Over 50% business from non-US market

Written by Diksha Dutta | Diksha Dutta | Kirtika Suneja | Updated: Oct 19 2011, 07:27am hrs
While the $88-billion Indian IT industry grapples with uncertain macroeconomic conditions and its poster boys bear the impact of this uncertainty, the countrys fourth largest IT company posted a 50% increase in its net profit for the first quarter ended September 30. Its chairman and CEO Vineet Nayar told FEs Diksha Dutta and Kirtika Suneja that the company is experiencing one of the highest growth rates among its peers despite lower margins.

Why is it that despite an increase in year-on-year numbers, the sequential net profit is down and margins are below analysts expectations

The sequential net profit is down mainly because of salary increases we gave this year. We expected a 300 basis point effect because of salary increase but it actually turned out to be only 150 basis points due to currency gains and productivity increase. As for margins, we want to maintain Ebit margins at 14% and anything more than that will be re-architectured into the BPO business which is being turned around. We have not compromised on margins but it is a conscious decision to be in the total IT outsourcing business which gives margins of 10-12%. These are large, annuity-based contracts.

Has the BPO business started making profits

We expect BPO to break even in January next year and that is when we will redeploy our investments in the Ecosystem and Business Incubation Units business analytics, mobility and engineering outsourcing.

Why is HCL now focussing on hiring freshers as compared to laterals

We hired a significant number of laterals last year as we were concentrating on winning big deals. At present, we are pumping in freshers to work on those existing projects. Today, our ratio of freshers and laterals is 50:50, which was more inclined towards laterals last year.

You also spoke about the pendulum moving from the US to non-US for the first time...

For the first time, the share of non-US countries has contributed more than 50% to our funnel. The share of US is only 45%, while that of other countries dominated by Europe is 55%. This is because US is now investing in change the business (CTB) deals like transformation , innovation and total IT outsourcing, rather than run the business (RTB) deals. On the other hand, the European market is investing in RTB deals. Apac market is a mix of RTB and CTB. So when you look at the client portfolio, different geographies are growing in a different way.

How do you plan to increase your onsite presence

The concept of outsourcing everything to India no more exists. We will create 10,000 jobs in the next five years in geographies outside India in markets which give us maximum business that is Europe and the US. We select customers who encourage job creation in foreign locations. These 'anchor' customers connect us with the students and universities in the onsite location. Consequentially, they also help us in getting in touch with the local government which further subsidises the training costs of these students.

So in this context, what are the new blue oceans for HCL Tech

Among the verticals, manufacturing and its sub vertical of consumer electronics is picking up in emerging economies along with healthcare, media and entertainment. BFSI is expected to step up in January when these companies go in for vendor consolidation especially in Europe. As for the service lines, more than 50% of the business is growing above the company average.

What about the controversies surrounding you and NewsCorp

With good things come bad things. When WSJ happened, no one talked to us. We wanted to hire local people there and tied up with the company for a leadership workshop to go into 60 colleges in Europe. We gave them 10,000 to conduct this workshop and the first workshop happened in London. What they did with the money is their concern.