Anil Chanana of HCL Technologies said they have not seen any pricing pressure and their realisations continue to be the same.
We haven't seen any pricing pressure. Our realisations continue to be the same
IT companies have reported improvement in core demand and Anil Chanana of HCL Technologies said they have not seen any pricing pressure and their realisations continue to be the same.
The deal pipeline is healthier than last year and going forward, Chanana sees strong orders from the US and European markets.
Here is the edited transcript of the interview on CNBC-TV18.
Q: All the IT companies have indicated that they have seen an improvement in terms of core demand. According to you, can the Indian IT sector push through a price improvement as well, in the quarters to come?
A: We haven't seen any pricing pressure. Our realisations continue to be the same. The market which we are playing to is not like a price sensitive market because our competition with the global majors who have similar advantages to offer to the customers is like any other offshore provider. So we see more and more of the global majors than the Indian offshore players in that market.
Q: Talking in specific about the business, HCL Tech's output has come from grabbing market share in the re-bid or the renewable deal market. In that sense, how is FY14 going to shape up for HCL Tech in the re-bid market itself?
A: It's a renewal market and the renewal market has been there for long and will continue. The market size is USD 110 billion in 2013, USD 120 billion in 2014. If the infrastructure services itself constitute about 40 percent of that, if you take the total IT outsourcing, it constitutes about 30 percent plus of that. So the market is large.
Once you get the customer, then you can surround the customer with multiple offerings. When I say multiple offerings, I mean helping him in running his operations as well as changing his operations. When I say changing the operations, I mean mobility, analytics, big data and all those sort of value propositions you can create for the customer. So you help the customer on one hand in reducing his cost base and on the other hand, use that money which is saved to invest.
Q: For your company and for your performance one grouse perhaps could be that HCL's margins are lower compared to its peers. Now with the environment improving do you think HCL will be able to bolster its margins?
A: We had a significant increase in margins. If you look at over last four quarters, our growth rates quarter after quarter has gone up and at the same time the margin trajectory has also moved up. Both have moved in tandem because our business base is increasing. If you look at our client base when I started in FY12, I had one client in the USD 100 million plus category. Today, I have six clients in the USD 100 million plus category. That gives us a lot of confident.
I have five service offerings such as upsell, cross sell and I can sell to my customers most of those offerings. In terms of margins, we will continue to stay in a range of 18-19 percent which we have set for ourselves. It could vary quarter-on-quarter and invest whatever the excess is in the business.
Q: How is the deal pipeline looking like now?
A: When we run the business, we see a lot of deals. We see deals out of continental Europe, we see deals out of UK and we see deals in the US market. The deals either run the business or change the business. It could be new product developments, companies wanting to develop new products for the emerging markets, companies wanting us to run their IT operations, companies wanting us to manage their security operations, companies wanting us to manage their data centres.
Essentially, the theme is how do I, as a customer, cut down the cost, make my expenditure more variable according to my business needs and how do I partner with a company like HCL which is very transparent.
Q: How much better is the deal pipeline compared to last year?
A: The pipeline has increased. It has moved up when I see it with reference to the same period last year.
HCL Tech stock price
On October 20, 2014, HCL Technologies closed at Rs 1496.90, down Rs 8.65, or 0.57 percent. The 52-week high of the share was Rs 1775.40 and the 52-week low was Rs 1034.00.
The company's trailing 12-month (TTM) EPS was at Rs 85.33 per share as per the quarter ended June 2014. The stock's price-to-earnings (P/E) ratio was 17.54. The latest book value of the company is Rs 145.92 per share. At current value, the price-to-book value of the company is 10.26.
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