IT firms up billing rates

IT AT THE CROSSROADS - II

Infosys CEO & MD S Gopalakrishnan recently announced a hike in the software major's billing rates. "Billing rates for the new contracts will go up by 3-4 per cent and the old ones by 2-3 per cent," he said.

Wipro's CFO Suresh Senapaty too announced a 3-5 per cent increase in their billing rates.

Most of the IT companies also followed suit to offset the impact of wage hikes and rupee appreciation on their bottom lines.

Analysts, however, believe the measure is more likely to control the margin pressure than offset the 15-16 per cent wage hikes for offshore and 3-5 per cent for onsite employees.

Indian IT firms have been announcing incremental increase in billing rates for quite some time now to counter wage hikes and rising visa costs, to name a few. 
 

RATES REVISION
	Increase in billing rates		Wage hike
	Existing  clients	New clients	Offshore	Onsite
TCS	3-4	5	12-15	3-5
Infosys	2-3	3-4	12-15	5-6
Wipro	NA	NA	12-13	3-5
Satyam	3	3	16	5
Note: Figures in per cent

Siddharth Pai, partner, TPI India, feels the hikes in billing rates are not of much significance as the market is robust, with enough space for all players to grow. "When these companies talk of wage hikes, they should also mention at what level it occurs. Wage hikes are different at different levels. With the supply we have, and with many IT firms moving to tier II cities, the Indian cost advantage will stay for the next 7-8 years," he opines.

Sudin Apte, senior analyst & country head - India, Forrester Research, concurs: "Every year IT firms have been rationalising billing rates by 2-3 per cent, and the reasons vary from rising costs to other issues. We see this as a trend to contain margin pressure."

Pai also points out that Indian IT firms should understand that 35-40 per cent returns are a thing of the past. "They will have to contend with a growth rate of 20 per cent or so," he said.

However, a study done by Macquire Research Equities lays bare his argument. "We believe that despite wage inflation and the rupee appreciation, India will sustain its competitive position in the long term. Indian offshore services should still provide a 70 per cent cost reduction to the US corporations in 2015," the study saYs.

The report has forecast a wage inflation of 13 per cent in India and 4 per cent in the US and feels the rupee could strengthen from the current levels to Rs 37.7 a dollar in FY 2015. "While the differential between the Indian and the US salaries will diminish, Indian offshore services are likely to sustain their competitiveness by providing a 70 per cent cost reduction value proposition to US corporations until 2015," the study says.

Industry experts also feel that asking for a hike in billing for existing customers is very difficult. "The noise that companies make here and what actually happens in the market are very different," says an analyst, who didn't want to be quoted. "Price increase is possible when the vendor has a critical role in the project or if the vendor works out some kind of give and take formula wherein the customer is comfortable with a price hike," Apte says.

This is the second of a four-part series