HCL Tech sees attrition easing in couple of quarters: CEO Vijayakumar

In a Q&A, HCL Technologies CEO and MD C Vijayakumar, talks about growth momentum from its majority market the US and managing supply-side issues

HCL Technologies Q1 numbers, especially the margins, continued to be under pressure due to employee-related costs. However, the company managed to meet estimates on revenue and also sign a total contract value (TCV) of $2 billion. C Vijayakumar, chief executive officer (CEO) and managing director (MD), in an interview with Sourabh Lele and Shivani Shinde, talks about growth momentum from its majority market the US and managing supply-side issues. Edited excerpts:

With inflation and recession concerns becoming real for the US and Europe, how do you see the demand for technology services? Any insights from clients that you can share from these geographies?

So far, client conversations do not indicate that they’re going to ramp down on any transformation programme that we are working with. Of course, they are all planning on how to react in terms of any macro changes like inflation. But these transformation programmes are very important for them to be competitive in order to grow their businesses and improve customer experience. There is positive commentary on the continued investments in transformation programmes. Besides, our overall pipeline is at a near all-time high. We are also seeing a good number of outsourcing opportunities like managed services and integrated services. All of that is part of our pipeline now. I think we crossed a good milestone of $3 billion quarterly revenue. Our engineering services crossed the $500-million mark. Quarterly revenue, annual run rate and our services growth were a strong 19 per cent year-on-year (YoY). We are starting the year on a strong foundation. Even if the US goes into recession, I think, the transformative projects will continue.

Compared to Q4, Q1 numbers look soft. Should we read this as early signs of concerns from clients?

Q1 for us has always been a little soft, especially because of lots of outsourcing contracts. We have certain productivity and stepped down in terms of the overall revenue. Every year, there is some reduction in those outsourcing contracts. So, that’s why — especially on the IT services side — Q1 is soft. In Q2, Q3 and Q4 last year, we delivered over 5 per cent sequential growth. So, it is not really an aberration but just the normal seasonality in our business.

Margins in the services business were under pressure due to higher talent costs. Do you expect this pressure to continue and by when do you think attrition will normalise?

The services margin was at 16.3 per cent. That is about 1.5 per cent lower than what it was at the same time last year. There are a number of aspects: Some outsourcing costs, some contracting costs and some transitions in new geographies that require more investments. We expect attrition to reduce in the next couple of quarters. As new teams come to the operational roles, demand will be better met with the talent that we have. We have managed to keep attrition lower than the industry. We have to constantly engage with the teams and ensure that they are upskilled and deployed on the right programmes. They must remain motivated.

You have guided a growth rate of 12 to 14 per cent for FY23. What are the drivers for this growth?

See, we have already delivered 2.7 per cent quarterly sequential growth and will also deliver good growth numbers in the next three quarters. This should help us to get to the 12 to 14 per cent range. The demand is coming from vendor consolidation opportunities and cloud-led digital transformation opportunities.

In this quarter, you have signed a couple of large deals. What is happening in that segment?

The large deal, by nature, is going to be a little bit spiky. There are a few of them in the pipeline. Our booking numbers have consistently stayed around $2 billion in the last four quarters. Booking again does not include renewals and record deals. It’s purely incremental business from existing and new clients.

How are the discussions on pricing taking place, especially with supply-side concerns?

We have been talking to our customers and they are looking at it favourably. But obviously, it is not a straight equation that we wanted a higher price than what the customer gives us. It is about how to create win-win solutions.