Infosys COO says not seeing pricing pressure

UB Pravin Rao clarified that Infosys is was not seeing pricing cuts of 20-30% but that clients are looking to redeploy their investments to newer technologies.
Rao was responding to media reports that quoted him and said the sector was facing large price cuts. Rao clarified that he was talking about cost take-outs, which have been common in the sector for years, and could not be considered price-cuts.
“If clients were saying do the same work , the same way, with the same number of people onsite and offshore and with no tools, then it could be called a price cut. But when clients are telling you to run the project in the way you want and to use tools and automation, it is not a price cut,” Rao told investors at a Morgan Stanley conference in Mumbai. He added that despite the cost takeout, Infosys’ margins had been stable for the last two years.
“If there were 20-30% price cuts in 65% of my business, my margin would be fall.”
The Indian IT industry has for years been talking about how clients are looking to redeploy their spending, by curbing spend on run-the-business projects and using the savings to invest in transformational projects.
Rao added the industry slowdown was because the reinvestment is not necessarily happening in the same proportion.
“These are newer projects, so customers are testing ideas and running pilots. The deals are iterative and that is reflected in the ticket size.”
Another cause for concern at Infosys is the fact that its pipeline over the last year has seen a greater proportion of renewal deals.
“Our pipeline is healthy. But the concern in the last year is that many of the large deals have been renewal deals and that there has been less of net new business. We are not sure if this is a secular trend but it is something we have to keep and eye out for,” Rao said.
He added that the company’s consulting business would remain muted for the rest of the year as it reworks that unit. The company also expects continued weakness in its retail business.
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