Emphasis on efficiency and cost optimisation in FY24: HCLTech CEO C Vijayakumar

As discretionary spending is getting depressed due to uncertainty in the market, India’s third largest software services firm, HCLTech, will in the short term chase deals driven by cost optimisation and vendor consolidation, says chief executive and managing director C Vijayakumar. There are also several opportunities emerging in the banking sector even as there are concerns over the balance sheets of some smaller banks, he tells ET’s Romita Majumdar & Surabhi Agarwal. Edited Excerpts:

Your peers have called out an uncertain demand environment. What is the market sentiment like?
The emphasis on efficiency and cost optimisation is going to be very timely from a FY24 perspective. Everybody’s got some pressure on spending budgets, most of the world is in an inflationary environment. They’re trying to look at where they can reduce costs and are trying to do more with less. And they’re asking us to help them deliver better cost efficiencies. Some programmes which do not have an immediate-term RoI (return on investment) are being de-prioritised and there is more prioritisation around programmes which have almost an immediate or near-term RoI.

This is what is happening in our clients and the intensity is a little different in different verticals. For instance, in financial services, there’s a lot more efficiency-led programmes that are happening.

Also read | HCLTech Q4 net profit rises 11% to Rs 3,983 crore

To some extent in Europe, it is still cautious. Inflation is there but the supply chain is also getting rebalanced. Manufacturing is moving to India and some manufacturing is moving to the US. So, in fact, a lot of them want to accelerate those programmes and which means the demand for engineering can all go up.

How are you tweaking your model to meet this uncertain environment?
It’s about trying to sense from the ground, how the customer is thinking about change and realigning your talent behind the areas where the customers are investing in.

We normally do a very detailed analysis of our top accounts. And we have a significant amount of conversation with our clients to see what programmes they want to pursue and what they want to not necessarily pursue in the immediate term. And when we have some talent which understands the customer landscape very well, we can tell the customers that we can use this talent to accelerate something else and which could also deliver a better RoI. It means more efficiency, brings more automation, and tries to do more nearshoring or offshoring. So, these are multiple strategies customers are adopting.

Can Indian IT benefit from more offshoring in the current economic environment?
I think so. Demand Intensity is only going up and price pressures are also going up so both these things are good for the industry.

You mentioned a $115 billion vendor consolidation opportunity last quarter. How much of this has come to HCL Tech and also how much of a benefit do you see in the renewal of existing projects?
Talking about vendor consolidation, we are seeing that quite thematically across the pipeline. In fact, one large deal that we concluded last quarter was a vendor consolidation opportunity, where the customer had two providers and they consolidated everything with us.

So, that’s a very positive sign and there are similar things happening in many accounts. Sometimes we may be the only one, sometimes it could be between three vendors. I think that theme is playing it quite well and we believe we will gain market share. So, we see consolidation opportunities in financial services as well.

Do you see opportunities in tightening regulations that the banking sector can expect now?
The larger banks already had very strict controls, especially after the 2008 crisis. Now smaller banks will have to invest a lot in technology, management and compliance. So that’s a potential opportunity for us. I think banking is all what you’re hearing in the market. They’re all hitting some of the best profitability years.

Of course, there is some concern on the balance sheet of some banks. I think that is restricted more to smaller kinds of banks (where) our exposure is less than 1% of our FS (financial services) business. In this segment, I think diversified exposure to the financial services which include banking capital markets, both management and insurance, and fintech that is enough for us to continue.

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