IT firms see increase in new billing rates

After two quarters of stability, the IT service companies are witnessing an upward trend in billing rates, says Satyam Computer Services chairman Ramalinga Raju.

"There has been a marginal increase in billing rates in the last few months but since 93 per cent of our revenues come from existing contracts (those that have been signed over a year ago) we are yet to feel any impact of the improved rates," he said.

But the good news comes with a caveat, the billing rates may revert to the largely prevalent levels when new clients ramp up their business.

A senior official with a leading IT company said, "pilot projects are coming in at a slightly higher rate but once the client decides to ramp up his business, he will exercise better bargaining power and may ask for lower rates."

Also, only a rise of 5 per cent or above in billing rates is expected to impact the topline of IT companies as a 1-2 per cent increase will be offset by growing wage bills. Salaries across the board are on a rise with middle level salaries up nearly 10-15 per cent over last year.

In the 2004 fiscal Satyam's billing rates, believed to be around $22 per hour, were down 1.7 per cent year on year and there was a small dip in the fourth quarter rates compared with third quarter of the same year.

Industry observers also confirm an upswing in billing rates. "New contracts are coming at a slightly higher rate but the proportion of new contracts is very small and might be around 12-18 months before the change reflects in the company's topline," said an analyst.

Satyam is not just banking on increased billing rates to improve its performance this fiscal year.

The company finished the 2004 fiscal with 101 Fortune 500 clients and hopes to ramp up business with these companies in 2004-05. Currently Fortune 500 clients account for 68 per cent of Satyam's revenues.