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Rising visa costs may pinch profits of IT companies

Press Trust of India
Jul 15, 2012 at 01:16pm IST

New Delhi: Indian IT companies, including market leaders TCS and Infosys, may have to bear huge costs towards employee visa fees going ahead, which in turn can put pressure on their profit margins.

Difficult visa norms, particularly in the US - one of the most important markets for the Indian software companies - have already made an adverse impact on their operating margins in the first quarter of the current fiscal and the trend is likely to continue in the coming quarters.

The companies are being hit hard by the double whammy of higher visa rejection rate and increased visa costs, but the changing dynamics of the outsourcing business might lead to the Indian IT companies seeking even larger number of visas for their employees going ahead, experts say.

Rising visa costs may pinch IT cos' profits

Difficult visa norms have already made an adverse impact on the Q1 operating margins of Indian IT companies.

India's largest software firm Tata Consultancy Services (TCS) has applied for 5,900 H-1B visas for the US this year, up 1,400 from last year's 4,500 applications.

TCS' executive vice-president and global human resources head Ajoy Mukherjee said the company is now looking at more H-1B visas, given the higher risks of visa rejections in the L1 category.

According to officials at industry body Nasscom, the visa rejection rates are as high as 40 per cent in the US. The grouping has expressed concern about the issue in the past and has been involved in discussion with the US administration seeking further clarity in regulations and interpretations pertaining to visa rules.

For Indian IT firms, the most common visa categories are L1 (meant for intra-company transfers of employees to the US offices from other locations) and H-1B (non-immigrant visa that allows US companies to employ foreign workers in specialty occupations).

The fees were raised for both the categories in August 2010, while changes are being anticipated in the immigration rules of the US.

The US accounts for about 60 per cent of the Indian IT sector's overall revenues. As a result, Indian companies account for a significant portion of the professional visa applications in the US.

Among Indian companies, Infosys incurred $7 million in visa costs during the quarter ended March 31, 2012. However, these costs could vary by a wide margin, as the number of available visas in the US tends to vary substantially from quarter to quarter.

Infosys' visa costs were as high as $15 million in July-September quarter of 2011. The company incurred total visa charges of Rs 202 crore (0.6 per cent of revenue) last fiscal ended March 31, 2012 - up from Rs 184 crore in FY2011.

Announcing its first quarter results last week, TCS chief N Chandrasekaran said the company's margin was impacted by factors like wage increases and higher visa fees on account of a "significant number of visas" it had applied for.

Similar comments were made by Infosys and iGate while announcing their financial results.

Infosys CEO SD Shibulal said, "Infosys is also facing difficult visa norms and is being forced to spend more on visas to ship techies to the US. Hence, the rise in visa expense and employee costs resulted in a decline in margins in the first quarter of the financial year 2013."

The US had raised visa fee in 2010, a move that India has been protesting against at different forums. Indian companies like TCS, Infosys and Wipro have been affected by the US action on visa fee hike for professionals.

With unemployment rates still high in the US and Presidential Elections nearby, anti-outsourcing voices are gaining traction that could impact business of Indian IT firms. Indian firms, on the other hand, are ramping up their onshore presence to counter such situations.

The US Chamber of Commerce, along with some Indian and American companies including TCS, Wipro, Accenture and Cognizant, recently wrote to the US President Barack Obama, seeking easing of rules for getting L1 visas.

The companies, in their letter, claimed that long delays and a high rejection rate for L1 visas were making it very difficult to do business in the US.

IT companies, including Infosys and Wipro, have been regularly listing visa-related issues as potential risk factors for their operations in their various regulatory filings.

Infosys said in one such recent filing that a vast majority of its employees were Indian nationals and most of its projects require a portion of the work to be completed at the client's location.

"The ability of our technology professionals to work in the United States, Europe and in other countries depends on the ability to obtain the necessary visas and work permits," it said.

As of March 31, 2012, the majority of Infosys' technology professionals in the US held either H-1B visas (approximately 10,115 persons), which allow the employee to remain in the US for up to six years, or L-1 visas (approximately 1,988 persons), which allow the employee to stay in the US only temporarily.

Although there is no limit to new L-1 visas, there is a limit to the aggregate number of new H-1B visas that the US Citizenship and Immigration Services may approve in any fiscal year which is 85,000 annually.

Also, there are apprehensions that the US might put limits on the number of L-1 visas granted.

Wipro also said in one of its regulatory filings that restrictions on immigration in the US may affect its business growth.

"If US immigration laws change and make it more difficult for us to obtain H-1B and L-1 visas for our employees, our ability to compete for and provide services to our clients in the US could be impaired.

"... The US Citizenship and Immigration Services has increased its level of scrutiny in reviewing visa applications and has decreased the number of grants. These restrictions and any further changes could hamper our ability to service our customers and cause our revenue to decline," Wipro added.

"International immigration and work permit laws may adversely affect our ability to deploy our workforce and provide services in accordance with our Global Delivery Model," said iGate, another Indian IT firm.

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