Together, Gupta and Nayar have presided over a margin gain of 9 percentage points since 2008. This is a period that saw IT industry association Nasscom lower annual growth projections for the IT services business from around 16% to 12%.
In this period, Indian leader TCS improved this metric from 25.8% to 30.7%, while the number two player, Infosys, fell from 33.2% to 27.2%. HCL is narrowing the gap, leveraging its improving capabilities and bigger customers.
Back in 2010, HCL had only one $100-million customer; now it has six. In the same period, its count of $50-million clients has gone up from six to 15. "Old contracts started maturing (HCL was able to bag more business from a client) and that led to higher profitability," says Dipen Shah, senior vice president & IT analyst, Kotak Securities.
At the worst of the 2008 slowdown, HCL paid $658 million to beat Infosys and buy Axon, a UK-based business software consulting major. This buyout helped HCL grow its business consulting practice (services that use IT for specific business outcomes). Says Anant Gupta, "Strong focus on IT transformation deals over the past several years helped the company grow faster than the competition as growth in traditional application development and maintenance contracts withered due to pressure on client IT budgets."
Even as HCL entered new domains with Axon, it kept an eye on its cash cow: The infrastructure management services (IMS) business. As part of this, HCL provides computer support, software upgrades, anti-virus protection, and manages data centres and networks.
For Freescale Semiconductor, for example, it does this in 20 countries. IMS has grown from a $196-million business in 2007 to a powerful $1 billion revenue engine now, accounting for 30% of HCL's revenues and growing at the same rate.
An increase in sales and marketing spends, from $386 million in 2010 to $662 million in 2012, helped HCL win deals in the tough period. In 2011, HCL replaced IBM as British pharma major AstraZeneca's outsourcing partner for data centre services in 60 locations globally.
As the partnership matured, HCL was able to bag additional services.
HCL is also using its employees more. Employee utilisation has averaged 84.5% in the last four quarters, against 75% three years ago. "Productivity improvements helped margins expand," says Sarabjit Kour Nangra, VP research, Angel Broking.
HCL tackled its lagging BPO business as well. It reduced voice work from a peak of 45% in 2009 to below 30% now; it exited low-end services like customer care. After three years of losses, the BPO business, which accounts for around 8% of the company's $5 billion revenues, turned profitable in 2012-13.
To sustain performance, HCL will have to accelerate its lagging software services business, which accounts for less than 5% of revenues. "Sustaining margins will be a challenge as there's not much room to extract more juice from initiatives like employee utilisation," says Shah. Adds Ankita Somani, IT analyst at MSFL, a brokerage, "While HCL has done well in the past, there's too much dependence on IMS. It will need to broadbase its growth."
http://timesofindia.indiatimes.com/followceleb.cms?alias=HCL Tech,HCL,Vineet Nayar,HCL Technologies,Anant Gupta
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