“Acquisitions in three areas to enhance and broad-base our digital capabilities, innovative IP to drive for more growth for our products and platform segment and expand and bring market presence in newer geographies,” said C Vijayakumar - the president and chief executive officer of HCL Technologies.
Noida-based IT services major HCL Tech is confident about its products and platform strategy paying off in the coming quarters despite analysts' opinion about sustainability of the product business.
The company is also looking to expand its presence in Europe and Asia Pacific and product and platform offerings and is more open to acquisitions.
In a conversation with Moneycontrol, C Vijayakumar - the president and chief executive officer of HCL Technologies - shares more about what drives the company’s confidence in this space. Though there are no plans to run products and platforms as separate businesses, Vijayakumar does not completely rule out the option as well.
Q: HCL Tech saw a 20 percent quarter-on-quarter increase in deal wins in Q2, a record high you had pointed out during the earnings call. Could you give us the nature of these deals and what was a key driver?
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A: The contribution to the pipeline is quite broad-based. Many of them are modernizing the legacy landscape, that’s one big theme. The second theme is cost reduction and making the cost structure more variable, especially in some of the sectors that are under stress.
One of the key differentiators (for our wins) was our very strong play in digital foundation, which is our erstwhile infrastructure business. Now, a lot of clients are looking at making their infrastructure more resilient in the wake of the pandemic. At the same time they are looking to reduce the cost of the infrastructure. So they are looking at providers that can bring in automation and right shoring capabilities for infrastructure services.
So, that is a direct correlation to the increasing pipeline at the end of this quarter.
Q: You expect your new generation services and products to earn 50 percent of the revenue in the next three years. Where does the confidence come from?
A: Right now Mode 2 (next gen services) and Mode 3 (products and platforms) contribute to about 37 percent of revenue. Mode 2 has grown 25 percent year-on-year driven by application modernization, cloud migration, cybersecurity and Internet of things. Because we classify these four areas as Mode 2.
There are some new services in Mode 1 (core services) around digital workplace and software defined networks. So, it will together account for about 40-42 percent. We expect this to keep increasing for the next few years to be 50 percent.
Q: Analysts and market watchers do not share your confidence when it comes to products and platforms. What are your thoughts about this?
A: It is a new and differentiated strategy. So over the last 4 quarters, we have seen good performance in products and platform (P&P) space. This should give confidence about underlying stability in the business. We invest close to $250 million a year in R&D, mostly in P&P that is helping us launch new products and new innovation, solutions for the new world.
These are the right things which we have done. We have seen good traction and our pipeline is good. I don’t want to give an outlook. But we feel very good about this business at this point.
Q: Recently the tech major IBM hived off its infrastructure business to focus on cloud. Given you focus on products and platforms strategy, do you see similar spin off in HCL tech?
A: We have not really thought of it at this point. At this point we are comfortable having products and platforms operate as a separate division within HCL Tech. Beyond that there are always things we can think of. But there is nothing as of now.
Q: Would you continue your acquisition strategy?
A: We have done only two small acquisitions in the last 6-9 months. We will continue to look for acquisitions in three areas. One, is to enhance and broad-base our digital capabilities, SaaS and some of the new technologies.
Second one will be innovative IP that will help us to drive for more growth for our products and platform segment.
Third would be expand and bring market presence in newer geographies.
Q: Could you give us more colour on newer geographies you are looking to expand?
A: Looking to expand in newer areas like France, Germany and Japan. These are all larger markets be it Germany, France, Australia, Japan and Canada. We have a good presence in these geographies. But we intend to expand our presence. The IT spend in these geographies contribute to a significant portion of the global IT spend.
By strengthening our presence in these geographies, we will benefit.
Q: How has conversations with clients changed during the pandemic?
A: I think the lot of leaders are happy that they are able to continue to have good meetings through teleconferencing and video conferencing solutions. It has not come into the way of strategy or initiative in moving forward. It could have paused for a couple of weeks or a month. But almost everything got reinitiated. In fact I meet a lot more customers these days than what I used to meet pre-pandemic.
Because pre-pandemic meeting clients needed a lot of planning and logistics since customers are located all over the world. So I used to travel 150 days in a year. Now the last 150 days I have not travelled at all. So to that extent things have changed quite a bit.
Q: Is that impacting deal closures?
A: See, obviously meeting in person provides a lot more comfort and confidence, especially new clients whom we are trying to acquire. So, for new clients it is going to take longer than the usual cycle. But for existing clients I don’t think that is an issue. They already know us and have comfort with us. Whether we are doing it remotely or on premise, it is not making so much of a difference.
But, for new clients, this is important. What helps us is we have strong client references, we have highest client satisfaction. That gives confidence to clients.
Q: Are there any changes in strategy or governance with new chairperson Roshni Nadar-Malhotra in place?
A: In a lot of these things, Roshni has been involved for the past several years. She was very much the part of strategy and governance. So I see a lot of continuity of ideas and strategy because of that.
Q: What are your thoughts on remote working? Some of your peers have spoken about the need for coming back to office to nurture culture and innovation.
A: We will adopt a hybrid working model in the office and at home. It is broadly 50-50.But, we do want people to come back to office as the environment improves. And we think it is important. We don’t expect it to be a fully virtual operating model. I don’t think that will be viable.