Will deliver better growth in next two quarters: HCL Tech's C Vijayakumar

We hired close to 3,800 people last quarter, he added

After reporting double-digit revenue growth in constant currency terms, HCL Technologies is hopeful of posting incrementally better earnings for the rest of this fiscal year. C VIJAYAKUMAR, president and chief executive officer of the Noida-based IT firm, tells Debasis Mohapatra and Alnoor Peermohamed, its IP-led partnership has also started to complement its overall earnings growth. Edited excerpts:

Margin profile of HCL Tech in Q2 remained flattish despite benefits from depreciating rupee. What was the reason? 

Last quarter, our margin was 19.9 and we had a forex benefit of around 90 basis points. But the impact of wage hike on the margins was 70 basis points. However, we had a pretty good improvement in productivity and utilisation. Some of that was offset with incremental investments in sales and general administration and others. 

HCL Tech reported good revenue in Q2. But, why are you not calling it out with a higher revenue guidance?

We had given a revenue guidance of 9.5-11.5 per cent for this fiscal year. Now, we’re giving a little more granularity by saying that we will be around the mid-point of that guided range. That’s in and around 10.5 per cent. This reflects our optimism in the coming quarters.

Do you see the seasonality factor playing out in Q3 due to a fewer number of work days? 

I think we also have a seasonality impact in some of the businesses, especially in December and a little bit in the last quarter as well. But, we also had a good booking momentum, and for the product business, December is seasonally a good quarter. Factoring in all these, we think HCL Tech will deliver incrementally better growth in the next two quarters.

Your IP-led strategy seems to be playing out well. For the first time, you said on annualised basis, it touched $1 billion revenue mark. Could you give some details about the kind of investment went into IP space?

We didn’t have any specific investments in Q2. Whatever were our investments, we had called out in the last quarter. Broadly, this portfolio is a combination of products that have matured over the last 10 years. We are taking it to market through dedicated go-to-market efforts. Also, from our IP partnerships, we have released new versions of a number of products, which have been sold to many of our clients. We are happy how the whole thing panned out in the past two years. It is an impressive track record to get to $1 billion run rate in a product business with hardly any product firms in India.

You have tied up with some technology providers for IP partnership. So, these new product releases are coming from which service providers' portfolio?

We have partnerships with three or four technology service providers. We also have 20 products, which are HCL’s own. We have built products in the space of automation, artificial intelligence, application performance monitoring, and public cloud management. All of these are finding good traction.

On the IMS business side, HCL Tech has performed well in the second quarter. How is the visibility in coming quarters?

On the infrastructure business, we had communicated earlier that the first half of FY19, we would start seeing good improvement. Especially, in the global infrastructure side, we had delivered 3.2 per cent growth over the last quarter. I see continued optimism at least for the next two quarters. Overall, I see a lot of market opportunity as the penetration of this model in the global market is still about 7-8 per cent.

HCL’s shares of BFSI, and retail & CPG in the total revenue pie are lower than its bigger peers. Will HCL’s focus on these verticals grow?

As far as BFSI, and retail & CPG are concerned, both are growth verticals for us. There are a lot of discretionary spends happening in these areas. Especially, potential of digital spends to transform businesses is the highest in these verticals.

Attrition had gone up in Q2? What is the reason for this rise? Also, what is your outlook on hiring?

Attrition on quarter-on-quarter basis has gone down by almost 200 bps. What you are seeing is on LTM (last twelve month) basis. So, overall, the attrition is coming down and it’s under control. We hired close to 3,800 people last quarter. If the business outlook continues to be good, we expect to hire similar or more number of people in the next two quarters.