Falling crude forces Infy to revisit pricing for some clients

Falling crude oil prices have forced Infosys to reconsider its pricing for some of its outsourcing clients in the energy and utilities sector.

Addressing reporters after announcing the third quarter results, Infosys COO Pravin Rao said the falling price of crude oil is forcing some of its customers to renegotiate pricing for its software projects.

“Clients are asking for rate cuts and some are postponing their decisions due to the dramatic fall in prices,” he said. Crude oil prices have dropped below $50 a barrel on Friday, first time since May 2009, according to industry watchers.

However, Infosys is optimistic that this fall in prices, which indicates slowing global growth, would not impact its deal pipeline. Vishal Sikka, CEO of Infosys, said the company has seen volatility in the past and sees opportunities in other areas.

“Typically, falling oil prices will open up spending in other areas of the economy and people will have more money to spend,” he said.

Infosys counts energy, utilities, communications and services as a separate vertical, in which energy and utilities contributed 4.9 per cent to its revenue at the December quarter, down from the 5.5 per cent in the October quarter.

The company does not give a break-up of revenues from different geographies, but overall, it gets more than 60 per cent of revenues from North America.

Sikka added there is a possibility that retailers will drop prices in line with this development and this could increase demand.

His optimism stems from the fact that the US holiday sales picked up in December, its best since 2006.

IT exporters often are faced with clients wanting to renegotiate deals, sometimes due to currency volatility or slowdown in the sector, which has gone up since 2008, according to industry watchers.