Smaller, specialised IT firms may see price uptick in FY12. Source : The Economic Times

Smaller, specialised software services firms are likely to see better pricing in FY12, as demand for the services they offer rises, partly offsetting the impact of higher costs on margins. 

Analysts expect rates in verticals such as banking, financial services, insurance, energy, utilities and manufacturing to increase about 1 percent, along with applications such as enterprise resource planning, consulting and package implementation.  “For niche-focused companies, it is likely to play out strongly,” Angel Broking analyst Srishti Anand said, adding she does not see top-tier firms such as Infosys and Wipro benefitting from any rise in pricing due to their broad-based portfolios. 

“There would be a marginal rise in pricing in BFSI, energies and utilities, and even retail up to a certain extent, but if you take the entire portfolio, it won’t amount to much,” Anand said.  Companies such as Hexaware, KPIT Cummins Infosystems , Persistent Systems and Polaris Software Lab are expected to see some improvement in pricing in the current fiscal. 

Anand said an across-the-board price rise of 2-3 percent will take place in FY13 rather than FY12.  She expects aggressive wage hikes and higher personnel expenses to dent margins in FY11, which could be partially made up for by the inching up of pricing for specialised mid-caps. Overall, margins should be down 100 to 150 basis points in FY11, she said. 

Spark Capital Advisors analyst Srivathsan Ramachandran expects margins to be stable, helped, in part, by the expected rate hike.  “Since mid-CY08, there have been no price hikes so that could drive pricing now, we could see some improvement, about one or two percent,” he said.  Software services firms have not seen a boost in pricing since 2008, when major economies dunked to a downturn, demand suffered and IT companies were compelled to slash rates, in an attempt to sustain business. 

Now software services firms’ business in North America, Asia Pacific and other emerging regions is increasing, while the European region, which was relatively slow to recover, is also showing signs of growth.