CHENNAI, India — India’s Tata Consultancy Services Ltd. expects the recent U.S. visa fee hike to have a 30 basis points impact on its operating margins annually, but the software exporter plans to absorb all the cost rather than pass it onto clients, its chief financial officer said in an interview.
The U.S. last month passed a legislation that requires all companies that have more than half of their U.S.-based employees on H1-B or L-1 visas to pay thousands of dollars in new fees for each worker.
“These (visa fee hike) are not big issues,” S. Mahalingam told Dow Jones Newswires. “These are not things that you take to your customers.”
India’s TCS, the country’s largest software exporter by sales, counts major U.S. banks as its clients. The comments from the executive contrast those given by other rivals such as Infosys Technologies Ltd. and Wipro Ltd. which have said earlier that they have no plans to pay for the extra fees.
Earlier this week, India’s third-largest software company Wipro said it is already talking to clients to make “price adjustments” to include the higher cost of visas, while Infosys, the second largest, maintained that the cost increase will have to be passed onto clients at “some point.”
TCS’s Mahalingam said the company expects to maintain operating margins at around 27% for the current financial year that began on April 1, the same as the previous fiscal year.
“We are essentially attempting to ensure that over a period of time–at a constant currency basis–we are somewhere around that margin level,” he said.
The task to keep margins at last year’s level comes as the Mumbai-based company, like its peers, has been weighed down by increased wage costs, currency volatility and pressure on billing rates.
“Currency fluctuations will be there,” he said. “At the moment, we are not seeing any billing rate improvements.”
Mr. Mahalingam, however, expects rates to improve towards the end of this year.
After two consecutive years of a decline in rates, the company’s pricing optimism comes at a time when investors remain wary of a double-dip recession in the U.S., one of the biggest markets for Indian IT companies, amid weaker than expected U.S. economic data. Earlier this month, data from the U.S. showed the economy grew only 1.6% in the second quarter.
But TCS, which gets more than half its revenue from the U.S., doesn’t see any impact on client spending on technology.
The business environment is “reasonably good,” Mr. Mahalingam said. “We’ll be growing (the business volumes).”
He declined to comment on whether the company will be able to maintain the momentum it saw in the first quarter of current fiscal year, where it posted a robust 8.1% sequential rise in the volume of outsourcing work.
“At least, our client base is not acting as if we are facing a double-dip recession,” he said.
TCS’s deal pipeline looks “good,” he said, adding the pipeline remained the same as the beginning of the quarter which ends Sept. 30. In July, the company had said it is chasing 15 large deals worth $50 million-$100 million.
Even with recessionary fears lingering, Mr. Mahalingam expects clients’ technology budgets for software services to grow in 2011.
The company now looks to improve its revenue contribution from continental Europe, a region that saw the sovereign debt crisis erupt two quarters ago.
“We get 9% of our revenue from continental Europe…we believe it can improve,” Mr. Mahalingam said.
He also said the company is open to acquisitions to build its revenue from the region.
“Some of the geographies that have a potentially large amount of business, if we’re not getting our due share, then non-organic growth will be the key.”
TCS, one of the largest and established players in the Chinese market, also plans to export services from China to other regions. “Our strategy will be to get local customers and to go after multinationals that also have a significant operation in China.”