do not expect pricing improvement.
Will there be more $10-30 million deals in the marketplace going forward?
Yes, when the discretionary spends make a comeback it will come in smaller deals. Total IT outsourcing involve larger deals whereas in discretionary deals one will look at SAP implementation for say Europe. So they are smaller projects.
You also mentioned that India and China will contribute to large part of the revenue growth between 2010 ad 2015. Why are these two markets suddenly so attractive?
There is a structural change which has taken place in the Indian market. Suddenly, the total IT outsourcing RFPs have started coming in. Initially, we used to have discreet RFPs where hardware, software and services were all separate (components) and L1 would get it. In those kind of things you cannot be competitive. But now RFPs have changed to total IT outsourcing RFPs and so it has become really attractive. This quarter we are declaring India and China as the No 1 strategy for HCL for the next five years. The opportunities will be in financial services, public services within the total IT outsourcing arena. On the other hand, in China,[link widoczny dla zalogowanych], the discretionary spends are very high. So our strategy in China is largely around discretionary spends, which basically means SAP, EAS-led and engineering-led offerings.