In an interview with ET’s Romita Majumdar and Surabhi Agarwal, he said that HCL Tech was looking at acquisition of companies with niche skills, in the $50-$100 million revenue range, as India’s third largest software services exporter seeks to cater to the growing market for digital solutions. HCL Tech would review its back-to-office plan after a few weeks, he said, even as the company maps out a hybrid work model for the long term.
Edited excerpts:
HCL has outperformed peers in the third quarter with industry-leading revenue growth. What were the factors behind this performance?
We have differentiated service lines, like engineering and R&D services. It is the largest in the industry, and that grew 8.3% sequentially. Of course, products grew well, and our IT services—led by cloud and application, data modernization deals—have also grown quite well. I think these three trends—the engineering and R&D services, the cloud transformation services, and then application and data modernisation services—are in high demand and a lot of customers are investing in these areas across verticals and geographies.
How does 2022 look for you in terms of IT spending?
The general conversations with clients show that they will continue to increase investments in technology. During the pandemic, all clients recognised how resilient their businesses could be because of technology and they are doubling down on some of the investments. Directionally, every industry is adopting technology significantly, and a lot of IT data is getting modernised.
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Almost all the clients are trying to optimise from some of the traditional areas, “run the business” kind of spend, and are investing in some of the transformation programmes. So, that’s also driving a little more demand for outsourcing services.
You have announced a new acquisition this quarter. What is your acquisition strategy given that this has been among the strongest years for the industry from an M&A perspective?
We will look for only very niche capability-led acquisitions,
like the data engineering consulting company in Hungary Starschema. It is a small firm with $13 million revenue and 200 people with high-end capabilities. So, similar, small but capability-led acquisitions is what we are looking for. Typically, in the range of $50-$100 million of revenue size is what we are considering.
What is your outlook on the hybrid work model?
We were trying to get a little more work from the office, but now we have delayed it by a few weeks. Long term, it is going to be hybrid, with both the person coming to work and working from home. But I think it’s going to take some more time with the pandemic’s multiple variants. So, after a few more weeks, we will analyse whether it is possible to get people back to offices. I think there is a huge value in getting people back to work, especially the young talent. And we are consciously looking at how that can be done, keeping in line with all the safety protocols.
Client addition across buckets has been strong this quarter, but the $100 million client bucket has grown slower over the past year. What has changed?
All our clients (buckets) have increased quite smartly over the last one year. This is the revenue that we build on a 12-month basis. Yes, only one $100 million customer was added this year, but the $50 million bucket has gone up by 12. Once booking comes, revenue takes maybe one or two quarters to translate. So, they will continue client additions going forward as well, based on better client mining and more opportunities from a lot of our existing clients.
Does your $2.1 billion new deal TCV also include a large share of existing clients?
A lot of existing customers are increasing some of the programmes where they are already working with us. Of course, there are a lot of new clients. If you see the number of $1 million clients, that has gone up by 50 over the last year. New clients start with either cloud transformation or data modernisation journey.
Are customers comfortable with increasing prices given the huge pressure companies are facing due to the talent crunch?
Across the board, pricing is surprisingly stable and inching up a little. Based on the nature of services and some specific areas, customers are happy to pay more. This is typically our Mode 2 cloud native, data modernisation, app modernisation and IoT, cybersecurity and some of the automation areas.
