With infra services, HCL Tech beats bigger rivals in growth

HCL Technologies, the most among big Indian IT services firms on the impending 'cloud revolution', seemed to be living up to its promise of focusing more and more on cloud-related infrastructure projects.

The Delhi-based firm, which anticipates a revolution in the global IT market as the Internet takes over as the main medium of IT delivery, increased its income from infrastructure services by a whopping 78% to $152 million (Rs 682 crore). Even when compared to the immediately preceding quarter, revenue from infrastructure or hardware related services jumped 15%, nearly three times the rate of overall revenue growth of 5.1%.

Total revenues grew 21%, when compared to the same quarter of the previous year, clocking in at $685 (Rs 3,076 crore). Profit before tax and interest, too kept pace, increasing 20% to reach $111 million during the quarter. Revenue growth for HCL, the fourth largest IT vendor from India, was slightly higher than that of TCS, which posted a 18% increase and Infosys, which saw revenues increase 16% during the March quarter.

However, it was the infrastructure services that stole the show, showing growth rates that are many times that of similar services offered by TCS and Infosys, which are twice the size of HCL. According to CEO Vineet Nayar's vision, the next five years will see most of the software shift from small PCs at the customers' premises to giant farms that run hundreds and thousands of powerful computers called servers. Accordingly, services too, will have to be tailored for software running in datacentres or server farms, instead of on PCs. Most of the traditional revenue for Indian IT services firms comes from work done at customer premises, such as development and deployment of new software on their PCs, maintaining existing software etc., rather than work done in datacentres.

As they have almost doubled in size, infrastructure related services have also significantly grown their share in HCLT's total revenues. They accounted for more than 22% of the firm's revenues for last quarter, compared to just 8.3% for TCS and 7.2% for Infosys.

"We have seen a huge pick-up in the number of cloud-related projects in the last three quarters," said Anant Gupta who heads the infrastructure division. The ongoing shift towards cloud or SaaS services require huge build outs of datacentres by companies that were, untill recently, engaged primarily in shipping out CDs with their software on it, he pointed out. The new architecture creates savings for companies by splitting a single physical server into many 'virtual' servers, each of which can be assigned to a different client.

 "During the last nine months alone, we have virtualized 50,000 servers for our clients.. Most of the ISVs [packaged software vendors] are building out their own proprietary platform," he said, referring to platforms such as Microsoft's Azure and SAP's StreamWork.  In keeping with the company's ambitious plans in the area, HCL also acquired its first datacentre, in January, to do "trials" in cloud-based applications.

Interestingly, most of the incremental infrastructure revenues seem to have come without a proportionate increase in headcount. Against 78% year-on-year increase in infrastructure revenues, HCLT posted only 21% increase in the number of employees in the division. Total employees in the division reached 11,755, about 20% of the overall headcount. On an overall basis, HCL said it will hire around 5,000  fresh graduates in the current calendar year (2010), against less than 2,000 hired during the whole of 2009.

The total number of employees increased by 4103 during the year ended March, touching a total of 58,129 across all divisions. The company's BPO or call centre business continued to see headcount shrinkage, shedding 711 people (around 7%) during the quarter alone. The company said it is letting go of voice-based business to focus only on support services that can be sold along with its IT offerings. Revenues from its BPO division slid nearly 8% compared to the same quarter a year ago, hitting $52 million.

Like other exporters, HCL also faced strong currency headwinds as more than 60% of the company's contracts are inked in US Dollar, which lost around 10% of its value with regard to the Rupee compared to the same quarter a year ago. As a result, the 21% revenue growth resulted in just a 7.5% increase in rupee revenues during the quarter compared to the same quarter a year ago when one Dollar fetched Rs 50 in India. Profit before tax and interest, converted into Rupees, was just 6.1% higher than a year ago.