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Infosys said its business is not seeing any pricing pressure, but added that outsourcing clients are not reinvesting in new technology areas.
Addressing analysts at the Morgan Stanley India Conference, COO UB Pravin Rao said the company is not seeing any unusual pricing pressure. “The rates have remained the same, and we have not seen any change in the rate cards; in many cases, we have seen rate increase as well.”
It is only deal specific, where clients are doing cost take-out, which is as expected and a trend that software major has seen in the past couple of years.
All Indian IT majors have been facing margin pressures in the commoditised part of their business, which involves maintaining IT systems or software applications. For Infosys, this core business contributes 65 per cent of its revenues.
Rao also said that if there really was an issue with pricing pressure, then it would have reflected more acutely in the margins.
“Our margins have remained in a narrow band,” he said. For the 2018 fiscal, Infosys has projected operating margins of 23-25 per cent.
Rao, however, sounded a note of caution that some of its clients, despite getting cost benefits, have not reinvested in new areas such as digital.
“What we are seeing is that there is no linearity between cost take-out and reinvestments. In some clients, we see re-purposing of spending; but many clients’ infrastructure is not ready to invest in newer technologies and they are doing it in a phased manner,” said Rao.
In other cases, Infosys believes the clients are not clear about their tech roadmap, as a result of which, they are doing pilots. “These deals are iterative and that is reflected in the ticket size,” he said.
When analysts questioned Rao regarding verticals such as retail and banking and financial services, which contribute a significant chunk, he was cautious. In retail, lack of reinvestment was due to several brick-and-mortar stores shutting down, he said. “At the same time, e-commerce forms a very small part of their business.”
Rao was a little more bullish on the technology spends in the banking and financial services sector. Spend is expected to come back in a big way later this year, he said. At present, firms are in a wait-and-watch mode as they assess the new political regime in the US, Rao added.
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