HCL Technologies, the country’s fourth largest information technology services company, delivered better than expected numbers on Thursday for the quarter ended March.
Anant Gupta, president and chief executive officer, tells Bibhu Ranjan Mishra the quality of revenues also improved in the past quarter. Edited excerpts:
How would you rate your performance in the quarter?
We have been consistently demonstrating strong financial performance for many quarters.
This is the 10th straight one that HCL has seen both revenue and margin expansion.
More important, if you see our margin profile, we have grown tremendously. It is the result of consistency in strategy and execution.
Is the margin expansion primarily happening by reducing the sales, general and administrative (SG&A) expenses? Don’t you think this might curtail long-term growth prospects?
Our margin expansion has happened because of a number of things, including large engagements, driving offshorability and optimising our office space utilisation.
Besides, the ratio of our outcome-based services contracts has moved to 54.3 per cent as compared to 51.3 per cent during the year-ago period. Those are the reasons for margins expansion.
In both absolute and percentage terms, our SG&A expenses remain the same. We continue to invest more than the budget on the sales and marketing side.
You booked orders in the TCV (total contract value) of over $1 billion in the quarter. How much of those are rebid portfolio and how far has pricing discount played a role?
The rebid market continues to be important and a significant part of the TCV we sign. In the rebid market, the customers are looking at a better business case and total cost of ownership.
This does not mean the billing can’t be higher. That is dependent on the maturity of the delivery and execution model every company has.
That we have improved our margin profile in the past 10 quarters, though IMS (infrastructure management services) is supposed to be a low margin business, proves deals are coming to us not by giving discounts but by delivering better business cases to customers.
Your attrition level continues to be a cause of concern. What are you doing to contain it?
It is now 16.9 per cent, a little higher than our desirable number. It is not happening because of the expectations on only higher compensation but because of the pressure of the changing business model and skill profile needed to execute the works.
To that extent, in the short term, it appears to be a risk. But in my view, in the mid to long term, it is more beneficial because at the end of the day, this is the more sustainable model.
As an organisation, we are driving more fungibility of resources; we are driving multi-skilling.
So, are you continuing with your ‘employee first’ strategy?
‘Employee first and customer second’ continues to be a very strong philosophy of HCL. Obviously as we globalise more, we are moving into a new framework.
Our core tenets of employee first, thrust on transparency and flexibility, and value-centricity have been kind of re-packaged and stitched together to what we call ‘relationships beyond contracts’.
Your utilisation continues to be quite high and perhaps one of the best in the sector. The fact that you are focusing on 'just in time’ hiring, will it not affect execution of future demands, as there is hardly any bench (employees without projects) now?
The answer is yes and no. The reason I said yes is that our utilisation, 84 per cent, is high. But it is the ideal range we would like to be for the business mix we have.
In today’s rebid market; when you start an engagement, you hire a lot more lateral people. You also need a lot more people who you can re-badge from customers or from incumbent providers.
So, the core talents need focus more on managerial works and provide thought leadership. As the engagement moves into a steady state, the ability to hire ‘just in time’ becomes a lot more efficient.
What is your view of the overall demand? Are you optimistic on topping the Nasscom (industry association) growth forecast of FY15?
Well, the market is there; we are extremely bullish on the market; our record has been good. So, we will strive to deliver industry-leading growth.
Lastly, don't you think that the talks about the promoters selling stake in HCL Technologies, is a distraction for the management? Are the clients concerned about it?
We deal with the distraction like a distraction. Our customers are absolutely comfortable with what we deliver.
Our relationship with them is quite trustworthy and they have a clear visibility on what we are doing. There is absolutely no apprehension by our employees. We have already clarified the investors. So all I can say is there is absolutely no truth in it.