Software Services firm HCL Technologies said it wants to maintain its current margin levels, as it would continue to focus on the low-margin business of infrastructure services. During the quarter ended March 31, 2010, HCL reported an operating profit (Ebitda) margin of 19.7% down 160 bps from 21.3% in the same quarter last year. Infrastructure management services, contributed about 22% of the revenues during the quarter as compared to 15% during the same quarter last year.
HCL Technologies president (infrastructure services division) Anant Gupta said, “We would want to play in the current range of margin though we don’t see it going down further.” During the quarter the firm had an impact of 100 bps due to currency headwinds and additional 60 bps impact due to the mix of business. “Though the infrastructure business gives us a low margin it brings growth to the overall business in absolute terms. At the same time, it does not increase our SGnA (sales, general and administrative) expenses as we partner with other players in the eco-system.” At the same time, the firm plans to focus on the $25-50 million deals. “We see discretionary spending coming back and we $25-50 million range of deals is a sweet spot for HCL. We would continue to focus on the same in the coming quarters,” said Gupta.
According to HCL Technologies CFO Anil Chanana, the margins in the infrastructure business have grown double in about three years. “Three years back, the infrastructure business was about $45-50 million with 6-7% of margins, currently it is about $ 150 million with margins of 15%. We expect the BPO business to bring margins in the similar range,” said Chanana
The firm is working out on a restructuring strategy for the BPO business by reducing the voice component and bringing in new capabilities that would support the requirements of its clients over the next 5-7 years. It expects it to be done by July. During the quarter the firm invested about $ 2 million in the BPO restructuring. “We expect the BPO margins to be impacted for few quarters going ahead,” added Chanana. The BPO business currently contributes just 7.6% of its business.