New Delhi: Two consecutive quarters of declining margins haven’t perturbed Vineet Nayar, chief executive and vice-chairman of HCL Technologies Ltd.
The firm’s profit margin in the December quarter was 13.1%, down from 16.6% in the year-ago period. Its profit margin in the September quarter was 12.8%.
“A focus on growth is more important and the margins will come back,” Nayar said in an interview after the quarterly results were announced on Thursday. Edited excerpts:
You have outperformed your larger peers Infosys and TCS in terms of volume growth. What has given you the edge?
For the past three years, which have been the most difficult for the industry, we have demonstrated a 24% annualized growth rate. I believe that you should adopt your services and organizational structures to convert threats into opportunity.
Sustainable progress: Nayar says that HCL does not exist to deliver on a quarter-on-quarter margin, but on earnings-per-share growth. Priyanka Parashar/Mint
In a race, you cannot overtake the other car unless there is a bend. We love these bends because without them everybody will be running in a straight line and it will be a big boring industry.
HCL continues to show robust growth but there are concerns on the Street over profitability.
We made a hedge loss three years ago. Was it a mistake? Of course, it was a mistake and, therefore, it was flushed out of our profit and loss account. But we also took a lot of great decisions, which is the reason we are where we are.
What about the depreciating margins?
HCL is not a company that you can look at from a quarter-on-quarter basis. I saw a big opportunity in moving a significant amount of laterals (hires from other companies) to HCL. To do that, I had to give salary increases in July, which impacted margins... Around 10,000 laterals walked from everybody else to us.
Now everybody is hiring laterals... So, should I listen to these analysts who want quarter-on-quarter margin improvement? I am saying that I will deliver the same margin in April, May June, which is a very clear guidance, as I was in last year same quarter in constant currency basis.
But in between, by a very deft move, we have executed a strategy, which has helped us mark in a lot of laterals in HCL, and drive a higher growth. So as a result, in one or two quarters we didn’t look pretty, but that’s okay.
Are you willing to forego margins for a better growth?
In the short-term, yes.
But there will again be phases of high attrition and wage hikes, and margins will suffer. So, is this sustainable?
We have delivered a 24% annualized growth rate in the last three years. Industry peers have delivered between 12-14%. I would any day prefer a 24% growth company to a 12-14% growth company despite the fact that the latter may have squeezed the last juice out of the lemon and delivered it to the stock market... We are very clear that our existence is not to deliver quarter-on-quarter margin, but over a period of time we have to be best in class and show EPS (earnings-per-share) growth. So, with the dollar losses behind us, now you watch our EPS.
Do you mean that the days of 28-30% margins are over?
I am not saying it. There are some industry peers who know how to deliver it and they are best in class in delivering it, and that is their business model and they will continue doing it. I am not in that mould. I am a growth company, I believe in aggression, in growth. We are a 15% margin company and will grow aggressively at that rate.
The industry is not able to get above the cloud of uncertainty. What is your short-term outlook?
I think every country is behaving differently. The US is looking at the macroeconomic indicators and watching the retail space. They are investing significantly in transformation of their business model so that they can get the economy going back. Europe is resetting its costs so that they can be competitive on a global scale. And Asia is wanting to increase its market share in the global economy and, therefore, is significantly investing in globalization. You have to cater differently to these geographies.
Is it getting difficult to work in the US?
The old ways of working are increasingly losing its relevance in the US. Therefore, we have to find new ways of working by opening centres there, hiring locals, training them, which is creating a competitive advantage if you do it. This way, that threat can be converted into an opportunity and people who are slow to take off will suffer. That also gives a possibility to grow your revenue more than your competitors.