IT cos may not rely on subcons in H2

The deployment of subcontractors from system integrators remains low at this point of time. Though there is a slight uptick from GCCs as far as subcontractor deployment is concerned, that will not move the needle given the volume. Things may not change drastically in the current year as IT firms are looking at utilising their own resources --- Supaul Chanda, an HR expert, tells Bizz Buzz

Bengaluru: Indian IT services firms’ reliance on subcontractors for manning IT outsourcing projects is likely to remain low in the first half of current fiscal year after reducing it aggressively last fiscal.

According to experts in the IT sector, Indian IT firms proactively reduced their dependence on subcontractors as they focussed on utilizing their own human resources for project delivery. In a tepid demand environment, such move was intended to protect their operating margins, they added.

“The deployment of subcontractors from system integrators (IT firms) remains low at this point of time. Though there is a slight uptick from GCCs (global capability centres) as far as subcontractor deployment is concerned, that will not move the needle given the volume,” said Supaul Chanda, an HR expert with decades of experience on the staffing space, told Bizz Buzz.

“Things may not change drastically in the current year as IT firms are looking at utilising their own resources,” he added.

In the last financial year ended March, most IT services companies reduced their subcontractor (subcon) expenses as they struggled with more internal resources and lesser number of projects. To protect their margin in a declining demand environment, these firms increased their employee utilisation rates.

On subcon expenses, companies like Infosys has said that there would be further decline in the such expenses in the coming quarters.

“In terms of tailwinds, our (employee) utilisation is still tied below our comfort level of 84- 85 per cent. Our subcons are still higher from where we think we can operate in an optimum level of 5 to 6 per cent efficient pyramid,” Jayesh Sanghrajka, Chief Financial Officer of Infosys, said during the analyst call.

“Under Project Maximus & under the efficient pyramid of reducing subcontractors, we have reduced subcontractors from the peak of last year by almost three per cent. Historically, in the past, we have operated in 5 to 6 per cent level. So, we believe there is some headroom to bring that down,” he said.

However, TCS has indicated that the scope for reducing the subcon expenses further may be limited in the current financial year. “We believe some of the levers, like the subcontractor cost which was one of the levers that helped significantly in FY24, might have bottomed out. But with our focus on disciplined execution, we believe levers like pyramid, pricing and utilization can still help us,” Samir Seksaria, CFO of TCS, said during analyst call.

Sources in the know said that employee utilisation level of most top and mid-tier firms will reach the optimum in the first two quarters, post which IT firms have to start hiring or deliver projects through subcontractors.