Talent acquisition issues to persist, but expect growth to bounce back in Q4: Hexaware CEO

A: We had a solid performance operationally. We have improved our profitability, some of which is due to a rise in currency, but there also other factors that have helped us improve profit.

Th revenue growth was not as good as we expected. There were some pockets we have hit that we expect to come out of quickly. We had some furloughs in Q3, which is very rare, and not planned or known to us beforehand.

There was some transitions and ramp ups that got delayed. We lost 50 basis points due to cost cuts, just in the quarter. While the demand remained very robust, we could not capture and fulfill all of the demand because of a supply side issue from the talent perspective, specific to the US market.

This is again a combination of three factors- US has a white hot labour market right now, so it makes hiring harder. Visa issues have made that worse. As a consequence of this, people are hiring from each other which means attrition is high.

We have already put in place a number of corrective measures for the talent side such as increasing compensation and talent hiring from colleges.

Q: Do you see these issues spilling into Q4?

A: It won't completely go away in Q4, but a lot of it will get fixed. Of course delayed transitions will result in revenue in Q4. So we expect growth to come back in next quarter.

While the underlying growth would be strong, there are going to be furloughs during the quarter. That's the reason we've given a broad guidance of 1.0  to 4.5 percent, which will get largely determined by furloughs.

Our bookings for this year will be higher than the bookings from last year.

Q: Do you see a larger impact of protectionism on the nature of outsourcing? Are visa issues more of a challenge with tier-2 players?

A: I think the visa itself is a problem, but at this time, it is made worse by a confluence of the overall tightening of the labour market. If visas alone were an issue and the US unemployment rates were high, then we would've been just fine. I think its not an issue of large cap or small cap, there are just not enough people to hire.

We aim to reduce the reliance on visas in the industry. That will happen quicker if there is an availability of local talent, but that is unfortunately not the case.

In our case, we aim to use a third source of talent from Mexico, which we can bring into the US.

Q: With digital becoming a big part of how the industry operates, do you see an impact on the talent side?

A: I think the collaboration and communication tools have been in use forever. Every few years, you will have new stuff but that's not a new phenomena, but what that helps is relying less on the talent in US and you can distribute the work around the globe. I think customers will get even more creative about using global talent pools.

Q: You said bookings will be better this year compared to last year. Any particular verticals you would like to call out?

A: This year, we have three out of five verticals doing very well. These are Manufacturing and consumer, healthcare and insurance, and professional services -- A new vertical we formed last year.

Bookings have happened in these three verticals but they've happened in financial services. Bookings that happened in FS are not showing in revenue this year but will show in revenue next year.

Q: What is your sense of the financial services market?

A: For us the financial services (FS) have been a very strong performer for a number of years. We have had a little bit of slowdown. A lot of the talent issues I spoke about, while it impacts the other verticals as well, close to 70 percent of the impact is on our FS  vertical. We have some very large accounts which are entirely centered on the onshore of US , so the impact is disproportionately on our FS business.

FS will improve in Q4 also but the impact of the furlough will be the maximum by then. An underlying growth will take place, but from Q1 onwards, we will start seeing improved growth in our FS vertical.

Q: What is the impact of cross currency on margins?

A: The impact was positive, 58 basis points.

Q: Are you happy with margins at the current levels?

A: I think we are. I think of margins as a full year average. Q3 is always little bit of a high watermark, Q1 and Q2 were a little bit lower, and we expect Q4 to be a little bit lower (from Q3)

The rupee has helped and its just allowing us to invest in areas that would've been harder to find money for us. But at this time we are happy where we are.