Indian IT companies, including market leaders TCS and Infosys, may have to bear huge costs towards employee visa fees going ahead, which in turn can put pressure on their profit margins.
Difficult visa norms, particularly in the US — one of the most important markets for the Indian software companies — have already made an adverse impact on their operating margins in the first quarter of the current fiscal and the trend is likely to continue in the coming quarters.
The companies have been hit hard by the double whammy of higher visa rejection rate and increased visa costs. But the changing dynamics of the outsourcing business might lead to the Indian IT companies seeking even larger number of visas for their employees going ahead, experts say.
India’s largest software firm Tata Consultancy Services has applied for 5,900 H-1B visas for the US this year, up 1,400 from last year’s 4,500 applications.
TCS’ Executive Vice-President and Global Human Resources Head, Mr Ajoy Mukherjee, said the company is now looking at more H-1B visas, given the higher risks of visa rejections in the L1 category.
According to officials at industry body Nasscom, the visa rejection rates are as high as 40 per cent in the US. The grouping has expressed concern about the issue in the past and has been involved in discussion with the US administration seeking further clarity in regulations and interpretations pertaining to visa rules.
For Indian IT firms, the most common visa categories are L1 (meant for intra-company transfers of employees to the US offices from other locations) and H-1B (non-immigrant visa that allows US companies to employ foreign workers in specialty occupations).
The fees were raised for both the categories in August 2010, while changes are being anticipated in the immigration rules of the US.
The US accounts for about 60 per cent of the Indian IT sector’s overall revenues. As a result, Indian companies account for a significant portion of the professional visa applications in the US.
Among Indian companies, Infosys incurred $7 million in visa costs during the quarter ended March 31, 2012. However, these costs could vary by a wide margin, as the number of available visas in the US tends to vary substantially from quarter to quarter.
Infosys’ visa costs were as high as $ 15 million in July—September quarter of 2011. The company incurred total visa charges of Rs 202 crore (0.6 per cent of revenue) last fiscal ended March 31, 2012 — up from Rs 184 crore in FY2011.
Announcing its first quarter results last week, TCS chief Mr N. Chandrasekaran said the company’s margin was impacted by factors like wage increases and higher visa fees on account of a “significant number of visas” it had applied for.
Similar comments were made by Infosys and iGate while announcing their financial results.