Will HCL Tech's IBM Products Bet Pay Off?

The company makes do with a lower multiple because of weak core revenue, but analysts are betting on the IBM products acquisition to turn things around

Frank Underwood, the central character in the Netflix original House of Cards, was Machiavellian — murdering people, ordering hits on colleagues and even killing a dog. He lived by “hunt or be hunted”. The Indian software business is just as ruthless. Senior management here may assume the title of a gardener or retire to help lesser-privileged children, but everyone knows that unless your business keeps pace with clients’ ever-changing needs, you might as well be potting grass. The rule in the IT industry, in a twist to Underwood’s maxim, is “disrupt or be disrupted”.

HCL Technologies caught on to this in 2016. This leading IT player in the country and in the world decided to shut down four physical data centres out of the six in India and move towards new digital technologies such as social, mobility, analytics and cloud (SMAC). 

“We are not investing in data centres anymore,” said the-then CIO of HCL Technologies Manoj Kumbhat, adding that the company’s total IT investment on SMAC would go up significantly. Over the past three years, its digital service vertical has grown at a CAGR of 30%, and now has more than 220 clients.

The share of revenue from these services, which include SMAC, has gone up from 12.8% in FY17 to 18.3% in Q2FY20. The company also ramped up the use of SMAC in its other verticals such as infrastructure management services (IMS), products and platforms. Recently, HCL Technologies started a separate Google Cloud Business unit and entered into an IP partnership with IBM for cloud solutions in February this year. 

Apurva Prasad AVP, HDFC SecuritiesAnalysts believe they are headed in the right direction because demand for these newer technologies is only set to rise. “Hybrid cloud adoption is increasing within the largest 2,000 enterprises globally. Also, now there is a big opportunity in mid-sized enterprises’ cloud adoption, which was a segment not catered earlier by Tier-I IT companies,” says Apurva


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