IT cos up the ante on employee utilisation

Bengaluru: Indian IT services companies are improving their employee utilisation levels along with reducing the dependence on subcontractors in order to protect their operating margins at a time when tepid revenue growth lends little support to the margin profile.

In the second quarter ended September, almost all companies- big and mid-tier firms- posted improvement in their employee utilisation level. According to company officials and experts, the focus on these two levers- utilisation and subcontractors- is likely to continue for the rest of this fiscal year.

Infosys saw 1.5 per cent sequential improvement in its employee utilisation level to 80.4 per cent in the September quarter. Employee utilisation level was up 3.8 per cent year-on-basis.

Similarly, net utilisation level of Wipro excluding trainees has reached a high of 84.5 per cent in the September quarter, an improvement of 80 basis points over the previous quarter.

Though Tata Consultancy Services (TCS) didn’t provide specific number for employee utilisation levels, its operating margin benefitted from improving levels during the quarter. According to the company, its operating margin got a benefit of 100 basis points as a result of improved utilization and productivity apart from further optimization of subcontractor expenses.

The same trend was seen in case of subcontractor expenses, which come when a company executes projects through third-parties. From the beginning of this financial year, companies are reducing their dependence on subcontractors and emphasizing on project execution through internal teams.

Management of different IT firms opined that their focus on cost optimisation through improving employee utilisation and reduction in subcon expenses will continue in the rest of financial year.

“Those (employee utilisation & reduction in subcon cost) will continue to be levers. We invested significantly when the supply environment was challenging. And utilization as well as some flab sitting on the direct cost itself, are levers. So, all of it- productivity, utilization and in the given environment, the subcontractor costs also, continue to be levers in Q3 and Q4 (of FY24),” Samir Seksaria, Chief Financial Officer of TCS, had said during the post-results analyst call.

Infosys also said that its employee utilisation level is likely to further improve in coming quarters.

“Our focus on improving operating efficiency has resulted in improvements in utilization, excluding trainees, from 81.1 per cent to 81.8 per cent, which we believe has room for further optimization,” Nilanjan Roy, CFO of Infosys had said during analyst call.

Apart from these two factors, depreciating rupee against dollar is likely to supplement the operating margin profile of IT firms in the third quarter. Rupee is hovering around 83.2 level against US dollar at this point of time.