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Mr Vineet Nayar

Vishwanath Kulkarni

Bangalore, Sept. 17 HCL Technologies Ltd, the country’s fifth largest software exporter, said its focus on new markets, pricing models and service offerings would help drive growth as market conditions worsen in US, the largest IT services market.

HCL Technologies was looking for growth in new markets such as Continental Europe, Latin America, Brazil, Japan, Korea and China, said Chief Executive Officer, Mr Vineet Nayar.

“Potentially, we see more change of openness to outsource as companies face cost pressures in these markets,” he said.

The company earned over half of its revenues from the US, while Europe accounted for 30 per cent and the rest coming from Asia Pacific.

Like other large Indian IT vendors, HCL Tech also faced pressures in the financial services vertical with two of its large customers reducing their budgets in recent quarters.

“In short term, we do not know what’s going to happen,” Mr Nayar said on the worsening market conditions in the US.

“However, in the medium term, say a year from now, there will be more outsourcing,” he said.

HCL earned about 28 per cent of its revenues for the year-ended June 2008 from the banking, financial services and insurance vertical.

Further, the company was seeing a good response to its newer pricing models such as fixed price, royalty, risk-reward sharing and output-based pricing contracts.

“The new deals won during the year confirm the changing patter of revenue stream,” Mr Nayar said.

About 86 per cent of the 15 deals with a contract value of over $1 billion signed in the year-ended June 2008 were structured as fixed price and output-based contracts, where the potential to earn better margins is higher through productivity gains. The remaining 14 per cent was structured on traditional time and material, where customers are billed on per person, per hour basis.

Admitting pricing pressure as customers faced cost issues, Mr Nayar said the company was trying to overcome that by signing more of fixed price contracts.

Revenues from fixed price and output based contracts grew by 52 per cent in 2008 contributing for a third of total earnings. Revenues from the traditional time and material contracts grew by 30 per cent.

HCL Tech reported a 39 per cent growth in net profit at Rs 1,431 crore for the year-ended June 2008, while revenues grew 26 per cent to Rs 7,639 crore over a year ago.

More Stories on : Outlook | Software | HCL Technologies Ltd

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