IT companies to focus on fixed price projects to improve margins: Report

Indian tech companies are aiming to sign more "fixed price contracts" instead of "time and material deals" in a bid to improve margins, The Economic Times (ET) reported on Tuesday. This comes as clients across the globe are cutting spending on outsourcing.

Last week, Tata Consultancy Services and Wipro announced their quarterly results. Both companies said that the pricing environment has not improved significantly.

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"So, we'll try to look at that and talk to our customers on how to convert time and material programmes into fixed price programmes," TCS chief K Krithivasan was quoted as saying by ET.

Fixed price projects allow companies to control the cost better and also to introduce automation in the projects. Time and material deals, on the other hand, limit the capability to automate the process.

During the first quarter ending June 30, TCS reported operating margins at 23.2 per cent. It was down 1.3 percentage points over the past quarter and up 0.1 percentage points in the same quarter last year.

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This included two percentage points impact of wage hikes.

HCLTech's operating margin for the April-June quarter stood at 17 per cent, down 1.1 percentage points sequentially and remained flat year on year. Wipro said it expects margins to be over 16 per cent in the medium term.

"Third is the automation which we can deploy in our fixed rates project. So, I think these are the large levers that will continue to support margins," Wipro chief financial officer Jatin Dalal said during the announcement of the quarterly results.