HCL tech scouting for more acquisitions: vineet nayar

Deepshikha Monga, New Delhi
The Economic Times (Delhi edition)
HCL Technologies, which last year bought SAP consultancy Axon Group for £441 million, is looking at more acquisitions to fill gaps in areas such as BPO and enterprise applications. CEO Vineet Nayar says size of the acquisition target won’t be a constraint.

Excerpts:

Are you eyeing more acquisitions?

HCL believes there are eight areas, including BPO and enterprise applications, that need to be fixed through acquisitions. We are looking at opportunities that will fit in well with our transformation goal. We believe this is the time to invest and go for acquisitions so as to fill gaps for growth, which is a critical component of HCL’s strategy. There is no constraint of size. We have told the market we will leverage our balance sheet for acquisitions.

You’ve won quite a number of deals recently, but there is concern about your margins on these deals.

Historically, we have been focused on total IT outsourcing. Our revenue was $750 million two years ago, next year it touched $1 billion, and we have won deals worth $1.5 billion in the first nine months of this year. In all these years, our margins have remained intact and we have guided the market that they will remain intact, other than for external reasons. People say HCL’s pricing is cheaper. We work on fixed pricing—output-based pricing or percentage of revenue pricing. It’s not manpower based and we can use automation to drive margins.

What are the clients looking for?

As per Datamonitor, July-September quarter saw deals worth $8 billion. It went down to $7 billion in the next quarter, $4 billion in January-March quarter and $2 billion in April- June quarter. Typical deals are going out of fashion. The proposition—you give it to me and I’ll do it for less—is dying down. If you look at the Oracle results, it’s very interesting to see consulting and licensing revenues starting to bounce back. People are looking for transformation. Everyone is trying to think of a new business model which they can execute and kick-start their revenues. That can only happen if you have an IT strategy in place and someone to help you transform it.

What are clients saying about a possible recovery?

The prediction is that two quarters from now, growth will be back. Recently, I was at G100 summit where 100 CEOs were present. Everybody said around December-January, they see growth becoming more positive. What is happening in the marketplace is that people, rightly or wrongly, have started believing in the January date. There is no statistical data today to say it’s right. The prediction of January in the minds of the CEO governs the buying pattern of the company. So, I don’t think they will start buying (IT) but they will start thinking and talking. Also, most CIOs have become very uncomfortable with their existing vendors. They wanted a price discount and existing vendors dragged their feet. CIOs wanted transparency in contracts and vendors, who also had their quarterly results, could not provide that transparency. At this juncture, we have a hotbed of dissatisfied CIOs. And the CEOs are talking about the transformation opportunity from January onwards. This lends itself to a great opportunity for good companies to step in and take away contracts from existing vendors.