BPO biz to break even in January-March

Written by Kirtika Suneja | Diksha Dutta | Diksha Dutta | Updated: Jan 18 2012, 08:04am hrs
HCL Technologies ended the second quarter of fiscal 2012 with a 43.3% increase in its net profit and a trebling of $100-million customers, but a cautious outlook for the next quarter in terms of deals.

Vineet Nayar, vice-chairman & CEO of the countrys fourth largest IT company, tells Diksha Dutta and Kirtika Suneja that the caution is because of the emergence of new outsourcing models and strategies from both vendors and customers. Edited excerpts:

The results show that in terms of value, Europe, including the UK, leads the list. Does this mean that Europe is healthier than the US

European companies have suddenly woken up as there is a liquidity, volume, exchange and sentiment crisis in the region. Thus, opportunities in Europe has suddenly become very large. Three years back, when we were investing in continental Europe and the UK, I believed that Europe would invest in outsourcing later. And my reading then was right and now the market in the UK is increasing.

You won deals in Japan and West Asia, too. Does this mean better macroeconomic conditions in the rest of the world

The overall commentary of a country is not reflected by some global corporations. Some Japanese global corporations hardly do any business in Japan. They are 70% export oriented. Their view is a global view rather than just Japan. Same is the case with West Asia.

So what are the concerns and blue oceans going ahead

The blue oceans are that most of the customers are rethinking their vendor strategy. At the same time, some of the vendors are pressing a break when they should be pressing the accelerator and thus we are gaining. Some of the countries like Europe are looking at new models of outsourcing. The concerns are declining discretionary spend and poor macro -economic conditions.

How will this impact HCLs inorganic growth

Our view on inorganic growth has changed because we want to be relevant to both our present and future customers, and we dont know what that will be. Also, acquisitions might become expensive because of currency fluctuations. Hence, there is a pause on inorganic activity for six months.

In this quarter, only the India-focused, government-led energy and public sector vertical declined...

The vertical includes government services and all the deals here are done through tendering. Government tenders are based on certain commitment at a certain rate and there is not much money in this process. That is the reason for this verticals poor performance.

Do you plan to continue with the strategy of hiring more freshers

No. This time it will be more laterals as we have won new deals and need experienced manpower. Last quarter, the case was to work on existing deals and freshers was the apt option.

What about the margins and BPO business settling in

We will break even on the BPO businesses in the January-March quarter this year. We have been investing in new business models in this BPO space which relies more on non-voice services. On the margin front, we had 150 basis point expansion this quarter.

We predicted scale and size in October-December last year, and thus, increased selling, general and administrative (SG&A) expenses, lateral and fresher hiring, investments and at the same time company margins declined. But today, I am seeing a billion-dollar quarter. So now I can expand margins. We expanded SG&A this quarter, no other company did that.