IT firms eye fixed price projects to improve margins

economictimes.indiatimes.com:

Fixed-price projects allow better cost control and a greater ability to introduce automation in projects and expand margins. By contrast, ‘time and material’ control are directly linked to the number of people hard-locked to billable projects.

Software bellwethers Tata Consultancy Services and Wipro, which announced earnings last week, said that the pricing environment has not significantly improved during the first quarter of the fiscal, and that companies have maintained margin performance on the back of higher utilisation. Deal momentum, even though slow, remained strong.TCS chief executive K Krithivasan told ET that fixed-price projects give better control on margins.

“So, we'll try to look at that and talk to our customers on how to convert time and material programs into fixed-price programs. But when you do that, it must add value to the customers as well,” he said, responding to queries on the appropriate deal types to expand margins in the current decision-making environment.Margin Shrinkage During the first quarter ending June, TCS reported operating margins at 23.2%, down 130 basis points over the past quarter and up 10 bps over the same quarter last year.

They included 200 basis point impact of wage hikes. One basis point is 0.01 percentage point.HCLTech’s operating margin for the April-June quarter stood at 17%, down 110 basis points sequentially and remained flat year on year.Wipro chief financial officer Jatin Dalal said the management expects operating margin to be over 16% in the medium term, supported by fresher onboarding, automation, and utilisation improvements.Also read | Will 2023 be a lost year for IT? “Third is really the automation which we can deploy in our fixed rates project.