Stable pricing comes as breather for IT cos

- Generally, most of the deal renewals happen in March qtr

- But this qtr has not seen much discounts given by Indian IT firms

- Old model of pricing is slowly changing

- After passing on the rising talent cost for last one year, there is less leverage to raise cost in the current environment

Bengaluru: Despite grim picture drawn by TCS and Infosys on demand outlook, a stable pricing mechanism has emerged as the only silver lining amid an ongoing slowdown.

According to company officials, though clients are going slow with projects and defer giving new projects, they are not yet asking for price discounts from service providers like IT firms. This is a departure of earlier practice when slowdown had prompted clients to ask for price discounts from ongoing projects or during renewals.

Sources in the know said January-March quarter, when most of the deal renewals happen, has not seen much discounts given by most Indian IT firms.

“The old model of pricing is slowly changing. After passing on the rising talent cost for last one year, there is less leverage to raise cost in the current environment. But discounts are pushed back by IT services companies as most deals are becoming outcome-based,” said an official from a Bengaluru-based IT firm.

This sentiment was reverberated during the earnings call post fourth quarter results.

“Renewal discounts, which clients come back when programmes are ending and now, that is something which we have really curbed over the last few years. Basically, we are pushing back on the renewal because there are other ways we can get productivity as well. So, that’s something which has actually stemmed quite a lot. In fact, clients understand that we have to also provide for our own talent in this hot talent market to compensate their teams, Nilanjan Roy, Chief Financial Officer of Infosys, said during the earnings call.

He has also said that pricing is getting linked to outcomes in digital deals, giving less space for discounts.

Meantime, TCS management said that the company was able to improve its pricing during renewals.

“Typically, renewals and other aspects of ongoing relationships, there is a slight uptick in terms of the pricing that we are seeing. It could manifest itself as our clauses being better and forcible,” Rajesh Gopinathan, outgoing CEO of TCS, said during the fourth quarter earnings call with analysts.

Pricing stability is important for maintaining margin profile of domestic IT services firms. In the fourth quarter, TCS posted a flattish operating margin of 24.5 per cent. For Infosys, operating margin contracted 50 basis points quarter-on-quarter to 21 per cent during this period.

Though most mid-tier IT firms are yet to announce their Q4 results, experts see a similar or worsening trend in terms of margin for the quarter. After hiring in large numbers, IT firms are now caught with a high bench strength (reserve employees) due to low number of projects getting executed.