Oct 18, 2012, 08.17 AM IST | Source: CNBC-TV18

HCL Tech says next 60 days crucial for Indian IT industry

HCL Technologies' consolidated net profit rose 78 percent, year-on-year, to Rs 885 crore in July-September quarter. In an interview to CNBC-TV18, the company’s management — vice chairman and chief executive officer Vineet Nayar and chief financial officer Anil Chanana—speak about the results.

Four-and-a-half percent growth in volumes despite discretionary spend being under significant threat, as I told last quarter, I think it was an all-round performance.

Vineet Nayar

CEO & VC

HCL Technologies

HCL Tech will go for another round of wage hikes in October-December period, said CEO and vice chairman Vineet Nayar. "We believe the next 60 days are going to be very crucial for the Indian IT industry," he told CNBC-TV18 in an interview.

The IT major reported a 78% (4% sequentially) rise in net profits to Rs 885 crore, sending its shares to a 52-week high. India's fourth largest software services provider topped street expectations, in sharp contrast to its Bangalore-based rival Infosys, which had last week reported second quarter net profit in-line with expectations but not without concerns.

Nayar said increased offshore and higher utilisation helped margins. However, he said discretionary spend remains under pressure in the near-term. 

HCL Tech's strong earnings growth came on the back of several new deal wins and growth across its key geographies of US and Europe, which grew 18% and 17% respectively in US dollar terms on a LTM (last twelve months) basis. “Our focus shift towards US and Europe will continue until 2014,” Nayar said adding, the IT major does not see any significant impact by the US elections.

HCL sees deals worth USD 40 billion coming up for renewal in October-March. "We see significant opportunities till February-March 2013," Nayar said.

Below is the edited transcript of the interview with CNBC-TV18's Latha Venkatesh and Udayan Mukherjee.

Q: Volume growth surprised the street positively. Would you say its infrastructure services that delivered or would you take heart from the fact that financial services also turned in a four percent growth this quarter?

Nayar: I think healthcare turned in a 14 percent growth, manufacturing turned in a good growth, media entertainment saw a 10 percent growth, and financial services saw a four percent growth. It was actually ‘run the business’ growth drove the volumes up.

Four-and-a-half percent growth in volumes despite discretionary spend being under significant threat, as I told you last quarter, I think it was an all-round performance. Obviously infrastructure guys continue to do extremely well.

Q: The big surprise is on the margin front as well. This is a wage hike quarter. Most investors thought that HCL will report a dip in margins. You have actually come in with a strong margin performance. What worked for you on the margin front this quarter?

Chanana: What worked for us in this quarter and has been working for us for quite long is the ability to manage the margins. We invest when the deal comes in and do it very successfully with zero defects, and move the work offshore. This is what significantly happened in this quarter. So, offshore percentage went up by 150 bps. This is one reason. Our utilisation went up. In the managed contracts, we have been able to successfully deploy the people more optimally. So, these are the two significant reasons that have led to the margin being intact.

Nayar: When we did USD 2.5 billion deal in October to March, the question you asked is ‘were they done at lower pricing?’ You are seeing pricing of those deals flowing through our P&L now. Therefore, those deals were done at extremely good margins.

Q: I am just reading some TPI data. It suggests there is a USD 30 billion rebid opportunity in October to December. This is a quarter typically where you snap up fairly significant deals which you milk over the four quarters to come. How is this October- December shaping up for you? What are your expectations?

Nayar: We are ending up being very predictable. We ramped in a lot of deals in October to March last year. We put our head down to execute it. Our hunters are back in the market. We believe the next 60 days is going to be a very decisive phase in the IT industry because TPI has predicted H2 is going to be 100 percent more in deals compared to H1 (first half).

All our guys are in the market, including me (I am flying out today to US) because October-November-December is booking time.

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