In 2008, HCL Technologies acquired UK-based consulting firm Axon, in what was the largest acquisition by an Indian IT company. HCL Axon President Steve Cardell, who was earlier the Axon CEO before the deal, talks to Piyali Mandal about how the move paid off for HCL, with the business line now contributing about 22 per cent to HCL’s overall revenue and helping it to bag more deals. Excerpts:
Now that integration issues are behind you, how is HCL Axon doing?
The Enterprise Application Services (EAS) line of business is now contributing 22 per cent towards HCL’s total revenue. If you look at the last four quarters, we have pretty much grown at the company average. We have grown at 7.6 per cent in the last four quarters. The company has grown at 7.5 per cent. So, we are right in the middle of the road in terms of growth of the EAS which is essentially SAP, Oracle, Microsoft and consulting services. If you compare that to how many of our competitors are doing, you will see that we are registering strong growth in EAS.
What are the reasons for such robust growth?
HCL services offerings have broadened because of the acquisition of Axon. Compared to TCS and Infosys our enterprise service offerings are much broader.
Secondly, we are closely aligned with the software vendors. We have very strong partnership with Oracle, SAP and Microsoft.
Thirdly, we have taken an industry focused approach. Our offerings are not generic, they are specific to different target markets which are particularly utilities, local government, life sciences and consumer retail.
Lastly, from a geography point of view, rest of the world has been very strong for EAS. That’s partly because we have acquired new markets for HCL. We are going into new markets and generating growth.
So, you are saying that cross selling is helping both the entities enter newer geographies?
Yes. Essentially, where HCL has an existing infrastructure, we are putting in solutions. So we are using the market connection and the customer base that HCL has got to cross sell EAS services, particularly in places like South Africa, China, Japan, South America and the West Asia.
After the unrest in West Asia, do you think it's still a good destination for business?
Yes. Particularly UAE, Bahrain and Qatar are still good places to look for business. We are already there and looking at expanding.
How are the other markets doing ?
We are seeing robust growth in Europe. It remains stronger for us than the US. Rest of the world is running at twice the pace as most matured geographies. Actually, if you look at the macro conditions you would imagine that Europe would be a bad market for EAS. Austerity measures are absolutely biting now in Europe. Their economy has been struggling— Ireland, Spain,
Portugal, Greece are getting worse, not better. And the IMF has downgraded its growth forecast for Euro zone.
However, despite that both government department and private companies are looking at how to be more efficient. So particularly in continental Europe, France and Italy, which has never been that open to the outsourcing model, have now started to look at that as an option.
What kind of growth do you expect from continental Europe?
The growth in Continental Europe will continue. It is expected to grow at around 7 per cent.
Will you look at further acquisitions in Continental Europe and elsewhere?
Yes, we are always on a look out. But, we will not acquire for scale. We will look at acquisitions to add capabilities.
No end to HCL and Infosys' war of words over British firm Axon
BANGALORE: There seems to be no let-up in the war of words between two of India's biggest software companies that was triggered by the bidding battle for British company Axon four years ago.
HCL Technologies and Infosys are now seeing a fresh bout over the Bangalore-based company's long-awaited acquisition of Lodestone in September. And to boot, the protagonists on both sides are Steves - Steve Pratt of Infosys and Steve Cardell of HCL Technologies.
Infosys, which backed off from a bidding war with its Noida-based rival earlier, is now saying Axon was not such a great deal after all. Pratt, the global head of consulting at Infosys, told ET that he is "glad the deal (with Axon) didn't go through".
After criticism lasting years from analysts about its aversion to risk, Infosys announced that it was buying Lodestone, a Switzerland-based consulting company, for Rs 1,900 crore. Even before the deal became public, HCL's Cardell weighed in, remarking that Lodestone was like Axon, with the catch that it was behind the times. "It (Lodestone) is like an Axon about seven-eight years ago," he told ET in July when murmurs first began about Infosys' interest in Lodestone.
India's second- and fourth-largest IT services companies have been growing in contrasting manners over the last few years. HCL Technologies' revenue has expanded nearly 90 per cent during the period while for Infosys it is just 50 per cent. Even their commentaries now reflect the difference, with HCL easily the more bullish.
Axon, which it bought for Rs 3,800 crore, has been an important factor in its rapid rise.
"HCL Technologies was missing the ERP ( enterprise resource planning) piece at the time and it needed to fill this gap badly to become a full-service player. Axon helped it become a billion-dollar player in ERP and it filled a gap created by Satyam," Sandeep Muthangi of brokerage firm IIFL, referring to the implosion of what was then India's fourth-largest software exporter. Cardell said Lodestone was weighed and found unattractive.
"HCL did look at Lodestone in the past. The company has been on sale for quite a while." But Pratt counters, saying that Lodestone is a 'high quality' company.
"Lodestone has people in Brazil, Singapore and China where Infosys Consulting was not present. So, it's a very good fit for Infosys."
"We don't really compete with HCL Axon in the market. Ours is a business transformation-led company and theirs is a more technology-led company," said Pratt, a former partner at consultancy Deloitte.
Infosys will keep Lodestone as a separate subsidiary for a year and then look to integrate it with its consulting business, he said.
"We'll first incubate, coordinate and then integrate Lodestone. The compensation levels and human resources structures are very different in consulting.
We'll follow the same strategy for Lodestone," said Pratt, who established the consulting practice for Infosys in 2004. Consulting and system integration contribute $2 billion a year for Infosys and employ about 30,000 people.
"The billing rates in some practices in Infosys Consulting are as high as $230 per hour per employee. It's very high-end consulting that we do unlike many others."