HCL Tech may shift to utility-based outsourcing in 2 yrs

Here is a verbatim transcript of the exclusive interview with Vineet Nayar on CNBC-TV18. Also see the accompanying video.

Q: Would HCL Tech's umbrella guidance of 35% hold good?

A: I don't think so. The umbrella guidance was given in a different time and Udayan doesn't allow Shiv to forget it.

Q: You've managed it for FY09 though?

A: Yes, we did. Our view is different. Our view is to be very innovative in our growth approach, to be different and unique in the way we approach things and to deliver long-term, sustained growth. So far we have delivered it. It is very difficult to say what will happen in the short-term. But I think in the longer-term, HCL, the way it has conducted itself in the last four years, has grown three times in four years, and it augurs well for the next four years, whether it is 30% or 20% or 10% or 40%, I don't know. But I think we teed up pretty well, let me put it that way.

Q: What can we realistically expect in terms of FY10? I know you are shying away from actually holding out guidance in that sense. But if one were to talk about the industry average and we are actually talking about flat to single digit growth, are you looking at bettering that, are you looking at double-digit growth at least?

A: I think we are looking at growth within the band of the industry.

Q: Which is single-digit or double-digit?

A: Whatever that band in the industry would be.

Q: Under 10%?

A: Whatever that band in the industry would be, both in margins and revenue terms. Let's look at what is happening. I talked to you last time also on the S&P 500, the fact that only 26% of the companies are delivering QoQ positive results. That is a real environment. Why is HCL winning and demonstrating growth is because - let me tell you an instance of what happened. When Lehman Brothers collapsed, one of things I did was I'd said that the water is going to run out of the world. There is going to be limited water and so let's go and hoard. So, we changed our structure within 24 hours. We put the best and brightest on 25 deals which were growing. We destroyed all structures and said let's bring them. That is what we did. So, before the world dried out, we actually cracked I think about USD 2 billion over that period of time. That is the revenue you are seeing. That is the good news.

What is the bad news? The bad news is January-March, April-June, July, August no deals. I mean the water really has dried out. So, the growth we have delivered till now is thanks to the fact that we started ahead. How do we deliver growth going forward? There has to be new innovation, which is what we have to focus on.

Q: What will this actually translate into as far as your revenues are concerned because as you yourself pointed out the deal pipeline has dried up, and you've also spoken about how it continues to look very challenging in terms of bagging new orders? What does that actually mean in terms of revenues because everybody is talking six months down the line, what happens when what you've already projected comes through for you? What happens then?

A: I think it is very difficult. Whoever is making projections in the longer-term, at least I can't see the basis of making that projection. Can I predict today, in January-March my customers revenues would be positive and profits would be positively growing, I cannot predict that. Therefore, I cannot predict their IT budget. 95% of our revenues come from existing customers. Now in this quarter they demonstrated 8% QoQ growth. The reason is they took their lunch away from somebody else and gave it to us, or we grabbed somebody else's lunch. So, we gained on market share but their overall IT budget came down. So, I continue to be concerned about the environment, I continue to say that the environment is uncertain, undefined and therefore not to be predicted. What we are doing is eating market share, launching new services, going into new geographies and trying very hard to keep the momentum of growth going.

Q: What is it looking like for you in terms of your top 5, 10, and 20 clients?

A: Let's go back to the last quarter and let's come back this quarter. Last quarter, I would have said that everybody grew negatively QoQ. I don't remember the numbers but I think we were just shy of 10% negative QoQ growth on our top customers. You come to this quarter, we are above 8%. So, top 5 by 2%, and top 20 by above 8% QoQ.

What changed? Their IT budget has not changed. We have not won some magnificent deal. What we have done is we have convinced them by focusing on value that they need to do vendor consolidation and in the vendor consolidation bit we have increased our market share. Now, the good news is we have won. The bad news is the IT budget has not gone up. So, how much market share can you increase is a question I keep asking.

So, when you project forward and the reason you see me not being as bullish on the forward, is because it is good to be cautious about going forward because the business is uncertain. You are taking market share away and therefore be careful about it.