HCL Tech to tune into cloud, automation, IP products

Noida-headquartered HCL Technologies says it is carving out three ‘focus pillars’ of growth. In an analyst meet on Thursday, the management said areas such as cloud services, the internet of things (IoT), security services and beyond-digital had the potential to grow 20-30 per cent yearly. The management met analysts to provide insights on their offerings and the thinking on market dynamics.

The company outlined three modes of growth. First, bringing automation to traditional areas. Second, a focus on cloud services, IoT, security services and beyond digital. Third, a thrust on IP (intellectual property)-oriented products and platforms.

Vijay Kumar, operations head, said of the second mode: “We have demonstrated (the ability to) build scale in some of the mode-2 services with fast-growing segments such as Digital ($600 million revenue in FY16) and Analytics ($425 mn).”

“While some of these are bundled or housed under traditional areas, we think identification and carving out of these subsegments will allow greater access to the investments needed to grow and build scale,” said Rumit Dugar and Saumya Shrivastava of Religare Institutional Research in their report.

The management also said the mode-2 segment opportunities are fairly large, with most of these markets growing upwards of 20 per cent annually. HCL expects digital transformation to be a $350-billion market and analytics (big data+cloud) to be a $100bn market by 2020. “We have no doubts about the market potential for these new services. However, our key concern is that these services and products differ widely from traditional areas, as the market structure is fragmented, several non-traditional competitors have made forays, deal sizes are smaller and offshoring potential is limited (at least initially),” said the Religare report.

HCL Tech’s management also said the company’s DryICE platform that combines autonomics and orchestration that leverages artificial intelligence has been used to drive 20-60 per cent reduction. The success is reflected in that it has impacted 90 per cent of new wins for the company.

HCL’s digital revenue forms about two per cent of its application services revenue. Its strategy spans digital engagement platforms, modern application development and analytics. In line with this, it has carved out what it terms ‘BEYONDigital’, a broadbased digital transformation unit, having at least 15,000 practitioners and a little over 200 client relationships.

HCL’s positioning is being augmented by its design practice, digital platform development, Ops transformation through DryICE and global co-innovation labs. “With the introduction of HCL’s growth strategy for FY17 and beyond, it has been working toward improving its positioning in traditional services and augmenting presence in newer services. The combination of which is expected to bode well in the medium-tolong term,” said a report from Motilal Oswal.

The company also said it was in the right position to leverage the shift in RIM (regulatory information management) and the engineering and R&D (research & development) space. “The management highlighted that the emerging opportunities and growth in cloud-based services are leading to renewed demand for application services with digital transformation. The company remains confident of achieving its revenue and margin guidance (expectation), enunciated during its Q1 (first quarter of) FY17 results. We maintain HCL is well positioned to benefit from 1) the $50-60 billion per annum rebid market over the next three years; 2) favourable portfolio, with 40 per cent business drawn from the high-growth IMS (IP Multimedia Subsystem) vertical and; 3) huge $14 billion-plus order book till FY16,” said an Edelweiss Securities report.