Suspension of the H1-B visas by the US will cost domestic IT firms Rs 1,200 crore and have a marginal 0.25-0.30 per cent impact on their profitability, a domestic rating agency said on Monday. An increase in local hiring over the last few years since the US – the largest market for Indian IT firms - started curbing the visa issuances will help limit the impact on the Indian IT companies now, Crisil Ratings said.
It can be noted that last month, the visas used by Indian tech professionals to work out of the US were suspended by the Donald Trump administration as it looked to arrest the rising unemployment.
Crisil, however, said that the marginal impact will be over and above the up to 2.50 per cent decline in IT firms' profits because of the COVID-19 pandemic and added that operating profitability is seen at 23 per cent in FY21 as per an analysis of 15 top firms'' performance.
The US move on the H1-B and L1 visas will have limited impact because of the lower reliance on the entry system by hiring locally, it said, adding that renewals of the visas will be unaffected.
Zooming of the denial rates to 39 per cent in FY20, up from 6 per cent in FY16, had led to lower reliance on the visas by the local IT companies, it said.
"New H1-B visa issuances contribute less than 5 per cent of the US onshore workforce of the top 5 listed Indian IT firms, which account for 60 per cent of the industry revenue. On the other hand, the share of local hires in their US onshore employee mix has steadily increased from 30-35 per cent in fiscal 2017 to about 55-60 per cent in fiscal 2020,” its senior director Anuj Sethi said.
With IT firms aiming to increase the share of local talent, especially with digital skills, the transition impact is expected to be marginal for them, he added.
The US has proposed a transition of the existing H1-B visa issuance to a merit-based programme (criteria for capping new visas at 85,000 to be decided on quantum of salary rather than the lottery system currently) or a potential increase in minimum salary floor, it noted.
Assuming employee requirements through new visa approvals (6,137 units in fiscal 2019) are completely met via local hiring and considering a 25 per cent premium for local hiring over the H1-B route, the additional cost burden on IT firms may not exceed Rs 1,200 crore, it said.
"Additionally, with higher share of employees working from home and with continued restrictions on mobility due to the pandemic, the onshore requirements of IT firms are likely to be lower," its director Sameer Charania said.
The ratings agency said it does not expect any material impact on the credit quality of most IT firms as their financial risk profile is healthy.
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