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HCL TECHNOLOGIES: Realign and Simplify

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DQI Bureau
New Update

Shiv Nadar 



chairman & CEO



Vineet Nayar



president, Software Services & Infrastructure

Saurav Adhikari corporate VP, Strategy

SL Narayanan VP, Corporate Finance

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Shiv Nadar and his lieutenants never seem to tire when it comes to

restructuring and JVs. However, this year the change was aimed at the audience-analysts

and stake holders-who have been complaining that the company's structure,

with growing number of JVs and cross holdings, was increasingly becoming

difficult to comprehend.

While HCL Technologies (HCLT) had made strategic investments in 11 companies

and signed three JVs during the last four years, FY 2004-05 saw it increasing

its stake to 100% in six such companies.

The high point of these acquisitions was HCLT's "carve out"

strategy that enabled it to acquire a sizeable stake, and increase it to 100%

over a period. This not only ensured continuation of the core team in acquired

companies, it also helped HCLT buy them out at a much lower cost. HCLT started

the integration of the various companies into common entities for similar

businesses, which helped ensure better operational efficiencies and increased

client-mining opportunities. The strategy worked well. Consolidated revenues

grew at more than 8% q-o-q for the past five quarters, while EBITDA margins

stabilized at around 23%.

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HIGHLIGHTS




First round inorganic expansion near completion with 100% acquisition of

six key JV companies

Performance improved as the company integrated investments in JVs





Ability and experience of acquiring skill base and execution experience

through unique JV and alliance strategy





Experience and presence in remote infrastructure management services





Muted growth in technology R&D and software services

space could impact growth in mid-term

High dependence on a few customers

l

Start-up Year:
1991 l Products & Services: Technology

development, networking services, software product engineering

services, applications services l Branches: 26 l Address:

A-10/11, Sector 3, Noida-201301 l Tel: 22520917 l Fax: 2538961

l Website:
www.hcltech.com

The inorganic growth strategy-particularly in the BPO-also helped HCLT

ensure steady growth, even as software and infrastructure services and its core

technology R&D business showed sluggish growth. Remove the BPO numbers, as

we have done, and the company's overall revenues drop from Rs 3,194 crore to

Rs 2,772 crore. But, the company managed to up its topline by 32% as compared to

24% growth in 2003-04, thanks to some of the multi-year contracts and growing

business from top 20 clients.

The company also saw decline in the growth of $1 mn clients, which went up by

21% as compared to 55% in the previous year. While a lot of this would be taken

care of with the integration of its diverse service-centric acquisitions, it

nevertheless brings to forth the over dependence on the top 5 and top 10

accounts-39% and 51%, respectively, of the overall revenue. A matter of

concern because this restricts the company's ability to negotiate price rises.

Overall, the company ended FY 2004-05 with 489 active clients.

The JFM quarter saw Vineet Nayar taking over as president of the company's

software and infrastructure business from S Raman, HCL's co-founder.

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