In a tough IT market, HCL Technology is charting out an aggressive growth plan.
Vineet Nayar, Vice Chairman and Chief Executive Officer of India’s fourth largest IT company, HCL Technologies, has been travelling a lot to the US over the past few months. Nayar jokingly says, “I do not have a girlfriend there.” And quickly adds that he is embarking on international visits to understand the mood of the companies not only in the US, but around the world. Analysts feel that HCL Tech could bring lot of deals from the international market going forward. In the first quarter of this fiscal, HCL had bagged 28 deals, just one short of market leader TCS.
“All engines are firing for growth,” Nayar said while announcing the quarterly results recently. This confidence comes even as many of HCL’s competitors are finding it tough to get fresh deals from markets like the US and Europe.
At the core of HCL’s strategy are its employees. “At HCL we believe an employee is at the core of every bright idea that is a game changer. Aren’t you an employee, first?” These lines on the home page of its Web site clearly indicate the importance the company gives to its employees. According to the company, the ‘Employees First’ philosophy helped fuel a surge in the company’s growth over the past five years, including during the depths of economic downturn. Founded in 1976, the $ 4.3 billion (Rs 22,471 crore) company today has strong services including software-led IT solutions, remote infrastructure management, engineering and R & D services and Business Process Outsourcing (BPO). BPO, the only vertical that was not taken care of by the company two years ago, has also been reporting positive results over the last one year. The company has slowly moved to non-voice services.
Another strong point about the company feel analysts is that HCL Tech is coming from the HCL Group, which has deep expertise in embedded systems because of the exposure to hardware. The company has capitalised on this expertise and has become one of the major players in the Infrastructure Management Services (IMS) business.
“All in all, we believe that, HCL Tech has played to its strengths and its differentiated strategy has allowed it to achieve relatively better growth rates as compared to most peers,” Dipen Shah, Head (private client group) Research, Kotak Securities told Business Line. Also, under the current leadership, the company has followed a differentiated strategy of penetrating clients through the IMS-led integrated services value proposition, he said.
There has been growth in the wins in small, mid and large deals over the past few years across all verticals have also led to a compounded annual growth rate of 23 per cent to the company. Anticipating the growth, Nayar had announced in 2010 to hire 10,000 employees by 2015 in key markets like the US and Europe. It has already hired around 5,500 employees till now.
“The company is growing every quarter and is been chasing for market share just like other large companies like Tata Consultancy Services and Cognizant. The company eyes on relevant markets rather than going to emerging markets and its sales team is also strong for Europe,” says Ankita Somani, IT analyst at Angel Broking.
HCL Tech is going after volumes and margins that it did not do four years back. It is also positive to the company as it was after customers then and now through renewals it is gaining more businesses. The recent results of its first quarter ended September 30 also proved that there still business opportunities for the Indian IT industry, which bigger companies like Infosys has been saying there are still uncertainty in the global economy. HCL Tech’s reported a net profit of Rs 885 crore for the first quarter, up 78 per cent compared with Rs 497 crore in the corresponding period last year. Revenues during the quarter also rose by 31 per cent to Rs 6,091 crore from Rs 4,651 crore in the same period last year. But, having said that the market could turn around anytime over the next two years because of the fact that companies around the world still have some doubts and taking time to decide on IT budgets.
Nayar understands this and is planning for tough times. “Nobody knows what will happen to the industry in next one or two years’ and it is difficult to predict for anyone,” he said.
The bright side is that there are opportunities of winning deals worth $ 273 billion in the form of renewals by 2014 from companies around the world. In the short term, HCL Tech will also eye $ 40 billion worth of contracts coming up for renewal in the October-December quarter this year.
Going forward, the company may also look at ramping up its business in India, which contributes to only around 2-3 per cent of the total revenue at present. In comparison TCS got 7 per cent of its revenues last quarter from India.
According to the Prithvi Shergill, Chief Human Resource Officer, HCL Tech is building relationships with many campuses for future hiring. The company has recently partnered with Madras University on building a curriculum on technology space.
It would look at introducing similar models in other universities, which could build the future team of the company.
“Over the last few years (2-3years back), we have started hiring more from campuses along with laterals as nature of work required freshers as well,” he said.
And as the company has more focus on quality people rather than just increasing the hiring numbers it is happy with the 85,000 employees that it has. Setting up a milestone of 100,000 employees is not in its list as of now.
As Dipen Shah says, “The company has reported relatively high growth rates in the recent past and should continue to grow at industry leading rates in the foreseeable future, under current macro conditions. If the company manages to achieve this, it will be able to achieve several milestones.”