Revenues from Volvo deal to kick in from June quarter: C Vijay Kumar, HCL Technologies

HCL Technologies largely failed to impress markets with its third quarter results. Yet, there was a silver lining. The company's infrastructure services segment, which accounts for around 40 per cent of the company's total revenues, reported incrementally better sequential growth for the third quarter in a row. Amit Mudgill of ETMarkets.com spoke to C Vijay Kumar, President of Global Infrastructure Services at HCL Technologies, and tried to find out what is making this business segment so resilient. Excerpts:

ETMarkets.com: If we look at HCL Tech's service lines, the infrastructure services segment has been doing pretty well. The segment has clocked 3.9 per cent sequential growth in Q3 against 3.4 per cent in Q2 and 0.9 per cent in Q1. What is driving the growth?
C Vijay Kumar: The infrastructure segment continues to be strong driver for HCL Tech for the last several years. It is about a $180-billion market. There are three-four opportunity areas. Major one is the rebid market. There are a lot of customers, who have outsourced to some of the traditional players.

But they have rigid contract structures and many of their customers are not happy. So when they come up for renewal, say after five years, when they rebid it, our solutions, our nextGen infrastructures, DryICE automation framework, transformational solutions around software-defined infrastructure, private cloud and mobilityfirst and internetfirst philosophies, resound a lot more with the customers. This is helping us win a big share in the rebid market. And that is driving our growth for the last several quarters. We believe the trend will continue.

ETMarkets.com: And what the market size of the rebid market? Is it around $50 billion?
C Vijay Kumar: No, $50 billion comes up for renewal in FY16 and a similar $50 billion in FY17. And it is not that the entire $50 billion is an addressable market. We focus on global 2000 companies; we are not going into smaller companies. We are also focused on certain markets, like North America, that we fully cover. We are focused on most parts of Europe. We are not focused on certain geographies like Latin America. So we believe that out of $50 billion, $25 billion is the addressable market.

ETMarkets.com: So what is the potential market?
C Vijay Kumar: In that, not everybody will change service providers. Some service providers may retain their existing clients. It would be around 45-50 per cent of that market, approximately $10-12 billion. Our win rates are very high. Now in that market, even if you participate in half of it and you win substantially, it provides you with good growth momentum.

ETMarkets.com: What are the verticals that you think may drive growth for you?
C Vijay Kumar: Manufacturing is one big vertical for us. Infrastructure is a foundation for a lot of services. Consumer services like retail, CPG and now telecom is opening up. Financial services may be 25 per cent of our business on infrastructure services.

All the companies have a traditional infrastructure and they are also building their digital presence. So they are focusing on digital transformation, building IOT solutions and leveraging big data analytics. That is driving a lot of new infrastructure design and build requirements.

ETMarkets.com: Can you give us some more details of the Volvo deal?
C Vijay Kumar: The Volvo deal has got two components. One is that the Volvo group as a company has outsourced all of their infrastructure operations to HCL Tech. That is a landmark deal, probably the biggest in the history of the industry. The second is the external business. Volvo had an IT business servicing external customers. They had 40 customers for whom they were providing a lot of IT services including mainframe services. We have acquired this business. That is a $190 million dollar per year business. Both of these components have been transitioned and services have started from April 1. We believe the revenue will start kicking in the April-June quarter.

ETMarkets.com: So can we expect good organic growth going forward?
C Vijay Kumar: Yes, we expect both the organic and the inorganic component to kick in April to June quarter. In addition, our regular organic business is also growing. So, all the three dimensions will help us going ahead.