HCL: Top of the Giants

TOP GUN: Shiv Nadar has been able to drive the group through the hardware to software and services paradigm shift seamlesslyIt’s the software stars that usually make the news. The turnaround of India’s
top two IT companies, HCL and Wipro, has been a quieter affair. But one no less
impressive to those who know how much legacy gets in the way of change at large
corporations. Both shifted gears to software and services, and both grew at a
consistent, healthy rate driven by services. As with the Tatas, software and
services now dominates the business at both groups.

Till 1994-95, the HCL Group (including NIIT) was primarily hardware-oriented.
Over four years, it virtually reversed its ratio of hardware to software and
services turnover from 83:17 to 38:62 during 1997-98. Today, this ratio has gone
down to 23:77 (including NIIT). Shiv Nadar has been able to drive the group
through this paradigm shift seamlessly, and quietly. In the process, Arjun
Malhotra and Subhash Arora, two of the six original promoters, opted out, but
that is another story.

Ever since Nadar initiated this change, the group has been constantly moving
up the DQ Top 20 list of giants–from seventh in 1997-98 to number two in
1998-99 and to the top slot a year ago. This year, HCL is number one for the
second time running, for 2000-01.

Other group companies include HCL Tech subsidiary HCL Comnet, and HCL Infosystems’ subsidiary HCL Infinet (revenues included)This past year was stable: no big shifts or change of guard. Nadar stayed
focused on HCL Technologies (HCLT) as chairman and CEO. Ajai Chowdhry, also one
of the six original promoters, is HCL Infosystems’ (HCLI) chairman and CEO.
NIIT has Rajendra S Pawar as chairman and Vijay K Thadani as CEO. NIIT is a
group company only in an informal sense. It “spun off” from HCL–its
founders were HCL employees, funded by Nadar, who now has about 20% of the
equity. In fact, Nadar has been categorical in saying that except for HCLT, he
is not involved in the other two companies’ operations. ‘‘For their
management, I am a friend, philosopher and guide, and they need to generate
returns for the shareholders–which includes me,’’ he says.

Value is one thing that the three companies have definitely been creating.
While HCLI’s revenue went up to Rs 1,276 crore in 2000-01, doubling growth to
28%, NIIT closed its books with Rs 1,375 crore. The star performer was HCLT,
which grew 59%, versus 28% the previous year–to Rs 1,322 crore. What came as a
bit of jolt was the dipping growth rate of the blue chip NIIT, from 1998-99:
31%, to 27%, and finally at 26% last fiscal. As the first one of the lot to
cross the Rs 1,000-crore mark (1999-00), NIIT has taken on itself the target of
growing tenfold to Rs 10,000 crore by 2005-06–a very tough target. Overall,
the HCL group grew its revenues 51% last fiscal, to Rs 4,413 crore.

HCLI saw mixed fortunes. Its domestic enterprise systems sales and services,
and software services exports, grew; profits crossed Rs 24 crore. But it gave
way to aggressive MNC brands, losing its top PC slot to Compaq, which doubled
HCLI’s growth in that segment.

Nevertheless, HCLI kept up performance by maintaining a good blend of its
hardware, networking services and software services business. A major networking
order from IOB helped, for a WAN covering 11 cities and 200 branches. It won
three consulting contracts for call centers–a new domain. Large corporate
desktop orders came from banking and education customers, and Toshiba notebook
sales stepped up to Infosys, PwC, E&Y and others.

HCL Technologies focused on Internet, e-com, networking and embedded systems,
and ramped up profits from Rs 233 crore to Rs 434 crore last fiscal. HCLT has
added five new offshore development centers for Toshiba, Vitesse Semiconductor,
Victoria Roads, Dairy Farm and NTT Data. And six new Fortune 500 clients and 16
new offshore contracts were signed up during the year. Apart from this, HCLT
continued to provide services to some of the most recognized names in the world,
including ANZ Bank, EMC, and Novell–28 new customers, taking the tally to 332.
Also, its venture with Perot Systems continues bring in growing revenue–Rs 439
crore came in from HCL Perot.

For NIIT, however, this was a year of consolidation and restructuring, the
third such exercises for the training major. The first was in 1989 when it
clocked Rs 17 crore, then in 1995 when it crossed three digits, at Rs 165 crore,
and last fiscal, after crossing Rs 1,000 crore. The restructuring is aimed at
achieving NIIT’s next big target: Rs 10,000 crore by 2006. A ‘lean,
meaningful and hungry’ corporate center will work towards giving broad
directions to its learning and software solutions businesses, while each
strategic business unit will have full autonomy, turning into independent
business units.

Despite this growth, the HCL group is behind the target of Rs 10,000 crore
that Nadar set for last fiscal, four years ago. The challenge will be bigger
this year. But HCLT’s healthy growth, and NIIT’s resurgence plan and
ambitious target, should keep the growth healthy–and this group on the top?

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