Optimistic about products and platforms business as we move into next year: HCL Tech CEO C Vijayakumar

So, if you look at it holistically, it’s been a pretty good quarter. Some of the highlights are our IT services business, which is 88 percent of our revenue, growing 5.2 percent sequentially, and 13.1 percent year on year. So, this is very strong growth. And all of this growth is organic. This is probably in the top quartile of growth performances across the industry in the services business. We had a headwind on the product business where some of the deals slipped from the September quarter to the December quarter. That is the nature of the product business. A lot of transactions get completed towards the end of the quarter, and some things potentially can slip. But our fundamental hypothesis on business on products continues to be pretty strong.

The second big highlight was our bookings, which were at $2.25 billion, growing 36 percent year on year compared to the same quarter last year. Our client additions have been very impressive as well. For example, our $50 million clients have increased from 29 to 41 from a year-on-year perspective. In fact, all client categories have increased in the last quarter. The fourth important highlight is that our net additions have been the highest ever at 11,135 people. The icing on the cake is the payout policy, where we said over the next five years, we’re going to pay at least 75 percent of our net income to our shareholders. It is a much clearer and firmer payout policy, which we have formally announced.

But this is the third consecutive quarter where revenue growth in the product business segment has declined. We understand that this could be seasonal and there could be some fluctuation, but can you share the reason for the decline, and do you finally see the tide turning in the coming quarters?

If you look at the products and platforms business, a large part of it is what we had acquired from IBM. Now, there are a lot of puts and takes when you do a big divestiture. This includes some one-time revenue ... there are some settlements and things like that. So, I think if you do this comparison, it’s kind of declining for the last two-three quarters. For the full year, we have already said that it would be in low single digits, but we are looking at flat to 1 percent growth. Many products have very strong growth products in this portfolio. So, we remain confident. If you move into the next year, we are optimistic about the business trajectory here.

Can you give us a timeline? By when do you see this segment turning around for HCL Tech?

It is going to be a strong quarter in any case, so we’ll definitely see good sequential growth. From a full-year perspective, some of the shortfalls that we had in the previous quarter will get covered, I think.

For most IT companies, the first half of the fiscal year is way stronger than the second half. Will it be different for you?

This is where you have to differentiate a product business. It is not going to follow the same trajectory as the services business, which will follow a similar trend. Product businesses have a very different business rhythm. But it’s still early days. It’s a long-term strategic bid for us to invest in products and platforms. We have to give it time and space to really evolve. So, I would really evaluate product investment over a longer period of time.

You told us deal sizes are in the range of $50 to $200 million. Is this the trend you are seeing in the next two quarters as well, unlike the $400 million, $500 million–$1 billion deals that we saw a couple of quarters ago?

I think this trend is what we would expect in a market that is very buoyant, where a lot of new investments are happening in digital initiators. You don’t really see a very large transaction that you would see in a little more stressed economic situation. So, there will be a lot of action in digital initiatives ... mid-size deals is where a lot of the action is.\

Everybody has been talking about digital acceleration and cloud migration. Could you tell us where you see the momentum coming from? Because you have yet to give precise guidance...

We are not going to give very precise guidance. That is something we consciously said: instead of chasing a specific target, let’s keep it a little broad based. On the services side, there are three areas that we think are going to continue having a strong momentum. One is application modernisation; a lot of applications are getting modernised and are moving to the cloud. The second theme is cloud migration. A lot of our business on the data centre side, the infrastructure, which is on-premise, will migrate to the cloud. Right now, 30 percent is already in the cloud, and you will see a lot more acceleration happening. The third element is digital engineering, which is a part of our engineering and R&D services. There are a lot of investments in asset-intensive industries, in technology-platform companies, to drive new initiatives. So, these are the three areas: application modernisation, cloud, and digital engineering.

The chip shortage has been an issue and so is the coal supply. How will this impact your business?

The chip shortage definitely has had an impact when we have to deliver hardware for a transformation project — network transformation, for example. There are even big programmes where we are setting up a private cloud, and some of the hardware delivery is getting delayed. But that’s all factored into our guidance. And we are not alone. We’re not dealing with a lot of hardware. It’s very small. So, there’s nothing to really be concerned about.

In terms of the coal shortage, we are obviously watching it very carefully to see what impact it can have on our operations. So, I don’t have any firm view. I personally don’t think it will have an impact at this point.

In terms of the supply side issue itself, do you believe this is an unprecedented situation, perhaps the most intensive war for talent that you’ve seen in decades? 

As I see it, it’s quite intense now. But I think, given the long-term value proposition that we offer to employees, it’s not about a one-time salary increase; we are focused on building long-term careers for the fresh talent joining us. And (focusing on) whether we are investing in training and the capabilities that we build in our teams,

Is there a lot of pressure now in terms of how you see yourself versus the competition? Wipro has been narrowing the gap. They have also spoken about making more acquisitions, which could perhaps give them more of a cushion when it comes to inorganic growth and revenue. How are you bracing for that?

We are always competing with ourselves, not with others. We always want to do the best possible from our perspective. And right now, I think the market demand is very good. So, we are very focused on organic growth. There may be some small tuck-in acquisitions. So, that’s what we are doing and can’t comment on what others are doing.

In terms of the whole return to work, where does HCL Tech stand? 

I think over 90 percent of our employees globally are at least vaccinated with one dose. In terms of return to work, we’ve already mandated that our mid-level leaders and senior leaders have to come into office at least for two days. That’s something we are building as a practice. For broader roles, there are certain roles we want working from office and there are certain roles that we are comfortable working remotely. Then, there are certain roles where we do want them to come to offices for a certain duration, for a week, a fortnight, or a month. That is the model we are putting in place. Overall, we think our stable state is a hybrid model, with 50 percent at work and 50 percent working virtually.