HCL Tech focus on raising revenues
Shiv Nadar outlines the new imperatives before him in an extensive conversation with Arun Kumar.india Updated: Feb 06, 2006 13:20 IST
Shiv Nadar, architect of the fractal corporation, is the original garage start-up entrepreneur. From kickstarting a hardware operation some years ago (now known as HCL Infosystems) to seeding an IT education start-up NIIT, and then finally going on to create an intellectual powerhouse through a services offering in HCL Tech, he outlines the new imperatives before him in an extensive conversation with Arun Kumar Excerpts:
HCL Technologies is emerging as one of the fastest growing companies in India. What is your vision for the next three years? Will it remain a software services company or a product company or turn into a mixture of the two?
For the past three years we are trying to put tentpoles in place so that we can leverage its Indian expertise on the global canvas in all the verticals. I would like to see it as a “software products and services company” in the global space. I am pretty confident that the company has the potential to emerge as one of the leading global players. Currently, the revenue from the product business is very low. Our intent is to increase the product revenues to more than half over the next three to five years. This is where the road will turn for HCLT.
But how? Is it possible organically in such a short period or will you opt for the inorganic route?
Although the company is very strong, comparatively in the domestic space, and we have built a strong and vibrant system that can withstand competition, but to become a product driven company, I believe that we will have to pursue the acquisition route and that too aggressively. I am not saying that we have already identified the company and are going to acquire a company very soon. All I mean is the management is currently in the thinking process and trying to chart out the roadmap for an ambitious growth trajectory. We have a very strong balance sheet and a similar strong flow of cash generation. Moreover, we have enough space of using equity as acquisition currency.
Having said this, I must tell you that for the past couple of years we are engaged in putting in place the building blocks that are required to build the management bandwidth and technical expertise to match and compete on a global canvass. Remember, HCL Technologies is the youngest company in the software service space. Therefore, before jumping to a final conclusion for any major decision, we need to ensure how to protect our core strength as an Indian company while becoming a truly global company.
Although we have seen some of the core businesses now shifting to India, but to become a significant player in the product and services vertical in the global space, don’t you think that credibility is one of the biggest issues in terms of implementation capabilities or integration with global players?
These are issue of emerging economies but I strongly believe that we have crossed the hump. In the true sense, we are currently working on the core of many of the critical programmes like Boeing’s new Dreamliner project or key banking solutions for leading banks.
In fact, our remote infrastructure management is working for some of the very critical areas of many Fortune 500 companies. And, believe me, some of the operations are so critical that they provide the lifeline to a company’s operation. If we have proven our credibility or execution skills or operation capabilities in such criti cal areas, I believe that HCL Tech has managed to establish itself as a company which has immense potential of executing any world class project.
Of late, we have seen a series of mega deals coming to HCL Technologies. Is it an automatic process that you graduated to large-size deals or is it happening because of your strong foray in remote infrastructure management?
It is a combination of both. As I told you, we were engaged in putting our tentpoles in place, the strengthening of remote infrastructure management was one such event in that lifespan. This is certainly one of the engines for strong growth. This has provided us with a comfort level with many of the leading MNCs which are coming to us with mega-size deals and multi-year engagements. I must admit that the infrastructure business provided us the lead.
At the same time we are also looking at increasing the deal size. It is part of HCL Tech’s stated policy to work with clients more closely so that bonding between the two should be stronger.
Do you think that the margin in services delivery for Indian companies will come down, one, because of increase in the cost, and secondly, the increasing competition with other emerging markets?
Cost is going to be one of the biggest issues for Indian software companies. I strongly believe that most of the Indian companies will have to change the delivery model and may have to go to secondary cities to bring down cost further.
What is your plan for another group company — HCL Infosys? Where do you see this company in the next five years?
As you know, I am no longer directly associated with the operations of the company. The company is being managed by a strong team of professionals under Ajay (Chowdhury). I strongly believe that this company is greatly positioned to leverage the current growth in this part of the world.
What do you mean by this part of the world and how?
It is one of the largest hardware companies in this part of the world. It has one of the strongest distribution chains and logistics back-up in the technology space, particularly in the mobile handset business. China, on the other hand, has the largest hardware industry. If HCL acquires a company in China and creates a manufacturing base in China, it will have a huge synergy. HCL can use its Indian expertise and knowhow in terms of distribution logistics, technology knowhow and use the manufacturing base of China and this way it might cater to one-third of the world’s population. This will also help in insulating itself from a downturn in any one of the two economies. If it manages the blend of two companies from two countries, it will probably create one of the leading hardware companies in the world.