Indian IT companies’ pricing woes

indianBANGALORE: Indian software exporters are unable to realise the benefits of a weak rupee even as it presents a significant opportunity to gain edge over multinational counterparts as some $21 billion (Rs 1.31 lakh crore) worth of technology outsourcing contracts come up for renewal.

Industry experts said a weaker rupee could be a big differentiator for Indian outsourcing firms as it gives them more flexibility in pricing technology contracts compared to their multinational counterparts, but only if the rupee stabilises and stays at a given level for a longer period.

“If the rupee sustains at the current level for a longer time, it could provide a competitive edge. However, the high degree of short-term volatilities will not provide that benefit,” said V Balakrishnan, director on the board of Infosys, India’s second-ranked software exporter.

Since the beginning of the year, the rupee has fallen nearly 14% – from about 54 to a dollar to a little over 62 now – but has also seen extreme volatility with a fall of as much as 25%, when the rupee slipped to 68.36 against the dollar in August. The uncertainty over the level at which the currency will eventually stabilise has made IT exporters wary of offering any billing rate discounts to clients.

Weak rupee poses a pricing problem for Indian IT firms “We haven’t started seeing deep discounting behaviour as yet. If the rupee stays depressed for, say, 12-18 months, you could start seeing different pricing behaviour in the market place. It can give them (Indian IT firms) flexibility that others don’t have,” said Siddharth A Pai, partner and president for the Asia-Pacific region at sourcing advisory ISG – an advisor to clients on majority of the large outsourcing contracts that are coming up for renewal.

“With this kind of volatility, the question is ‘at what rate do you pass on the benefits to customers?,'” asked Sujit Sircar, chief financial officer of iGate Corp. Sircar said there have been some instances of new technology contracts attracting bids at lower billing rates and if the rupee stabilises, he expects to see more of it happening.

Pune-based Persistent Systems said it has asked clients to wait for three months till the rupee finds a stable level. “Informal discussions always happen but discussions on price reduction because of the rupee fall have not come up a whole lot,” said Persistent CEO Anand Deshpande.

Depending on how keen service providers are on winning a contract, they could start bidding more aggressively, said Pai. In a scenario where the rupee is depreciating, clients stand to benefit even in existing contracts if they have a clause linked to the exchange rate in the contract.

For instance, Nasdaq-listed EXL Services, which gets around 30-35% of its revenues from such contracts, saw billing rates go down because of the rupee fall, forcing the company to lower its dollar-denominated sales guidance. “It looks rough for us, but if the rupee gains we will benefit,” said Rohit Kapoor, vice-chairman and CEO of EXL.

source : Times of India