The Language of Sectors

IT services is one of India's largest export sectors, with companies like TCS, Infosys, and HCLTech generating billions in revenue by providing technology solutions to global enterprises. Understanding sector-specific KPIs is essential for evaluating these companies' financial health, growth trajectory, and operational efficiency during earnings calls.

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Key Takeaways

• Total Contract Value (TCV) indicates future revenue visibility and growth momentum—a rising TCV signals a healthy deal pipeline.
• Net New Deal percentage separates genuine growth from contract renewals, with above 50% considered strong.
• LTM Attrition below 15% suggests stable workforce and protected margins; above 20% signals potential margin pressure.
• Utilization rates between 80-85% indicate efficient resource deployment without capacity constraints.
• Rising subcontractor costs as a percentage of revenue often precede margin compression.

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Understanding IT Services Metrics

Indian IT services companies operate a labour-intensive business model where revenue is primarily driven by the number of billable employees multiplied by billing rates. Unlike product companies that scale through software licences, IT services firms scale by adding headcount and deploying them on client projects.

This model creates unique metrics around workforce efficiency (utilization, attrition), deal quality (TCV, net new percentage), and client depth ($50M+ client buckets). Standard profitability ratios remain relevant, but these operational KPIs provide leading indicators of future financial performance that quarterly revenue figures alone cannot capture.

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Total Contract Value (TCV)

What it is: Total Contract Value represents the aggregate value of all contracts signed during a quarter, including both new deals and renewals. It measures the total committed revenue from clients over the contract duration.

Why it matters: TCV is a leading indicator of future revenue. Because IT services contracts typically span 3-5 years, a strong TCV quarter provides visibility into revenue growth for subsequent periods. The "Book-to-Bill" ratio (TCV divided by quarterly revenue) indicates whether the company is growing its order book.

What good looks like: TCV growing sequentially and year-over-year, with Book-to-Bill consistently above 1.0x. TCS reported $10 billion TCV in Q2 FY26 with 6.5% sequential growth. Large deal TCV (contracts above $50 million) is particularly significant as it indicates enterprise client confidence.

Red flag: Flat or declining TCV despite industry tailwinds, or heavy reliance on renewals rather than new business.

Example from earnings call:

"We are pleased to report a TCV of $10 billion. BFSI TCV was $3.2 billion. Our TCV had a sequential increase of 6.5%." — TCS Q2 FY26 Earnings Call

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Net New Deal Percentage

What it is: Net New Deal percentage measures the proportion of Total Contract Value that comes from genuinely new business rather than renewals of existing contracts. It is calculated by dividing net new deal value by total TCV.

Why it matters: This metric distinguishes between growth and maintenance. High TCV can mask stagnation if most contracts are renewals. Net new business demonstrates the sales team's ability to acquire new clients or expand into new service areas with existing clients.

What good looks like: Net new deals comprising more than 50% of total large deal TCV. Infosys reported 63% net new in Q3 FY25, representing a 57% increase in net new deal TCV year-over-year.

Red flag: Net new percentage below 30%, or management avoiding disclosure of this breakdown despite reporting headline TCV figures.

Example from earnings call:

"Large deal TCV for the quarter was at $2.5 billion, 63% of this being net new, which is an increase of 57% in net new deal TCV." — Infosys Q3 FY25 Earnings Call

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LTM Attrition

What it is: Last Twelve Months (LTM) Attrition measures the percentage of employees who voluntarily left the company over the trailing twelve-month period. The LTM methodology smooths quarterly variations to provide a more stable trend indicator.

Why it matters: In a people-intensive business, attrition directly impacts delivery capability and margins. High attrition forces companies to either pay retention bonuses, hire expensive replacements, or use costly subcontractors—all of which compress margins.

What good looks like: LTM attrition below 15% is considered healthy for large-cap IT services firms. During stable periods, industry leaders maintain attrition between 12-14%. HCLTech reported 13.0% LTM attrition in Q4 FY25.

Red flag: LTM attrition exceeding 20% typically precedes margin compression in subsequent quarters due to hiring costs and subcontractor expenses.

Example from earnings call:

"LTM Attrition at 13.0%, up from 12.4% in Q4 of last year." — HCLTech Q4 FY25 Earnings Call

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Utilization Rate

What it is: Utilization rate measures the percentage of available employee hours that are billed to clients. It is typically reported excluding trainees, as fresh hires undergo training before becoming billable.

Why it matters: Utilization is a direct profitability lever. Employees on the "bench" (not assigned to projects) generate no revenue but continue to draw salaries. Each percentage point of utilization improvement translates directly to margin expansion.

What good looks like: Utilization rates between 80-85% (excluding trainees) indicate efficient resource deployment. Infosys reported 85.1% utilization in Q2 FY26. Rates below 75% suggest excess bench, while rates above 90% indicate inadequate capacity buffer for new projects.

Red flag: Utilization below 75% signals demand weakness or hiring misjudgment. Conversely, sustained utilization above 90% may indicate inability to take on new business and potential employee burnout.

Example from earnings call:

"The utilization excluding trainees stood at 85.1% compared to 85.2% in the preceding March quarter." — Infosys Q2 FY26 Earnings Call

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Client Concentration ($50M+ Buckets)

What it is: IT services companies report the number of clients contributing revenue above specific thresholds—typically $1 million, $10 million, $50 million, and $100 million annually. This metric tracks client account growth over time.

Why it matters: Expanding wallet share within existing clients is more profitable than acquiring new clients. Movement of clients up the revenue buckets demonstrates successful "land and expand" execution and indicates pricing power and service stickiness.

What good looks like: Consistent quarter-over-quarter increase in clients in the $50 million and $100 million buckets. Infosys added 7 clients to its $50 million bucket in Q3 FY25.

Red flag: Stagnant $100M+ client count over 3-4 quarters while TCV grows, suggesting the company is signing numerous small, potentially lower-margin deals rather than deepening strategic relationships.

Example from earnings call:

"Our $50 million clients increased by 7." — Infosys Q3 FY25 Earnings Call

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Onsite/Offshore Mix

What it is: Onsite/Offshore mix measures the proportion of work delivered at client locations (onsite, typically in developed markets) versus delivery centres in India or other low-cost locations (offshore). It is expressed as a percentage of total effort or revenue.

Why it matters: Offshore delivery is significantly more profitable due to lower labour costs. A higher offshore percentage directly improves operating margins. Reducing onsite mix is a key margin lever for IT services companies.

What good looks like: Onsite mix below 25% of total effort is considered efficient. Infosys reduced onsite mix to 23.6% in Q4 FY25. Every percentage point shift from onsite to offshore can add 15-25 basis points to operating margin.

Red flag: Rising onsite mix quarter-over-quarter without corresponding revenue growth may indicate client pressure or project complexity requiring more expensive onsite resources.

Example from earnings call:

"On-site mix further reduced to 23.6%." — Infosys Q4 FY25 Earnings Call

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Subcontractor Costs

What it is: Subcontractor costs represent expenses incurred by hiring third-party contractors to fulfil client commitments when internal capacity is insufficient. This figure is typically disclosed in quarterly financial statements or earnings call commentary.

Why it matters: Subcontractors are significantly more expensive than regular employees. While they provide flexibility during demand spikes or attrition-driven shortages, heavy reliance on subcontractors erodes margins. Rising subcontractor costs often signal operational stress.

What good looks like: Subcontractor costs declining as a percentage of revenue, indicating successful internal hiring or reduced attrition. Infosys reported 40 basis points of margin improvement from reducing subcontractor spending in Q2 FY23.

Red flag: Subcontractor costs rising faster than revenue growth indicates the company is purchasing growth at the expense of profitability—a pattern that may not be sustainable.

Example from earnings call:

"40 basis points from reduction in subcons spends." — Infosys Q2 FY23 Earnings Call

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Special Considerations

The Subcontracting Dynamic

During periods of high attrition or rapid deal wins, IT services companies may increase subcontractor usage to maintain delivery commitments. While this preserves revenue growth and client relationships, it compresses margins. Investors should monitor the relationship between revenue growth and subcontractor expense growth—if the latter consistently outpaces the former, the quality of earnings may be deteriorating.

Seasonality in IT Services

IT services companies typically experience seasonality, with Q3 (October-December) often affected by furloughs as Western clients reduce spending during the holiday season. Q4 (January-March) frequently sees budget flush spending from clients utilising remaining annual budgets. TCV can also be lumpy based on large deal timing.

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Quick Reference

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