Have seen balanced growth in US, Europe & Asia: HCL Tech

Below is the edited transcript of Anant Gupta’s interview with CNBC-TV18

Q: HCL Tech has won company of the year at IBLA. It has been a big outperformer and has given a lot of rewards to shareholders. What makes HCL Tech tick and what can we expect from the company in 2014?

A: We have had a great run. It is actually the 10th quarter of sustainable performance. The last four quarters unusually have been much, much better, but our strategy really began about at least three years back when we were very focused on our Blue Ocean strategy in terms of going after open markets. Therefore I would say that it has been really 10 quarters great performance of the company.

The people to really thank are 88,000 employees that we have. It is a privilege on their behalf to accept this awarded and also to thank them for the great performance. The second really are customers because at the end of the day we are an IT services company and therefore customer satisfaction is extremely critical. Our customers’ trusting us is extremely critical and therefore I am extremely thankful for them. We are continuing to sustain leadership position in our chosen markets, continuing to reinvent ourselves where we believe that the market dynamics are shifting. We would continue to be relevant to our customers because at the end of the day it is the value that we deliver to them which results in the company's success. Making sure that our ears are to the ground we listen to our customers and we fine-tune our service offerings in tune with the market and in tune with their expectations and needs.

Q: HCL Tech has clearly had a leadership position in the rebid market. Can you tell us the size of the rebid market in FY14-15 and how it compares with what it was in previous years?

A: If you look at the rebid market and this is something which we have been saying since 2009, obviously 2009-10-11 were really build up years. If you look at calendar year 14, 15 and 16 we believe it is a market which is anywhere between USD 140-160 billion market which is up for renewal. It is roughly about USD 50-55 billion each year, so there is no big skew between each of these three years.

The interesting metric is the churn rate in these markets. The percentage of churn in these markets used to be below 20 percent about three years back, that has gone up to greater than 30 percent now, so it is about 35-36 percent. We do not have any new published data from the external reports, but it is anywhere north of 35 percent.

It is USD 150 billion plus market for the next three years, 35 percent churn rate. Assuming that we continue to deliver differentiation that the market wants, it is a great market to be therein. While the market is big it is important to realise that the entry barrier to this market is a little high, because at the end, you are really taking on a moving ship, so someone is running the IT services for the customer and here comes a new service provider who now needs to takeover and deliver these services. The entry barrier unlike projects needs to be built on a very strong track record of transitioning services which is very, very critical for the mission critical environment of the customer.

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Q: Does that mean the win ratios in the rebid market for the company will go up? Currently can you tell us what it stands at and where do you see it going?

A: If you look at the USD 150 billion odd market I think the addressable market for us is about half. We have clearly identified that we would like to play in half that size. It is a very well thought of strategy on the segments, the countries we would like to participate in. Therefore we would like to play in that specific market.

Within that addressable space of USD 75-80 billion, we are very focused in terms of what our win rates should be, what our differentiation to our customers are and will be and hence really ring fence ourselves instead of going very broad and very thin all over in the marketplace.

Q: One concern outlined is while the company's infrastructure management services is growing at a fast clip, its core IT services has just been a big sluggish. Will the growth in the core IT be better in calendar year 2014?

A: We have had a very balanced growth across US, continental Europe and Asia; I would say Asia little lesser. We have chosen our addressable space very carefully. If you look at our segmental strategy we are focusing on two momentum markets which is financial services and manufacturing and the two emerging momentum markets which is life sciences, healthcare and the public services. In this focussed four-segment strategy, our strategy of a balanced portfolio is playing out well.

Infrastructure management is the reason for the growth of the company. One should realise and look at why that is, because unlike software service which is already a 32-35 percent penetrated market, infrastructure is a sub-5 percent penetrated market in the world. Therefore growth rates in that sector will obviously be much higher. We are not worried about the fact that infrastructure services are growing so rapidly. We are happy that we do have a leadership position in that along with the traditional average growth we are seeing in the industry for software services.

We are seeing accelerated growth in infrastructure because it is a hugely underpenetrated market. Software services which has been lot more penetrated we are seeing around the same industry average growth rate. Interestingly, in terms of the wins that we have announced, there is a lot of integration of some of these services coming together. There is an increasing trend where customers are now buying services which are not infrastructure or application, but looking at integrated IT operations services. In my view, that will be a trend to watch out for as that market takes more shape given that software as a service business model will also become more relevant.

Q: What according to you will be the industry growth rate in FY15?

A: I would say that the market is large. Whether we look at the rebid market or whether we look at emerging trends around digital system integration I believe the markets are there to go for strong growth rates much better than last year. I would look at an average industry growth rate of anywhere between 14 and 16 percent to peg what the market is really over there.