HCL Tech plans to merge arms with itself, eyes new spots

Excerpts from Midcap Radar on CNBC-TV18 Watch the full show » RELATED NEWS HCL Tech wins $50 mn deal from UK's Meggitt HCL Infosystems Q2 cons net profit up at Rs 56.1 cr HCL Technologies in talks to acquire Australian co HCL Tech okays merger of arm HCL Technoparks with self ALSO READ See latest News about HCL Tech See previous management interviews See what other Experts & Brokerages are saying about HCL Tech Nifty BSE | NSE 10/02/12 Are Mutual Funds betting on Nifty?

Even after buying Axon, HCL Technologies Ltd  is still hungry for acquisitions. Chief Executive Officer of the USD 2.3 billion offshore IT and software development company, Vineet Nayar told CNBC-TV18 in an exclusive interview defined the company's aggressive acquisition strategy.

Nayar said HCL Axon, which was pursuing upto 25 deals at the moment, was expecting to close all the acquisitions by FY12. The company, he said was looking at merging subsidiaries with itself in the next two quarters. "We are also eyeing acquisitions in the captive business process outsourcing (BPO) space, but not bids have been placed yet." The company was open to using 30-40% of the overall budget in acquisitions, he added.

Further Nayar told CNBC-TV18 that though the IT budgets were expected to remain flat for FY11, BFSI, media and telecom spends were likely to double this year.

On road ahead

If you compare the two businesses in 2005 and 2010, 25% of what HCL does today did not exist in 2005-the service line did not exits to the extent it is today and therefore my projection is that in 2015, at least 25% if not 35% of our business does not exist today and therefore we will bring that in. Now are you going to see the signs of that in one-year's time. I think it's too short a time frame but you are definitely going to see some signs coming up for example business aligned IT, business services, cloud computing, some of these utility services all these you are going to see early signs of trending towards that but they will not reflect in revenues in this particular year.

On Axon acquisition

Axon acquisition is one brand acquisition which gets you premium rates, which is Axon. It is independent of HCL and not an Indian IT player-it's a European and American IT player. Secondly, it gives us capability across SAP and Oracle because now Axon leadership handles all, Microsoft, Oracle and SAP and the enterprise application. Third is leverage into Axon accounts where we were able to sell ASM and infrastructure services which has been quite a bigger success. Fourth is we have done acquisition under Axon, so you see an acquisition South Africa, the OLR acquisition which has not happened but would happen out of Australia.

We have defined our acquisition strategy looking at 2015; we are looking at what are the gaps. One of the gaps are we did not have very strong transmissional presence; we did not believe organically we can build up consulting capabilities that led to Axon acquisition. So whatever is required to fill in the gaps in 2015 we will fill them up in the next 24 months or so. Some of them will be part of HCL-Axon; some of them will not be a part of HCL-Axon. We leveraged our balance sheet to leverage Axon therefore our cost of ownership of Axon was much cheaper than the other bidder and if you have seen we have started with 100% of our loan of over USD 500 million now has come down to USD 300 million.