IT major HCL Technologies surpassed street expectations on every parameter by announcing a stellar set of earnings. The company’s profit increased 2.3 percent sequentially to Rs 1,915 crore during the quarter.
The cross currency headwinds helped the company report such strong numbers, says Rahul Singh, president- Financial Svcs Sales & BPO, HCL Tech.
In an interview to CNBC-TV18, Singh; Anil Chanana, chief financial officer and Steve Cardell, president, Enterprise Services & Diversified Industries share their views on the company’s strong result.
Below is the verbatim transcript of Anil Chanana, Rahul Singh & Steve Cardell’s interview with Reema Tendulkar on CNBC-TV18.
Q: How do you see your earnings? How has the environment been this quarter?Chanana: I would say the environment always has been friendly so far as we are concerned. It is the matter of having the right service offerings. So, HCL as always created a balance portfolio of services. It is something which can lead to a long-term momentum. So, we are in the momentum markets of IT, we are in the momentum market of digitalisation and we are now in the another momentum, it could turn out to be a momentum market of a generic and Research and Development services.So if you look at it, we reported 6.25 percent quarter-on-quarter (QoQ) growth and 16.2 percent year-on-year (YoY) growth and not only is the growth in revenues but also growth in the net income at 7 percent QoQ 27 percent YoY.
Q: Why couldn’t you deliver this 6 percent constant currency growth in the previous quarter? What was so different in this?
Chanana: He have been announcing lot of deals and those deal wins are always accompanied by a transition, transformation and then getting into a steady state. In some of those deals we completed the transitions and then they moved into the steady state. We have been saying that because the deal tenures are becoming longer, deals are becoming complex the sizes are becoming larger so they take times to sort of do the transitions and transformation and then start recognising the revenues. So, this quarter we had the benefit of those deals coming which we were working on transitions and transformations coming into steady state this quarter.
On top of it we could also add the engineering and research and development (R&D) services. We had good wins we have been saying that we are winning engineering and R&D services deal where which are end to end. Where we are adding lot of value to our customer which could be on the product lifecycle management. So, those deals again helped us to enhance our revenues so both and then together with the application services and lot of all verticals practically aided that growth in this particular quarter.
Q: Would you like to caution as from expecting the same kind of a performance in the coming few quarters perhaps in any geography, vertical or service line? What are any one off which perhaps may not be there in the next quarter?
Chanana: There is no one off here it is all business as usual I would call it. These all organic revenues, no non organic element we have not done any acquisition where we are recognising the revenues and there is no one off. So, it is absolutely business as usual. In that business as usual as I said in IT or in a engineering deal you cannot start looking at the revenues from the quarterly perspective. You have to look at from a longer perspective. Typical period is like four quarters you look; at that is a typical period. So, our business will continue to be like that.
Q: Give us few numbers to tell us the kind of opportunity is there in infrastructure, the kind of deals wins that you seen, the size of the deals?
Cardell: There are two things that we have seen emerging in that market. So far in the past mostly clients gave us component of their services offerings. We are seeing for the first time end-to-end services being contracted in engineering. So it the first time outsourcing market where we are taking on clients personal and moving them over. So this is very much outsourcing but in a different parts of a clients organisation.
The second thing we see in digital platforms. So our application business does a lot of a digital design but actually engineering is there to build platforms end-to-end. So those two trends are giving us momentum and what we are looking to see is that some one-off deals that are marking out new market for us or they are just one-off deals and so we are watching that closely.
Q: So are you convinced whether this is a one-off or it is emerging as the new outsourcing space?
Cardell: We have seen it quite consistently in over the last three-four quarters; deals coming to the market are quite a different shape to what we have seen before in their end-to-end nature. So we are optimistic on that but we are watching those space.
Q: Most of the vertical have done well but finance is moderated on QoQ basis and plus the companies vertical growth rate is lower than that of the company average what was the reason?
Singh: The way you should look at financial service performance for this quarter is you should look at last four quarters. If you look at the 2014 full year performance, we grew financial service almost to 22.6 percent. 22.6 percent was higher than most of our peers. If you look at our peers across the spectrum financial service growth rate has been in the teens.
Q: So we should not read too much then in Q3 and Q4 your growth was just 6-8 percent in financial services but in the last quarter it moderated to 3 percent and now it is down to 1.6 percent in constant currency?
Singh: If you look at it on average basis across the last four quarters it is like 4 percent on an average across the four quarters so it is an aberration. That is the way we look at it, it is a sustainable business model. We are looking at new customer acquisitions, customer acquisition happen then the ram-up happen and so on so forth. So it is more appropriate to look at it on a four quarter basis.
Q: No headwinds?
Singh: Headwinds at financial services is largely to do with currency and that is something which we see both as an opportunity and as a risk. The opportunity for us is that our financial services business tends to be dominated in Europe, UK, Australia and some of the other places where the currency has weaken substantially so we have got currency headwinds there.
Having, said that since these markets are under turmoil financial services industry specifically is under lot of pressure in terms of costs so it is an opportunity for us as well. As our large presence in these geographies, positions us well to take advantage of the turmoil happening in financial services sector.
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