HCL Technologies has delivered a 50 per cent rise in net profit for the three months ended September, its first quarter for fiscal 2012. The company is excited about the deal pipeline building up in the market during the October-December period. HCL expects these months to bring a spate of restructured contracts, as clients look for new vendors and cost efficiencies.
HCL Technologies Vice-Chairman and CEO, Mr Vineet Nayar, is hopeful that the cost saving derived by customers from this flush of ‘run-the-business' contracts will be redeployed to kick-start new transformational projects next year. Mr Nayar spoke to Business Line on the outlook for coming quarters, the pricing trends and on the recent WSJ circulation controversy .
What is your outlook on contract booking for the coming quarters?
The US is mostly done with run-the-business, or RTB, deals (application, and infrastructure maintenance type of deals). Europe is where the RTB spend is massive and therefore the funnel in Europe is bigger than anything we have seen before.
This is because they have not restructured their costs so far. When it comes to change-the-business or CTB spends (investments into new, transformation projects), it's the US and Asia-Pacific which lead the pack.
The bookings on RTB type of deals will dominate the market till December. From January onwards, a new set of budget will kick-in. I believe that customers would channelise the saving derived from the RTB deals into new, innovative and transformational projects that have the potential to change their business model. So the CTB spends will move up from January onwards.
What does that mean for your business? Will IT spends be flat or negative?
We are going to see flat or negative budgets next year. I think, the growth will come from vendor churns, which means eating someone else's lunch. The second part of growth will be when money shifts from RTB to CTB type contracts.
Despite the overall macroeconomic weakness globally, you seem fairly optimistic on the deal flows?
Sourcing advisor TPI estimates that deals worth $8 billion will be restructured in the December quarter. That figure was $5 billion in the September quarter. So I am bullish. I know where the money is going to be saved. The question is: Will that money find its way back to the IT industry in the form of transformational contracts? That bit is uncertain. If it does not, then we will have to find new avenues of growth. We will see how that pans out in January.
True, the overall environment is tough. But it is my belief that the way HCL is configured right now with whatever is happening in the market, we will gain from it. We will have to take it quarter-by-quarter. Right now the deal pipeline is very good.
Are billing rates under pressure?
As for existing clients, I do not think there is price negotiation and, therefore, here is an opportunity to increase the realisation. In the case of existing clients, we have increased our realisations by 1.2 per cent compared with the previous quarter. And that is not because of price increase but due to productivity gains. But when you look at new deals, there is significant amount of competition, for about 18 months now. And, therefore, the pricing level is the new normal. Pricing will remain stable. Whatever I have seen so far, it will not go down.
Which are the high growth verticals you are betting on?
Manufacturing is going to dominate growth, so will healthcare, and media and entertainment. And financial services too.
The company's name has been dragged in the ‘Wall Street Journal' circulation controversy…Your views.
At HCL, we will have to take the good along with the bad. We have decided to hire a lot of local people (in geographies outside India). To do that, we have to enhance our brand in universities. We chose 60 universities where we wanted to build our brand.
We tied up with the WSJ Leadership Institute and we were to go there and do leadership workshops. That is because we firmly believe that the brand (visibility) can be enhanced with leadership workshops.
So we did our first leadership workshop in London for which we paid them (WSJ) £10,000. What they did with £10,000 is not my problem. They did a workshop and leadership seminar for us. And we paid them for it. That's all I know. After that, we did not go ahead and, instead, opted for some other media house to do the workshops.