US H1-B Bill, if passed, will erode margins of Indian IT companies

An H1-B bill to restrict foreign workers in information technology sector (IT) in the US has been introduced in the US Senate once again. If passed, salaries for those working in the sector will rise between $60,000 to $1,00,000 per year, or Rs 66 lakh. 

India Ratings, in a report stated that the new US bill will put further pressure on the margins of key Indian IT companies as they generate around 55% - 60% of their revenue from US market.

It said, “The cash cushion and low debt levels that IT companies enjoy however will mean the squeeze on margin which will be credit neutral.”

Key IT companies listed on Indian stock exchanges are Infosys, Tech Mahindra, Tata Consultancy Services, Wipro, Mindtree and HCL Technologies. 

The ratings agency said, "If implemented will reduce the talent pool qualifying for such visas and in turn result in either increased employee cost for hiring employees with higher qualification or subcontract work, both of which would increase the cost of operations and pressurise margins."

Over the past two years, employee cost of IT companies has risen consistently which in turn has impacted the margins negatively.

Indian IT companies generate around 55%-60% of the revenue from the USA. 

The onsite proportion of revenue exceeds the offshore portion and the subcontracting expenses as a percentage of revenue has increased by around 50bp - 100bp over the last eight quarters for the top IT companies, India Ratings said. 

US will start accepting visa application from April 1, 2017 for under H1-B and is expected to issue somewhat 65,000 visas to highly skilled professionals. A part of these visas will be issued to technology companies residing in various parts of countries.