HCL Technologies eyes financial services and retail to boost income

HCL Technologies is diversifying its revenue stream with increasing focus on financial services, retail, and consumer packaged goods (CPG), and telecom verticals. The Noida-headquartered information technology (IT) services firm has traditionally earned less than competitors such as Tata Consultancy Services (TCS) and Infosys from these areas.

At the same time, however, HCL is strengthening its core areas such as infrastructure management and engineering services. The company aims to get more revenue than the industry average.

In the April-June (Q1) quarter of 2018-19 (FY19), HCL bagged 27 transformational deals in financial services, retail and CP, and telecom. One of these was an application support contract from a global reinsurance firm. Another was an IT deal from a UK-based grocery retailer. The company also recently said it had won a contract from the UK’s third-largest retailer, Asada. The deal value is estimated to be $20 million.

A senior official said, “We have definitely sharpened our focus on verticals such as retail and CPG, and financial services.”

In Q1FY19, financial services contributed 23.8 per cent of HCL’s total revenue. Retail and CPG contributed 9.1 per cent.

TCS earned 31.1 per cent of its total revenue from financial services. From retail and CPG, it got 16.6 per cent. Infosys earned 31.8 per cent of its total revenue from financial services and 16.6 per cent from retail and CPG

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“HCL’s growth is driven more by horizontal services than by verticals. It is traditionally strong in infrastructure management services. So, it is using those capabilities in winning more deals in financial services and other verticals,” said Pareekh Jain, country managing director, HfS Research. In a recent report, HDFC Securities had said HCL had seen momentum in new deals in Q1FY19. 

Analysts also said the firm’s strategy of investing in intellectual properties (IP) — it has done 10 IP deals in the past three years — is likely to yield dividend in the future

Since April this year, HCL has spent $539•million on three acquisitions — H&D International Group, C3i Solutions, and Actian Corp. It is estimated that this will bring in revenue to the tune of $392.35 million — or a 5 per cent growth.

It has also licenced IPs from IBM and DXC Technology, with an investment of $1.1 billion.

“Unlike its peers, HCL is betting on IP-led growth,” said HfS Research’s Jain.

In 2017-18, HCL reported revenue of $7.84 billion, a yearly growth of 10.5 per cent.