Its about which side of churn you are

Written by Kirtika Suneja | Updated: Apr 19 2012, 08:39am hrs
Despite an uncertain economic environment when companies are not increasing the spends on information technology, India's fourth largest software and services exporter HCL Technologies posted a better-than-expected 28% increase in net profit for the third quarter ended March 31, and bagged $1.5 billion worth of deals. Vineet Nayar, vice-chairman and CEO of HCL Technologies, tells Kirtika Suneja that growth is coming from first time outsourcers from Europe, which is going through turbulence but also offering a great window of opportunity.

After Infosys results, which flagged worries about the IT sector, HCL's results were better than expected. What led to this growth in revenues and profits

We have been talking about a churn and vendor consolidation happening in the market for quite some time. The growth rates of companies depend on which side of this churn they are. We were on the winning side of vendor consolidation because our strategy was sharp and focussed. Moreover, our selling, general and administrative expenses are restricted to $600 million. Growth has also come from first time outsourcers in Europe. Also, many companies are now changing their vendors because they want to reduce the costs of run-the-business (RTB) and reinvest in change-the-business (CTB) solutions. They want to reduce the RTB component from 80% to 40% by virtualisation, offshoring and data centre consolidation. Plus, infrastructure business clocked in a billion dollar deals this quarter.

So, what will be the strategy for different geographies especially Europe which is going through a turbulent time

Europe is going through a turbulence but also has great opportunities. After winning 51% deals in Europe, the strategy now is to digest them. We will consolidate our business in Europe by flipping the 80-20 rule wherein 80% was acquisition of new business and 20% was maintaining the existing business. This is now being reversed in favour of maintaining the present business. On the other hand, the environment is stable in the US where the companies' profitability is 20% higher than pre-recession period and CEOs are astute about spending.

In this context, which are the blue oceans for the firm

Among the verticals, media, publishing and entertainment along with healthcare are growing while Europe is the growth geography. We are also looking at a joint proposition with financial services and BPO for developing solutions around mobility, big data and multichannel commerce.

Did the BPO business break even this quarter as expected

The BPO business broke even but I think going forward it will remain breakeven because we still have some restructuring to do. Also, the move to merge financial services with our BPO business has paid rich dividends.