Amendments to the H1-B visa rules introduced in its largest market US will shave-off Indian information technology companies' profit margins by up to 5.80 per cent and impact the mid-tier players the most, a report said on Wednesday.
The rules framed by the Donald Trump administration towards the end of its tenure on October 6 are "credit negative" for the sector and will impact companies over a three year period, it added. The over USD 180 billion Indian IT industry counts on the US as its largest market and sends engineers from India to work at onshore client locations, resulting in the dependency on the H1-B visas.
"The margin impact on full implementation…will be in the range of 2.60-5.80 per cent, depending upon the level of onshore H-1B visas," rating agency Icra said, adding generally companies have 20-30 per cent employees onshore with 40-50 per cent employed using the H-1B visas. Changes effected include revising definition of occupations and positions qualifying for H-1B visas, increasing minimum wage level and reducing tenure for onsite third-party employee H-1B visa categories from three years to one year, it said.
"As per our assessment of the various provisions, without considering the increase in realisations or other mitigating factors, the gross impact of all the provisions will be in the range of 2.85-6.50 per cent,"its Vice President Gaurav Jain said. Larger companies will be better placed to bear the impact because of the cushion as they have higher operating margins and stronger balance sheet sizes, but a few mid-size companies may face deterioration in their credit profiles, he added. Changes in wage rules alone will result in a 20-30 per cent increase in entry level wages, it said, adding that the widely preferred general engineering degree may not suffice after the amendments to the rules.
"With such high entry level wages, the pace of offshoring is expected to increase. Indian companies will try and pass on the increased cost of service delivery, which are already facing pricing pressure for traditional/legacy services. "This will result in increased offshoring as a win-win situation for the clients as well as IT services companies," Jain said.