Shortage of projects from Europe and US

The top players of the $100 billion IT industry have developed an unhealthy bench strength and the bulge is expected to grow from next quarter. Shortage of projects from Europe and US has left engineers with little work for more than 6 months and utilisation rates of the top four IT firms will dip further this year, say industry watchers. "Projects have slowed down in the last few years barring few quarters. While earlier clients would have been ready to pay for the number of employees required plus for 20% more, now they are not, leading to an inflated bench," said Amitabh Das, CEO of recruitment firm Vati Consulting. There is an uncertainty in the markets and could lead to retrenching, he added. A bench, in the IT industry, is defined as the mass of employees kept aside for emergency use in future projects. At any given point, an IT company keeps about 15% or higher workforce on bench, which is kept trained and ready for projects. Most large companies have a bench strength exceeding 20% of the workforce. A comparison of the utilisation rates across quarters shows a steep decline in last six months. With new recruits from campuses joining this month onwards, coming quarters are expected to see a new low.

"The economic environment, pricing pressure and decreased employee utilisation rate could negatively impact our revenue and operating results," stated the Infosys annual report for FY 12. Brokerage firm Angel Broking's IT analyst Ankita Somani said that in the first quarter TCS, Wipro and HCL may have their utilsation rates inch a bit because their campus hires will be joining them from July, but Infosys will see a further dip as their new recruits have already joined them from June. However second quarter on, almost all the IT firms may see dip in their utilisation because the thousands hired will enter their training period and can not be billed. Utilisation rates are indirectly proportional to bench strength. IT services firms have been saddled with a large chunk of employees especially because of the slump in the rollout of projects from companies in the telecom sector such as British Telecom, Nokia Siemens Networks, AT&T, and Alcatel Lucent. An employee working with a telecom project in a Bangalore based tier-I IT major said that he had seen some of his peers on bench being pressured to quit. "Software projects for telecom networking companies are hard to come by since the global financial market is reeling under pressure, squeezing liquidity needed for telecom rollouts."

Noida-based HCL Tech has also scaled down its business from British Telecom, and re-allocated resources. It has let go off people in Ireland, too, in the past few months. "A bench can be helpful till a certain level but if the utilisation is below 75% it should be a cause for worry," said the leader of human capital advisory to one of the top four IT companies. But with a low forecast even from IT representatives like Nasscom (11-14 %), IT firms have to work hard to reduce their flab. Domestic units of Indian IT companies have also been hit with the impact of 2G licence cancellations. Tech Mahindra suffered a 2% drop in its revenues from the December quarter due to the shutdown of operations of its two Indian telecom clients Etisalat DB and S-Tel , as their 2G licences were cancelled by the Supreme Court. The company counts Alcatel Lucent , British Telecom and Motorola as its clients. In comparison to top-tier IT companies , mid caps such as NIIT Technologies, Hexaware and MindTree are running slimmer operations, and with almost negligible bench strengths. "We have bench strenghths only because of the freshers we hire and keep in training periods," said a senior executive from a Delhi-based midcap IT firm. The expanding bench is also to prevent cost structures from going haywire. "Right after the last downturn, when IT firms got projects, they did not have sufficient numbers on the bench and so they started to hire laterals that added to costs," said Somani. This time they do not want to make the same mistake when the pipeline opens up, she added. But the risk taken could backfire if the pipeline of projects remains weak.


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