IT companies look to improve margins by raising utilization levels
Indian IT companies are trying to beef up their margins and are relying heavily on expanding utilization rates to accomplish this.
Utilization rates for IT companies mean the percentage of their employees working on active projects. This metric had significantly dropped for them in the past few quarters.
India’s second-largest IT firm, Infosys, reported a gross utilization rate of 76.9% (including trainees) for the March quarter, which was lower than the previous quarter. Excluding trainees (or net utilization), the rate fell 7 percentage points to 80%, the lowest since the quarter ended in March 2015.
For Wipro, the gross utilization for the fiscal year 2023 came in at 72.8%, which was the lowest since fiscal 2020, while the net utilization was the lowest in seven years at 81.20%.
“You have levers of improving (operating margins). Our utilization at 80%, which is probably the lowest I have seen. We have other opportunities of improving the (employee) pyramid because the higher bench (or employees who are not assigned to any project) comes with a double whammy,” said Nilanjan Roy, chief financial officer at Infosys.
A lot of top companies, including Infosys and Wipro, had called out unplanned project ramp-downs and softening demand during the fourth-quarter results. This could have impacted the utilization levels too.
