Cogencis, Tuesday, Feb 19

By Nikita Periwal

MUMBAI - The information technology space is witnessing one of the strongest period of demand in several years, and Indian companies are lapping up such opportunities with fervour.    

Riding on the optimism of its best-ever quarter of deal wins, Hexaware Technologies, too, is confident and sees itself ahead of peers with an organic growth of 12-14% in 2019.

While client-specific issues had capped the Mumbai-based company's growth over the last two years, 2019 will be stronger as recently won deals translate into sales, Chief Executive Officer R. Srikrishna said in an exclusive interaction with Cogencis.   

While a scarce labour market in the US will continue to trouble most Indian players in the region, Hexaware Technologies, which follows the Jan-Dec year, hopes to offset this by creating talent locally, especially in Mexico.

Following are the edited excerpts of the interview:

Q. What is giving you the optimism for industry-leading growth guidance after a very weak September quarter?

A. We were leading the organic growth in the industry for many years. Client issues that impacted growth in 2017 and 2018 are now behind us, and that has given us the confidence of higher growth.

We also have a very strong order book after we had our best quarter ever in terms of new clients. We also bagged a very large digital transformation deal from a Nordic company.

Q. Will you be able to meet the revenue growth guidance even if you do not win new orders?

A. Yes. In our planning process, our revenues are not contingent upon deals from new clients. It is based on the additional business from the existing clients. 

Q. Given that Nordics is generally a difficult area for deal wins, will there be any pressure on margins?

A. I think the overall deal is at very healthy margins. There will be a period

of time when the deal is margin dilutive, but that's because we will re-badge a lot of employees in the front end of the deal.

Q. Why do you expect growth to come later in the year even after the December quarter has been extremely healthy in terms of deal wins?

A. There are some cyclical factors in the March quarter. There is uncertainty around budgets because budgets for a lot of companies have not been frozen yet, or they could have been finalised at a leadership level but have not flown down yet.

To be sure, we still expect growth in the first quarter, but it will be lower than the yearly average.

Q. Your optimism is coming at a time when larger peers are talking about macro-economic issues and supply side constraints. You have already done that last quarter. Were you ahead of the industry in calling out the issues?

A. I was certainly surprised that nobody called out on the supply side issues in the last quarter. They are doing it now, and we stood out a bit like a sore thumb. To me, the writing was on the wall.

Q. But the impact of tight labour markets in the US has been minimal for you in Oct-Dec compared with Jul-Sep.

A. It was. We don't think that the tightness in the labour market will go away. We plan to work around it with a three-pronged strategy. One is to pay more, and the second is talent creation in the US. The third strategy is that we are creating talent in Mexico.

Q. How effective are these strategies and are there enough resources available for training?

A. We have enough to train. I think the right question would be whether we can fulfil demand at all levels of the pyramid using this strategy, and my answer is no.

Q. What is more critical currently? Having more employees in the US or having the right kind of employees? 

A. We need both. There are some projects for which we need chunks of employees in the US. There is also fairly high-end development, which is a challenging area and this is where the pyramid problem is acute, because we need higher-end talent. We are encouraging every employee to get re-trained.

Q. There is a lot of focus around organic growth, but what is the plan for acquisitions?

A. Acquisitions will materially add to the growth, but it is not a substitute to robust organic growth. We could add 5-6% growth every year through inorganic route for the next many years and that is our goal.

Q. What are the geographies and verticals that you are looking at?

A. It is neither geographies nor verticals that we are looking at. Our first dollars will go to transform customer experience, our second dollars will go to cloudify everything. So, if we find assets or targets in the intersection of these, that is the best outcome for us.

Q. Will we see more acquisitions this year than what we have seen in the last two years?

A. We have done nothing in the last 13 years, so if we do anything, it will be more than what we have done in the past. What I can say is that we are actively looking at mergers and acquisitions.

What we want to do is to acquire capability, which can then sustain growth on its own, which will not necessarily be a scale play. I am not a big believer of merger of two large companies of similar capabilities. The thesis there is more cost reduction.  End

Edited by Madhumita Sen Choudhury