IT Firms’ Margins Contract In Q1 On Onsite Hiring, Subcontracting Costs

The profitability of IT services companies declined during the first quarter of FY 2020, on account higher employee expenses especially onsite led by fresh hiring, sub-contracting cost and cross currency movements, according to credit rating agency, ICRA.

The share of fixed price contract improved to 58.5% Q1FY2020 compared to 57.5% in FY2018 while employee utilization levels remained flattish during the same period for sample companies, the agency noted.
“During Q1FY2020, ICRA sample companies grew by 10.3% in INR terms while in US$ terms it grew by approximately 7.4%. During the quarter INR depreciated by 3.7% Y-o-Y versus US$ and appreciated 1.9% and 2.1% versus GBP/EUR respectively, “said ICRA.

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Employee expense increased to 61.7% in in the quarter from 59.8% in Q1 FY 2019 for ICRA’s sample of 13 companies. The operating margin during the quarter remained at 22.6% versus 23.3% in Q1FY2018 and 22.7% in Q4FY2019, it said.

Source: Economic Times

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