Covid-19 will push a lot more customers to look at outsourcing: C Vijayakumar, HCL Technologies Chief Executive Officer (CEO)

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Covid-19 will push a lot more customers to look at outsourcing: C Vijayakumar, HCL Technologies Chief Executive Officer (CEO)

Edited excerpts of an interview with Mr C Vijayakumar, Chief Executive Officer (CEO) of HCL Technologies:

• Digital transformations at global companies, expected over the next two to three years, will now hasten in crisis-mode due to the Covid-19 pandemic. Mr Vijayakumar said sectors or companies that were not looking at outsourcing will do so now to save costs.

• When asked between the United States and Europe, where does he expect growth to pick up, he said that the US and Europe are not going to be very different, because in Europe, some geographies are already opening up. Around 23 states in the US have also already relaxed some guidelines and there is some hope that things will stabilize quickly, but customer behavior may not change immediately.
• His views on traditional and digital services in coming fiscal years: Traditional services also have some very strong propositions, like digital workplace, engineering services. Some of the demand is intact and it is only getting accelerated. So, barring the short-term challenge, HCL Technologies will have good growth momentum. Mr. Vijaykumar thinks there could be a hit in the first quarter for sure. Industrial, auto, and aero have been impacted significantly, and non-grocery retail is also quite seriously impacted. But, almost 12% of revenue comes from Life Sciences and close to 20% of revenue comes from tech services. Both are strong verticals.
• When asked about the kind of projects and wins expected after the recovery, he replied that Digital spends will (only) accelerate. Whatever transformation was expected to happen over the next two to three years, it’s almost going to get done in crisis mode, because for all the businesses, digital is the most viable channel to engage. He sees acceleration in cloud adoption, digital transformation, spend on digital workplace and cybersecurity. He believes the hospitals of the future will only have operation theatres and ICUs, everything else will be done through telemedicine.
• He further informed that since work from home has been implemented, the productivity is much higher. They have tools to track productivity of every individual. Currently, there is a lockdown so obviously everybody is glued on to work, but how a large-scale work from home stacks up in a non-lockdown scenario needs to be seen in future.
• He stated that HCL Technologies is very open to look into the opportunities to acquire companies, products, platforms or capabilities if there are attractive assets available. They have not only been acquisitive, but have made the acquisitions work.

Consensus Estimate: (Source: market screener)

• The closing price of HCL Technologies was ₹ 519/- as of 8^–May-20. It traded at 13x/ 11.5x the consensus EPS estimate of ₹ 40.2/45.1 for FY20E/ FY21E respectively.
• Consensus target price of ₹ 580/- implies a PE multiple of 13x on FY21E EPS of ₹ 45.1/-

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