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%.
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.