Just when the general outlook for information technology (IT) firms playing the outsourcing game was looking potentially perilous, HCL Technologies - India’s fourth largest IT firm - announced a blockbuster quarter.
The company’s net profit rose 68.5 per cent to Rs 9.65 billion ($176.3 million) from the previous year, driven primarily by what it calls six large transformational deals - a majority from the US and Europe - that gave its quarter a billion-dollar booking.
Consequently, its stock soared 57 per cent in the last calendar year.
The man largely responsible for these rosy numbers is the company’s new CEO, Anant Gupta, a somewhat enigmatic entity, but the driving force behind the company’s infrastructure division’s transformation into a billion dollar business.
In fact, according to analysts, 70 per cent of incremental business for the company comes from here and the group brings in 27 per cent of HCL’s overall revenue pie.
This should be enough to quell the most cynical of observers worried about a leadership transition, but Gupta is walking in the footsteps of a legend - HCL’s former boss, Vineet Nayar - who transformed the company under his leadership.
“Vineet was very charismatic, who could manage and inspire,” says a Mumbai-based analyst. Nayar looked at far bigger global competitors like IBM squarely in the eye and went after their expiring contracts. The question is, can Gupta recreate this magic?
India has a $100 billion-a-year outsourcing industry and relies on the US and Europe for 75 per cent of its revenues, says the National Association of Software and Services Companies (Nasscom).
Today, the gravy train is in the business of renewals - contracts that are expiring and therefore up for grabs - and HCL has burnished its reputation in taking on global competitors head-on for a slice of it.
This new opportunity is worth $12 to $15 billion a year for the next three years. Ninety per cent of this used to go to incumbents such as HP and Accenture, but thanks to raiders such as HCL, the number has dropped to 70 per cent.
A year ago, for instance, HCL blindsided IBM by snatching a valuable contract from it when UK-based pharma major AstraZeneca chose the Indian IT firm to manage AstraZeneca's entire data centre operations spread across 60 locations globally.
It is not an easy business. Gupta, one of the chief architects of Nayar’s strategy described it well in a previous interview in October.
“You are challenged by a set of service providers who are running it, you have a finite time in which the transfer has to happen, in some cases you might not have the luxury of knowledge transfer and when the customer does decide, the other provider would have disengaged the people on the project,” said Gupta. “You have to realise these are live projects, so the room for error is negligible.”
Yet, HCL has done well in this difficult space. Even one of their biggest weaknesses - operating margins, always a concern, and at least six to seven percentage points behind their bigger rivals like Infosys, have improved.
This quarter, the company reported a sequential rise of about 360 basis points in its Ebitda margin, weighing in at 22 per cent.
There will be little time for Gupta to rest on his laurels. Analysts are wondering where the next big fountain of growth will come from.
It’s no secret what the next frontiers are, namely the cloud, mobility and analytics. Yet, even here, lurk challenges.
“In the cloud space, Google and Amazon are already general providers,” says a Mumbai-based analyst. “They will now have to blend service around products which requires a different DNA,” he adds.
Which is why, billionaire promoter of HCL, Shiv Nadar, may have done the right thing in picking Gupta. At 44, he is both young and experienced.
He is a lifer at HCL - he joined the firm in 1993 as a manager in the in the networks business unit of the infrastructure services division - and so understands the firm well.
He is a doer as well as a thinker - he has written the world’s first ever book on remote infrastructure management called ‘The Blackbook on RIM - traits that you need in predicting, or pioneering, big shifts in business and technology.
But, until he steps out of the shadows of Nayar and proves that he too can launch the firm into a higher orbit, there will be people who will wonder if he can ably navigate HCL into the future.