Rank 8: HCL Technologies: Get Smart, Buy Smart

It wasn’t a good year for IT companies. It wasn’t great for HCL
Technologies either–it’s growth rate slipped substantially from 40%-plus
levels in previous years to 20% in fiscal 2001-02, with the final revenue tally
being Rs 1,552 crore, compared to Rs 1,298 crore in 2000-01.

Performance Highlights Net profit growth fell from 83% to 13%–from Rs 428 crore to Rs 485 crore Implemented SAP internally, set up 17 ODCs New clients like UT, StanChart, Parker Hannifin Strengths Strong cash reserves will help inorganic growth Ability to extract more business from existing customers–at present, top 5/10/20% clients contribute 25/38/50% of overall revenues Weaknesses Growing direct costs may put pressure on OPM High dependence on big clients with whom it has ODCs can put pressure on the topline HCL Technologies Ltd. l Startup: 1991 l Products & services: Networking, software product engineering, technology development, application engineering and IT-enabled Services l Branches:24 l Address: A - 10/11, Sector 3, Noida 201301, Uttar Pradesh l Tel: 4520917, 4520937, 4520997 l Fax: 4526907 l Website: hcltech.com

But HCLT couldn’t really have done too much more, given the dramatic
downward spiral that the IT industry found itself in–both offshore and onsite
rates crashed, as did operating margins. While HCLT did manage to grow at par
with the software industry average, its OPM still fell from 31% to 28%. But what
the Shiv Nadar-led company did manage quite well was charting out and
implementing moves to create new growth areas. A concerted effort to de-risk the
core business saw European operations being strengthened in a bid to reduce
over-dependence on the US–resultantly, the latter’s share in total revenues
dropped from 76% to 69%, even though revenues from the US increased from Rs 985
crore to Rs 1,063 crore.

Europe’s share in revenues showed an upward trend (with the exception of
the JAS quarter), when it slipped to 5.51% from 6.95% in AMJ. This went up in
OND to 9.2% and 8% in JFM to close with an annual share of 11.08%.

The company also went on the prowl to trigger growth through the inorganic
route–acquisitions, JVs and subsidiaries, with these contributing 13% of
revenues in JFM 2002. It acquired a 51% stake in Deutsche Software for Rs 120
crore. A 100% subsidiary–HCL E-serve–was set up to tap the BPO space, while
a 90% stake in British Telecom’s Apollo Contact Center was also acquired. HCLT
also joined hands with US-based Answerthink to form a 50:50 JV, HCL Answerthink,
while 6% of the equity was picked up in US-based Zamba Solutions. Two 51:49 JV
companies were also set up–HCL Enterprise Solutions (with Computech
Corporation Inc) and Shipara Technologies (with Rao Insulating Company).

Interestingly though, after all these investments totalling Rs 188 crore,
overall cash reserves still jumped 49%–from Rs 844 crore to Rs 1,256 crore.