Q&A: Vineet Nayar, HCL Technologies

'There is no chance of any pricing increase'

HCL Technologies says the IT services firm will see good growth by grabbing as many contracts up for renewal in the next quarter, even though the overall IT budget is expected to remain static. Company vice-chairman and CEO Vineet Nayar, talking to Piyali Mandal, shares his views on the current demand scenario, pricing environment and opportunities. Edited excerpts:

With the macro-economic environment continuing to be uncertain, do you see any impact in near term?
The IT budgets have been down for quite some time — it can either remain static or go down. But the real activity is now expected to be around vendor churn, as clients were looking to change their existing vendors. This throws up more opportunities for firms like us.

What kind of opportunity do you see out of the deal renewals?
A number of deals are expected to come up for renewal and restructuring in the October-December quarter. According to a TPI (Technology Partners International) report, the total size of deals on offer (for renewal) could be as large as $8 billion. The demand would be mostly driven by companies in continental Europe.

In an environment where the IT budgets are going to be static, what kind of pricing pressure do you foresee?
With the existing customers, pricing underwent a change in 2008-09. We do not see pricing re-negotiations happening right now. However, there could a pricing competitiveness in new deals.

Recently, some media reports alleged that you were involved in WSJ circulation scam.
We wanted to build a brand in the universities. That’s why we signed up with The Wall Street Journal leadership Institute. They were supposed to conduct 50-60 seminars on leadership. The first one was conducted in London on September 30. It was a big success. For that, we paid them 10,000 pounds. I don’t have a point of view on what they did with that money. We only paid them for the services they delivered to us.

How is the domestic market shaping up?
In domestic market, we have made a conscious effort on few verticals such as utilities and financial services. Our strategy is not very broad-based India strategy. How is the BPO business doing?
We will break even in the January-March quarter. BPO will be the centre-stage of our growth strategy, because we see integrated IT-BPO deals dominating the outsourcing space in the future.

Why have you given a conservative guidance for margins of 14%, while your competitors enjoy margin of 20-30%?
We are in a total IT outsourcing business which is a low margin business. Many other vendors don’t participate in this space as it is a low-margin business. We succeeded with this model from 2008 to 2011. We have guided the market and we will keep our margins on constant currency flat on year-on-year basis.