We'll come back to pre-Covid levels in H2 FY21, says HCL Technologies CEO

Since we have done very well in Q2, we have to deliver the incremental growth in Q3 and Q4 on this expanded base, said Vijayakumar

Like its larger industry peers, HCL Technologies on Friday also delivered strong numbers in Q3 of FY21, showing an improvement on all fronts and beating its guidance. In an interview with Sai Ishwar & Bibhu Ranjan Mishra, chief executive officer (CEO) C Vijayakumar reveals how the company decided to be slightly cautious for the seasonally weak third quarter and how most of the industry verticals have hit pre-Covid levels of growth now. Edited excerpts:

Your numbers in Q2 are quite good. What has really changed on the ground in the last three months when compared with the June quarter?

In the April-June quarter, a lot of our clients had put some of their initiatives on hold as they were finding ways to optimise their costs to deal with the pandemic and its associated impact. But once fully into the second quarter, a lot of them actually came back to us saying that while they continue to put those programmes on hold, there are some new programmes where we need to help them. These are programmes are very important for them in order to be able to do well in the pandemic environment. For example, programmes like building digital channels to reach more clients and enhancing client experiences.

Why is it that despite doing so well in Q2, you did not revise your revenue guidance upward?

Since we have done very well in Q2, we have to deliver the incremental growth in Q3 and Q4 on this expanded base. So, to that extent, the guidance has really increased. And Q3 also has got some seasonality as it is traditionally a weak quarter because of the furloughs and December holidays. So, considering all that, we think that it (retaining the guidance for H2) was the right thing to do.

As we approach the year-end quarter, is there any visibility on the client’s IT budget?

If you want to talk about next year’s budget, I don’t think we have the visibility to that point. It’s too early. Normally, we’ll get some visibility in the fourth quarter.

You have seen a 22-quarter high in EBIT margin. What are the reasons which drove this expansion?

Margins have been expanding gradually over the last few quarters. Now, it has been contributed by two things. First, our products and platform business, the proportion of which has increased, and is delivering almost 30 per cent EBIT. The focus on next-generation services, what we call as ‘Mode 2’ has also helped in this. Now, as the businesses have scaled, the margins have improved.

While most of your industry verticals have shown sequential growth, there are a few which still lag on YoY basis. When do you expect them to cross the pre-Covid level?

If you take our seven verticals, retail and consumer packaged goods and life sciences are showing positive growth (YoY). Financial and public services are only showing marginal decline and that should be made up as orders come by. Manufacturing vertical will take a little time. Telecom and media is driven by a certain amount of offshoring in certain clients. So, that should also be covered in a couple of months.

Will you continue to hire at the same pace as you used to earlier, given the level of automation in the business and emergence or right-shoring?

Yes. Hiring will continue. In fact, we plan to increase the proportion of freshers. It should go up gradually though it may not change the employee pyramid in a significant way.

Are you anticipating any business impact as the US is going for election next month and as the mood of voters is not clear yet?

Obviously, we are looking at everything that is going on. We are looking at what are the possibilities of them reaching a good conclusion for us and then how do we execute.

What is your game plan for the products and platforms segment as that has outperformed others in this quarter?

We had given a guidance of what we expect for the first year and second year. In the last couple of quarters, we have been working on modernising products and launching new versions. We have some very good demand for some products like commerce, security and digital solutions. Beyond a one-year period, it will be early to comment on what kind of growth you will expect here.