HCLT leads in US software vendor race

By Pradeep Rane | 19 Mar 2002

Mumbai: The New Delhi-based HCL Technologies is among the top contenders for some of the large orders that are currently bid by Indian software vendors in the US.

These multimillion-dollar contracts are those of Emerson Electric, American Express, ABN Amro, Amex, AT&T Wireless and Wireline. Sources say the awards of some of these large contracts to HCLT will significantly improve its revenue growth.

These contracts (totally around $750 million) are spread over five years, and six vendors (three global companies and three Indian companies) are short-listed for awarding the contract. HCL is one of the top contenders for the project, the sources say.

Though US companies are slow in awarding fresh contracts in the aftermath of the 9/11 terror attacks, it will not be too long before stability returns, the sources say. “US companies are showing interest, but this is yet to translate into action. The increased interest is expected to translate into good prospects for CY2003.”

HCLT says its clients are still delaying awards of large contracts until later in the year, as they are awaiting stability of return to their businesses. Currently, the orders that are awarded are smaller in size and provide opportunity for vendors to make inroads into new client accounts. HCLT says the volumes are picking up and the number of CIO/CTO visiting is certainly on the rise.

HCLT has announced a number of large orders in the past, including NCR and Convergys, totalling over $250 million. But the upward climb has been slow. The company sources say while they were seeing a volume ramp-up in engagements relating to earlier orders, the growth has been pretty slow. The company indicated a volume ramp-up in key accounts like NCR, American General, Standard Charted and Cisco.

But the sources say billing rates are still reeling under pressures and the company is renegotiating with nearly all clients having annual contracts till December 2002. The offshore billing rate indicated for the basic work is cited at $20-25/manhour, which is 10-15 per cent below the current average billing rate. The operating margins for the company are expected to stabilise in the next three quarters, as rate cuts are expected to make a major impact.

Market analysts say HCLT will make significant gains through revenue flow from its subsidiaries and joint ventures. Arms and joint ventures, including HCL Comnet, is expected to contribute over 11 per cent of the FY02 revenues - this could be the primary revenue growth driver in FY02.

HCL is bullish on its JV with Answerthink, which is expected to be operational from April 2002. “The JV can provide HCLT access to some of Answerthink’s top 35 clients for offshore services,” says an analyst. Answerthink’s clients consist of: Universal Pictures, 3Com, Verizon, Fannie Mae and Isuzu. But the confusion on how the company plans to demarcate the different JVs bidding for the same client still remains.

Commenting on the future strategy, HCLT says it is targeting application-related services to account for over 50 per cent of its revenues in the future. This enables the company to diversify its revenue-base, which currently has a large technology focus (70 per cent of the revenues). The sources say bulk of this growth will come from HCLT’s focus on the financial services domain (through, say, Deutsche Software).

HCLT maintained its revenue guidance of $345 million for FY02 revenues and $105 million for FY02 earnings. Despite a 12-per cent downward revision in the FY02 guidance after the Q2 results in January 2002, HCLT views the revised guidance as a challenge due to continued pressures on the billing rates. HCLT’s current revenue guidance implies a 6.60-per cent sequential growth in each of Q3 and Q4.

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