IT cos bet on pricing uptick for better margins

One way is to increase the revenue profile across products which you are selling. The high-end products mix goes up. Second is when deals come up for renewal, you structurally push for inflation-linked adjustment, said Samir Seksaria, CFO, TCS

Bengaluru: Large IT firms including Tata Consultancy Services (TCS), Infosys and Wipro are relying on a likely improvement in pricing on their value-added solutions to improve operating margin in the current financial year.

Though headcount reduction, increase in employee utilisation and improvement in productivity continue to be the levers for improvement in margin, management commentaries of three large firms indicated that they would also be betting on higher pricing from clients for project execution.

“One way is to increase the revenue profile across products which you are selling. The high-end products mix goes up. Second is when deals come up for renewal, you structurally push for inflation-linked adjustment,” said Samir Seksaria, Chief Financial Officer, TCS.

In the fourth quarter, TCS posted an impressive improvement in its operating margin, which came at 26 per cent, up 100 basis points over the previous quarter. Though reduction in headcount, improved employee utilisation levels helped the firm in pushing up margin, sources in the know said that the company has started charging higher prices for contracts coming for renewal along with new contracts.

Infosys also pointed out that its operating margin got benefitted from improved pricing in its value-added offerings.

“We do have some headwinds in terms of compensation, some of these large deals ramping up during this year as well as we have tailwinds coming from pricing, coming from efficient pyramid, the automation and GenAI we are deploying,” Jayesh Sanghrajka, Chief Financial Officer of Infosys, had said during the analyst call on margin profile of the company.

Infosys posted a margin of 20.1 per cent, in Q4 which was a decline of 40 basis points over the previous quarter. This was majorly driven by negative impact of 100 basis points owing to renegotiation of contract with a large financial services client.

Similarly, Wipro is also betting on better pricing from its consulting-led services. The company has already seen demand revival for Capco’s services on the back of green shoots seen in the BFSI (banking, financial services & insurance) vertical.

The company management has indicated that apart from the focus on accelerating revenue, company would also look at better pricing on its consulting-led services.

Experts in the know said that falling rupee, focus on improving employee utilisation level, & reducing dependence on subcontractors would potentially drive operating margins upwards in the coming quarters despite a tepid demand environment.