Q&A: Vineet Nayar, CEO, HCL Technologies

'Will raise margin by 100 bps'

Surprising the markets and analysts, HCL Technologies, the fourth-largest software exporter in the country, has posted a 33 per cent rise in net profit on the back of improved margins and broad-base growth. CEO Vineet Nayar talks to Piyali Mandal about the result and how the company plans to stay ahead of the pack at a time when some of the key markets served by it are facing recessionary pressure. Edited excerpts:

At a time when Infosys has reported less than expected numbers, you have registered a 31 per cent growth in revenues. What worked out for you in this quarter ?
We had said we would be in the upper quota of the growth band. We sharply focused on market share. We believed there were a lot of new customers coming to the market who want new things, and HCL has to be in the front of the pack winning new business, new customers and new business from existing customers. That is what we were doing, and it reflected on the results. Therefore, you see all service lines, geographies and verticals growing, an indication that it was broad based growth. And, not growth based on one strategy.

Besides this, what according to you were the drivers for this growth?
Our investments in Europe and rest of the world. Anticipating these markets would grow, we invested in them. We also invested in areas such as healthcare and manufacturing as we expected those to be growth drivers in the future. With the acquisition of Axon, we were able to bag more transformation deals. We anticipated that after recession, the market for that business will be very big.

Do you see headroom for the margins to increase further?
We will increase our margins by a minimum of 100 basis points in constant currency over April-May-June. Thus there is headroom. The growth in margins came on the back of higher utilisation and higher realisation. However, I think, in the July-September quarter the margins will dip as we plan to give a salary raise.

But the volume growth on a quarter-on-quarter basis has decreased.
Yes. But you can’t measure the company based on quarter-on-quarter volume growth. We had 4.8 per cent of volume growth. It is a 30 per cent increase on year-on-year basis. Moreover, we do have a good pipeline.

Give us a sense of your deal pipeline.
We have signed 11 deals this quarter. Three of these are BPO deals. Most of the deals this time were transformational, in areas such as engineering services, enterprise applications, data centre virtualisation and creation of cloud platform.

You have signed three deals in the BPO space. Are these signs of turnaround for your BPO business?
Yes, the BPO recovery is faster than we originally anticipated. But for the next three quarters, BPO will continue to make $5-6 million loss. It will break-even in the January-March quarter.

Did the recent calamities in Japan affected revenues?
Japan has been growing for 60-70 per cent year-on-year for us. We still have to understand the implications of the current happenings in Japan. Three per cent of our revenues come from Japan.

How attractive does the domestic market looks to you?
We see India as a big market. I think it is driving high growth. We see that public services, financial services and insurance are the three growth areas for us in the domestic market.

Your comments on the macroeconomic indicators and whether it will work in favour of HCL?
The macroeconomic indicators for all of us is the same. There are some positive news emerging out of the US, but on the whole, most of the data is concerning. So, we are still not out of recession in the US and Europe, and there are certain challenges in some other countries with reference to their finances. In the emerging markets, the recessionary trends still continues. I think, it’s a mixed bag from the world point of view, and you have watch carefully as to how the world is going to respond to the new norm.