HCL Technologies logged over 32 per cent growth for IT services in the June quarter but its BPO business continues to drag. The BPO services business — which is in the midst of a massive portfolio shift — posted revenue of about $48 million during the quarter, up 4.7 per cent year-on-year and down 4.4 per cent on sequential basis.
That said, analysts who track the company are not too worried — the EBITDA losses are lower, they argue, and BPO investments are being channelised “in the right direction”.
For the record, the EBITDA losses for the BPO business narrowed to $0.9 million from $5.2 million in the year-ago period, and the company says it is on track for a “breakeven” in January to March quarter of 2012. At the EBIT level again, the losses came down to about $4 million against $6.5 million in the June quarter 2010, and $4.5 million in March quarter 2011.
“We had predicted $7 million loss every quarter till December. But we are demonstrating lower losses…We are on track and January-March 2012 will be the breakeven quarter for BPO business,” the HCL Tech Vice-Chairman and CEO, Vineet Nayar, has said.
Platform-based offering
The company initiated restructuring of the business a few quarters ago as it wanted to move away from the non-scalable, highly-commoditised and margin-dilutive voice business onto ‘platform based offerings'. Typically, in case of a platform-based offering, the service provider would offer a combination of software platform and services to, say, administer payroll for a client and charge on the basis of transaction or outcome.
“We have been able to reduce dependence on voice to 50 per cent. We had started with 90 per cent,” Nayar had said.
No negativity seen
Shashi Bhusan, Senior Research Analyst at Prabhudas Lilladher, tells eWorld that he does not see any “negativity”. “I am not too worried about near-term gains or losses in the business. The company is making investments in the right direction, and it will result in benefit in the medium term.”
Noting that the BPO business is in an investment phase and losses are bound to occur, he points to the losses declining over the past quarters. “We expect the business to start scaling up from January-March quarter and four-five quarters post that, we expect to start seeing BPO business reaching the company average in terms of margins,” he says.
Sanjeev Hota, Associate Vice-President - Institutional Equities at Sharekhan, says operating margins are a negative 2 per cent for the June quarter, but he expects a “turnaround” at the EBITDA level in second or third quarter of the fiscal. HCL runs a July-June fiscal.
“Most companies, including Infosys and TCS, have a platform offering, and HCL is also transforming itself now,” he says.
Analysts Srishti Anand and Ankita Somani of Angel Broking say the company has been continuously investing in building platforms for non-voice-based businesses. “It is expected to invest $5-6 million every quarter in BPO services until calendar year 2011 and BPO is expected to break even from calendar 2012,” they say.