IT cos feeling heat of pricing pressure
Indian IT firms may not be able to raise contract prices amid tepid demand environment; Overall pricing environment remains stable with less clients asking for discounts during renewals
image for illustrative purpose
- Large IT firms see marginal uptick on contract price
- Mid-tier IT cos also indicate steady pricing
- Demand moderation globally
- Wage cost rising amid high attrition
- Indian IT services cos were able to raise contract prices during the pandemic period
Bengaluru: Indian IT services companies are unlikely to get a significant price hike in contracts going ahead though overall pricing environment remains stable. Company officials also said that discounts given to clients during the renewals of outsourcing contracts have also become rare, which provides cushion to operating margin in a difficult demand environment. However, commentary on pricing has become divergent with company-specific nuances coming into play from the third quarter.
"If you look at our pricing, it has been quite stable and historically, this was one lever which we always bind down repeatedly, which is discounts and renewals etcetera. And as of now, we haven't seen that at all. We continue to push with clients and where all we can get price increases," Salil Parekh, CEO of Infosys, has told analysts during third quarter conference call.
Market leader Tata Consultancy Services (TCS) said that the company is witnessing a steady pricing environment with an upward bias.
"We are seeing a slight uptick in pricing in the current quarter. And we should be able to get some of it, but keep it balanced by the fact that in long-term existing customer relationships, we will need to be more nuanced about it. But overall, there is definitely an expectation of a rising pricing environment," Rajesh Gopinathan, CEO of TCS, said during the analyst call. Another large-tier firm HCL Tech has indicated that pricing remains stable in the market and new deals are coming at the higher pricing.
Not only large tier IT firms, but also mid-tier IT companies indicated about a steady pricing environment in the market place despite demand moderation. However, many said they wouldn't pursue with their clients to increase price given the macro-economic uncertainty. "Persistent Systems indicated it had been pursuing price hike with continuous dialogue with its customers and received satisfactory price hikes during that period. The company indicated it is unlikely to pursue a price hike for the next six to 12 months as the environment is not favourable for the same," ICICI Securities said in a note on mid-tier IT firm, Persistent Systems post the third quarter results.
Indian IT services companies were able to raise contract prices during the pandemic period on the back of high wage cost arising from rising employee attrition. As the world fights hyper inflation with demand for technology services moderating, bargaining power of IT firms is diminishing as far as price hikes are concerned.
Price hike remains one of the important levers of improving operating margin in coming quarters. Other important factors that are likely to support margin profile are falling attrition, rising employee utilization levels, and dip in rupee value against dollar among others.
