Hired 4000 employees in Q1; expect better utilisation: HCL

Q: How has this quarter been for you?

Gupta: The quarter has been another quarter where we have delivered consistent performance. We grew by 3.2 percent in constant currency sequentially. So I think it was a good quarter. If you look at it from where the growth came in, engineering services delivered 8.1 percent sequentially, look at global infrastructure services, it has delivered 5.2 percent, if you look at entering system integration that delivered a little over 5 percent. Overall, software service has delivered 3.1 percent. So I would say it has been a good quarter, consistent performance over the last four-six-eight quarters. So another quarter of good performance.

Q: Let me talk a bit about infrastructure management services (IMS). That has been the dominant revenue growth driver for the company so far. In the last few quarters, we have seen a bit of a sedate performance, can the company go back to its historic growth rates of high single digit in infrastructure management services?

Gupta: The global infrastructure services grew by 20 percent year-on-year (Y-o-Y), so I think the performance is industry leading. If you take the quarter in perspective, it has been a little over 5 percent, so 5.2 percent.

One of the reasons why we have highlighted the global infrastructure services is because that is largely the portfolio which is driving the IMS platform. So even if you look at the infrastructure services division (ISD) commentary and deal renewals and market place, that is where the real market is right. India for us contributes less than 3 percent and that is largely a system integration or a project centric market and we have always said that we will be selectively participating in that market largely public sector and government driven. So we continue with our strategy, no change over there.

Q: Even that is a growth of 5 percent versus the 9-10 percent that you used to earlier clocking. Can you go back to that 10 percent growth rate in IMS?

Gupta: As the markets move, we will definitely be there. I think 5 percent sequential growth is a phenomenal growth, 10 percent is of course superlative.

Q: This year TCS reported that.

Gupta: The way to look at it is not to look at it on a Q-o-Q basis. I think we should look at all these businesses on yearly performance because these are large scale IT Outsourcing (ITO) deals and then therefore they will have their own milestones to get complete it from a transition perspective, transmission perspective and I have always said that the way to evaluate that business is on a Y-o-Y basis.

Q: It is another record low in terms of selling, general and administrative (SG&A) as a percentage of revenues. Can you tell us what percentage of SG&A is on account of G&A and what percentage of that is on account of sales and marketing (S&M) because you have been highlighting the difference between the two and secondly, can you continue to rationalise G&A, is there any headroom available?

Chanana: Let me first give you a perspective on SG&A before coming to the other specific questions. One is we continue to invest and we will be only accelerating our investments whether it is in terms of global delivery centres or whether in terms of creating the competency centres, you would have seen this quarter we hired close to 4,000 people. So we are taking space, so all that we will continue.

In addition, the currency impacted. So because of the currency, the numbers looks slightly better. Some of the professional charges, which we are incurring earlier, those programmes we closed and decided on our go-forward strategies. So those came to an end this quarter. However, going forward, there will be expansion in terms of sales and marketing because we are already committed to that.

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Q: What would be the increase in S&M cost?

Chanana: Since we don’t guide, I am not giving you a number but it will certainly go up.

Q: What is the breakup?

Chanana: Half-half almost. 50 percent is S&M and 50 percent is SG&A.

Q: Can you continue to rationalise G&A further?

Chanana: I think there will always be opportunities but as I said, the investment will be much more.

Gupta: Even if you look at G&A -- we have just announced creating another near-shore facility. So while we continue to optimise and consolidate some of our G&A and facilities within India but at the same time, we continue to expand on near-shore and onshore centres given the nature of the business and the way it is moving.

Q: Let me ask you about engineering. Do you think engineering as a service line can open up for you all the way IMS a few years back and give us a few numbers, what can be the growth rate?

Gupta: From our market size perspective, definitely it is there. So if you look at the overall spend on the engineering services, it is about a trillion dollars. So it is definitely three times the size of the IT Outsourcing spend but majority of that spend is still in-house, in sourced. But they are early signs I would say where we are starting to see project based outsourcing move to full service sourcing in engineering.

So yes, I do believe that the market is there. Early signs indicate that the market would move there whether it is two years, three years, we will have to wait for the inflection point. If you look at the deals we announced, we announced a very large engagement last quarter and we had another very large engagement this quarter, which is driving some of that 8 percent sequential growth. So I would say again look at it on a Y-o-Y basis, the market momentum is there and therefore we will continue to invest just like we invested in the infrastructure business in 2008-2009. So early years will have large deals, more complex deals and investments will continue to drive the momentum in that.

Q: Every quarter you have been reporting USD 1 billion in terms of dealwins, I think this will be the seventh or eighth consecutive quarter of this run rate, why is it not translating into a superior revenue?

Gupta: It is translating. Some of the deals are becoming more complex, some of them are therefore having a longer cycle time to translate, that is one.

Second is, there is a currency aspect as well. When we announce a dealwin, it is in a specific currency overall and therefore when it starts translating, you will have the impact of multiple currencies, actual currencies getting rolled out. So therefore, there will be some marginal element of that as well.

Third in my view is, there is an element of one time transformational work which happens in large ITO and therefore when they complete, the deal bookings is trying to fill into two specific slots, one is the one time projects that keep coming to an end in large scale transformational engagements and second is as they move into the steady state is when we will tick. So I think the periods are becoming longer and therefore we will have to be patient in terms of waiting for them to translate but all in all, we are very comfortable with the booking conversion into revenue.

Q: From this quarter, we on our Moneycontrol portal, we allow a lot of our viewers to ask questions. The question that I have got today is from Arpit and he writes to us from New Delhi. He wants to know -- the cash on the books has been steadily rising -- will the company look at increasing its dividend payout ratio or is an acquisition on the cards?

Chanana: Dividend payout is about 26-27 percent which is pretty good. We accelerated it infact only in the last quarter. So Rs 6 per share is dividend, this is 47th consecutively quarterly dividend, which is pretty good.

In terms of acquisition, you have to keep on looking at targets.

Q: Are you evaluating anything?

Chanana: We keep on. It is a regular process in the company to look at targets in the identified spaces.