Price Hikes are Expected to Increase Margins for TCS in India

Tata Consultancy Services’ chief financial officer stated on Saturday that the company plans to “further enhance” its operating margin, which is already at a 12-quarter high, by demanding higher pricing for technology contracts.

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

The company announced a 150 basis point increase in its operating margin from a year ago to 26% during its fourth-quarter results on Friday. This increase was attributed to “disciplined execution” and lower subcontractor costs.

Contracts with IT firms typically have one of two pricing models: either the client pays for the hours an employee works on a given project, or the pricing is based on the completion of a project’s milestones or results.

In addition, Seksaria stated that any price hikes would be “structural” in character and would be implemented as a medium- to long-term tactic. “You can’t go to a customer and say, I’m increasing my prices from tomorrow,” he stated.

Nevertheless, given that it announced annual salary increases that took effect in April, the largest software services company in India projects a 150–200 basis point decline in its operating margin over the year, according to Seksaria.

However, he added, increased productivity and an influx of new hires at the lower end of the organization should help margins.

TCS announced on Friday at its earnings conference that it intends to hire about 40,000 recent college graduates in the current fiscal year, in line with its hiring strategy from the previous year.

Additionally, the business revealed lower-than-expected quarterly revenue due to weak North American client spending.

Nevertheless, the business stated that it anticipates a “better” fiscal 2025 due to a strong deal pipeline that included orders totaling a record $13.2 billion during the reporting quarter.