BENGALURU: India's top IT services companies have finally managed to curb temporary staff costs, which have soared in the wake of the pandemic. At Tata Consultancy Services, Infosys, HCL Technologies and Wipro, subcontractor costs as a percentage of revenue in the December quarter fell to below or close to pre-pandemic levels.
BENGALURU: India's top IT services companies have finally managed to curb temporary staff costs, which have soared in the wake of the pandemic. At Tata Consultancy Services, Infosys, HCL Technologies and Wipro, subcontractor costs as a percentage of revenue in the December quarter fell to below or close to pre-pandemic levels.
For TCS, HCL Technologies and Wipro, subcontractor expenses accounted for 6.14%, 13.12% and 11.61% of revenue in the third quarter, lower than the 7.75%, 13.4% and 14.49% reported in the January-March quarter. Ta. At Infosys, these costs were a little higher at 7.89% as at end-December, compared to his 7.32% in the March quarter of FY2020.
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For TCS, HCL Technologies and Wipro, subcontractor expenses accounted for 6.14%, 13.12% and 11.61% of revenue in the third quarter, lower than the 7.75%, 13.4% and 14.49% reported in the January-March quarter. Ta. At Infosys, these costs were a little higher at 7.89% as at end-December, compared to his 7.32% in the March quarter of FY2020.
Considering that salaries account for 60-65% of expenses and subcontracting costs alone account for 6-13% of total expenses, reducing spending on temporary workers can be a huge boost for IT companies to improve profitability. This is one of the methods.
TCS had an operating margin of 25% in December quarter and 25.1% in Q4FY20. HCL, Infosys and Wipro's operating margins were 19.8%, 20.5% and 16%, respectively, compared to operating margins of 20.9%, 21.2% and 17.6%, respectively, in the March quarter of FY20.
Emails sent to Infosys, TCS, HCL Tech and Wipro remained unanswered till the time of writing.
Subcontracting costs primarily refer to the costs of outsourcing work to external contract staff. Subcontracting costs peaked in the June quarter of fiscal 2020 as pandemic-induced lockdowns increased demand for software work. Many companies were struggling to hire enough talent, including new graduates and experienced executives. Since then, as demand has slowed, IT services companies have been able to reduce these expenses by requiring fewer temporary engineers. Lower subcontractor costs suggest future profitability for these companies.
Omkar Tanksale, equity research analyst at Axis Securities, said, “Demand for IT services has been weak, which has forced IT companies to reduce the number of people on site to complete projects.” “Subcontractor costs are expected to increase further in the future.'' If deal-making accelerates, all companies will reach 2-4% of sales within the next six to nine months, reaching pre-COVID-19 levels,” Tanksale said.
These companies are experiencing a decline in subcontracting costs even as their employees' physical strength has declined. IT services companies could end the fiscal year with fewer employees than they started it with, for the first time in more than a quarter of a century.
Rituparna Chakraborty, co-founder of staffing firm Teamlease, said, “Low overall employment is also impacting on-road and subcontractor employment,'' adding, “IT services and various automation “Employment was moderate due to low demand for innovation.” This is to increase profitability,” Chakraborty said, adding that there will be no major changes in terms of subcontractor hiring in the next two quarters.
