See $200bn renewal opportunity in next 5 years: HCL Tech

HCL Technologies is eyeing the USD 200 billion outsourcing business renewal opportunity that’s going to come up in the next five-years. The country's fourth largest IT firm ended September quarter with revenues that grew at a slower pace than that of its rivals, though profit beat market expectations by rising 64 percent.

Infrastructure services accounted for 33.1 percent of revenue in the September quarter compared with 26.6 percent a year earlier. Software application services, the staple of India's USD 108 billion outsourcing industry, accounted for 45.7 percent from 50.8 percent.
Speaking to CNBC-TV18, Anil Chanana, CFO, HCL Technologies says higher utilization and percentage of managed services helped margins. Below is an edited transcript of the interview on CNBC-TV18 Q: One of the constant worries that investors have with HCL Technologies is that you are seen sometimes as a one trick pony and that was kind of reinforced in your recent results. It was only infrastructure, which gave you a lot of your money. Are you consciously looking to diversify or are you comfortable with this dependence on infrastructure?
A: The IT services market is moving towards the total IT outsourcing; towards infrastructure outsourcing. If you would have seen ISC report in the next five years on the outsourcing front there is USD 200 billion plus of opportunities, which are going to be coming up for renewals. We are following that market. We are strong in that market. We are using our strength in that market.
It is not that we are not growing in the other segments but the growth in this infrastructure segment is significantly higher. Q: Can you comment on margins, which have risen quite nicely within HCL Technologies? Do you see that as sustainable and how would you rationalize why margins have improved?
A: There have been a series of steps, which have been taken in the company in order to improve the margins. One of them has been improving the utilization. The other key factor has been the managed services. If you look at our revenue base, 55 percent of our revenue came from managed services or fixed price projects and 45 percent came from T&M. So the component over the last of fixed price projects and managed services has significantly increased over a period of last one year, increased by 500 bps over last one year.
We are rationalizing the Opex spend. We are consolidating facilities. We had set up the facilities as centers of excellence at various places within the cities of Noida, Bangalore, Chennai and other places. We are consolidating that. We are adding close to 30,000 seats in the next couple of years bringing our facilities under one umbrella, which is leading to efficiencies of scale.
Our utilization has improved and on top of it nature of our revenues is more recurring in nature so we have a stream of revenues which are recurring. So when we enter into contracts on total outsourcing with our customers, these are typically five-seven years contract which gives us the ability to manage our costs.