US visa restriction may cut onsite operations of IT firms, hurt toplines: Aspire CEO

US visa restriction may cut onsite operations of IT firms, hurt toplines: Aspire CEO
Gowri Shankar Subramanian, CEO and chairman of Aspire Systems
1 Jul, 2020

The recent visa restriction imposed by the US government will result in a revision of the onshore-offshore ratio for IT projects, which would hurt the toplines of information technology (IT) services firms, but improve their bottomlines, Gowri Shankar Subramanian, CEO and chairman of Aspire Systems, said.

Typically, the value of an IT project is often higher when it requires more onsite work than offsite or offshore operations. The restriction on the H-1B visa, which technology companies depend on to carry out onsite operations, will result in a higher percentage of employees working offshore, according to Chennai-based information technology (IT) services firm Aspire Systems.   

“The onsite revenues are going to be hit in the current environment because of various restrictions of the US government. We will do more offshore this year, but the revenue per person is lesser and it is tough to overcome that impact on the topline. We will see pressure on the topline, as moving work offshore will reduce the deal value, but a positive impact on the margins as offshore is more remunerative compared to onsite,” Subramanian told TechCircle.

As some large customers insist on a higher proportion of onsite executives at their service, and are willing to pay accordingly, top-tier IT services firms such as TCS, Infosys and Wipro have increased hiring in the US over the past two years. In most top-tier IT services firms, onsite employees make up 20-25% of any given team, with 30-40% of a deal’s revenue flowing in from onsite operations.

For Aspire, onsite operations make up about 10% of a deal, contributing to 30% of its revenue. “Traditionally, we have had a much higher offshore mix,” Subramanian said.

The company said it aims to achieve organic growth in the low single-digits, despite the Covid-19 pandemic sending the global economies into a tailspin.

“It is going to impact the growth percentage that we have been registering over the past five years. Typically, we have been aiming to grow well above the industry average at a rate north of 20% organically for the past five years. But this year, we will see a muted growth in low single-digits. We are still hoping that our revenue will not decline,” Subramanian said.

When the US, the largest market for most IT firms, began to ease lockdown restrictions in May, Aspire saw a steady growth in its quantum of work, with better deal traction and wins, he added.

The company, which has a focus in the retail and banking financial services and insurance (BFSI) verticals, looks to diversify to maintain its business growth.

“We focused on fashion retail, and unlike grocery retail, it has been heavily hit by the pandemic. Also, with our horizontal services such as cloud, we had exposure to hospitality clients. In digital engineering service, we had oil and gas customers, apart from customers of our travel and transportation solutions," Subramanian said.

However, the fact that digital deals make up about 80% of the company’s revenue will help shield its topline from the Covid-19 impact to an extent, he said.

“Our digital focus gives us hope in what the longer term holds. The accelerated digital transformation is what gives us hope that our topline will not decline despite the challenging times. The move to the cloud or the rolling out of ecommerce by certain customers like pharma retailers or grocery retailers have improved traction,” Subramanian said.

The company, which on Tuesday acquired a majority shareholding position in Pleasanton, California and Bengaluru-based RapidValue, said the deal would add 10-14% to the company's topline, while also onboarding senior executives who understand the domain. RapidValue, with around $10 million in annual revenue, will remain an independent entity post the acquisition. 

“In any scenario, it is difficult to get access to large organisations and there is a limited set of vendors that they work with and through our joint operations, we could scale up those partnerships. RapidValue was a profit-making company. We have a conservative outlook of the business and that helps in times like this," Subramanian added.

Founded in 1996 by Subramanian, Shankar Krishnamoorthy and Bhoovarahan Thirumalai, Aspire reports a revenue of about $100 million and an average growth rate of 20% every year. The company has more than 2,800 employees in cities including Chennai and Hyderabad.