India’s TCS counts on pricing increases to boost margins

By Sai Ishwarbharath B and Haripriya Suresh

BENGALURU (Reuters) - Commanding higher pricing for technology contracts will be one of the ways Tata Consultancy Services looks to "further enhance" its operating margin that is already at a 12-quarter high, its chief financial officer said on Saturday.

"One way to increase is the revenue profile across products which you are selling. The high-end products mix goes up. Second is when deals come up for renewal, you structurally push for inflation-linked adjustment," CFO Samir Seksaria said.

During its fourth quarter results on Friday, the company reported a 150 basis point increase in its operating margin from a year earlier to 26% on account of "disciplined execution" and lower subcontractor costs.

There are mainly two types of pricing models for contracts with IT firms, the client is charged for the number of hours an employee is deployed on a particular project or pricing is linked to the milestones or outcomes achieved in a specific project.

Seksaria also said any price increases would be "structural" in nature and will be used as a medium- to long-term strategy. "You can't go to a customer and say, I'm increasing my prices from tomorrow," he added.

However, India's largest software services firm expects a 150-200 basis point decrease in its operating margin during the year as it announced annual salary increases effective in April, Seksaria said.

But an influx of new hires at the lower end of the organization and higher productivity should be supportive for margins, he said.

On Friday during its earnings conference, TCS said it plans to hire around 40,000 fresh college graduates in the ongoing fiscal year, similar to what it did in the preceding year.

The company also reported lower-than-expected quarterly revenue on weak client spending in North America.

However, the company said it is expecting a "better" fiscal 2025 on a robust deal pipeline including a record $13.2 billion worth of orders in the reporting quarter.

(Reporting by Sai Ishwarbharath B and Haripriya Suresh; Editing by Christian Schmollinger)