Can HCL Infosystems ever be a desi IBM?

There is a difference between what HCL Infosystems' senior leadership will tell you and what the company's financials display. A quick discussion with Chairman Ajai Chowdhry and CEO Harsh Chitale may suggest that everything is fine within the company. But as you get to spend more time with them, the fissures start showing up.

Leaderspeak with Harsh Chitale

In FY 2010-11, HCL's revenues came down from Rs 12,159 crore to Rs 11,542 crore*, and net profit fell from Rs 242 crore to Rs 168 crore, a straight 31 per cent decline. The last June ended quarter saw an 84 per cent evaporation of its bottom line. The last thing standing between the ailing health of the company and its future is Chitale's determination to make it profitable.

Hottest executives: HCL Infosystems' Harsh Chitale

But why is the company in its present state? Of its revenues, Rs 7,805 crore comes from its telecommunication and office automation business, which in turn has close to 90 per cent of its revenues coming from the distribution of Nokia mobile phones. Nokia itself has not been in the best of shape for the past couple of years.  In fact, this business vertical has been making a loss for more than two years.

Soon after joining HCL Infosystems in October 2010**, Chitale knew that he was heading an ailing company. HCL Infosystems' business is not its future. So he decided to turn it into a hardware-cum-solutions provider. He points out that the company is under transition.

"From hardware we are doing more and more of services, more and more of end-to-end services," says Chitale. "IBM did it very successfully in the past and we are on that journey."

But even more than that, Chitale's biggest worry is containing and holding the distribution business of Nokia. Earlier rumours were that 2011 would see the end of the Nokia distribution; however, Chitale has been able to extend the contract till December 2014***. Nokia wasn't available for a comment.

Ask Chitale about HCL's dependence on Nokia. "Whether I want to add much more and have a more diversified portfolio, the answer is yes," he says.  Today more than 50 per cent of HCL Infosystems' business is distribution of 11 brands like Nokia. Chitale understands the gravity of the business and is creating a new multi-brand distribution subsidiary which will look at strengthening all its eleven brands. As far as Nokia is concerned, Chitale is sure the business will remain with the company.

However, it's Chowdhry who remembers how it felt when Nokia first decided to take back two of the four distribution zones in India.

"Naturally, we were very upset, because we helped them create the market," says Chowdhry. "They did not take over 50 per cent of the company in one go. They did it over the next 18 months in a phased manner, so that our revenues don't fall."

Now Chitale is working to reinvent HCL Infosystems, but will face a lot of problems. The biggest is that the company is largely focussed and dependent on public sector and government contracts, and moving into private contracts will be a big task.

"To move into the private sector (with services and solutions) one has to build a new sales team," says an IT analyst at a national equity research firm.

Chitale is bullish, and is quick to give the example of how things are changing internally. In January, he remembers his discussion with the information officer of a large manufacturing company for which HCL has been a vendor for a while. Through the meeting he learnt that there were close to 20-25 separate HCL teams working in silos for the company. "The CIO said that 'we are working with 20-25 different HCLs," remembers Chitale.

Soon after the discussion, he began to build an integrated delivery model, with one national team which will be client-facing while the rest of operations will be in the backend. This is something that Chitale is doing for most of his large clients.

He is also extending his reach into regions like Africa, where HCL has started doing small co-operative banking contracts. "I feel that customer delight is the one-line mantra for me in HCL," he says. He has engaged what he calls a Customer Delight Officer, whose primary and only work is to figure out the HCL customer's pain points.

Chitale is also moving the company away from a three-month product shipment cycle to larger multi-year contracts ranging from Rs 500 crore to Rs 1,000 crore, and is also focussing on "how to create a more robust capability to do such projects," he says.

As far as Chowdhry is concerned, he is more relaxed and has left the turn around on Chitale's shoulders. He still believes that there is a lot of room for growth in the hardware business, with new form factors like tablets coming in.  "As internet takes off there will be an explosion is growth," he asserts (nor do we at Business Today disagree).

For now Chitale's dream of creating an integrated play is at its most recent stage and will take some time before it starts showing positive effects in the balance sheets.

*An earlier version of this article misstated HCL's reduced revenues. The correct figure is Rs. 11,542 crore.
**An earlier version of the article said Chitale joined HCL in July 2010; he actually joined in October 2010.
***This story has been updated to reflect the extension of the HCL-Nokia partnership until December 2014.