IT cos in margin enhancing drive
Most Indian IT firms were able to maintain or improve their operating margins in Q2 on the back of reducing the employee count
There are many levers. We have scope to improve our utilisation levels further. Attrition is coming down. So, there are many reasons for margins being maintained - Joseph Anantharaju, Executive Vice-Chairman of Happiest Minds, tells BizzBuzz
Margin Management
- IT firms were able to hold up margins despite low revenue growth
- Employee utilisation, falling attrition seen as key levers
- Stable pricing is supporting the margin profile as of now
Bengaluru: Space to increase employee utilisation level, falling attrition and further reduction ofemployee strength are likely to support the operating margin profile in the coming quarters ofIndian IT firms.Most Indian IT firms were able to maintain or improve their operating margins in the secondquarter on the back of reducing the employee count. As wage cost came down, itsupplemented the margin profile during this period. Improvement in the employee utilisationlevel also supported the trend.
Company officials and experts are of the opinion that IT firms have a scope to furtherimprove their employee utilisation level, which will directly complement the margins incoming quarters.“There are many levers. We have scope to improve our utilisation levels further. Attrition iscoming down. So, there are many reasons for margins being maintained,” JosephAnantharaju, Executive Vice-Chairman of Happiest Minds, told BizzBuzz.
Happiest Mindssaw its margin at 24.2 per cent in Q3 of FY24 as compared to 24.4 per cent reported in theprevious quarter.During the second quarter ended December, big IT firms reported largely in-line marginprofile despite tepid revenue growth. TCS’ operating margin stood at 25 per cent, 70 basispoints improvement over the past quarter. This is despite the company’s payment of one-time legal charge of $125 million during this period. Infosys’ margin stood at 20.5 per cent inQ3, a fall of 70 basis points over the previous quarter. Similarly, Wipro’s operating margin fellmarginally during the third quarter.
“Margins are holding up as IT firms shed employees to reduce wage cost. Also, currentutilisation levels give scope for further improvement. So, margins are likely to be maintainedin coming quarters,” Pareekh Jain, an IT outsourcing advisor & Founder of PareekhConsulting, told BizzBuzz.
Employee utilisation level of Infosys improved to 81.7 per cent in third quarter as comparedto 81.8 per cent reported in the previous quarter. Similarly, Wipro’s utilisation level stood at84 per cent during this period.TCS management indicated that there were many levers going forward to improve marginsin coming quarter.
“We are focused on a disciplined execution and look forward to driving operationalexcellence and the levers which we have been banking upon so far, whether it’s in terms ofproductivity, utilization, realization, or given the demand environment which we have seen,banking on the subcontractor cost optimization – are also available. So, we have been ableto leverage them, and they provide further opportunities for optimization,” Samir Seksaria,Chief Financial Officer of TCS, said during the analyst call. Apart from these levers, stable pricing environment at the IT outsourcing market is helpingthe Indian IT firms to maintain operating margins at projected levels.
