The results headline says revenue rose 8.2% on last year. The press conference is upbeat. The stock falls four per cent by lunch. The market has not misread the number — it has read a different one. Two lines lower in the release, in smaller type, constant currency growth was 2%. The other six points came from the rupee and from the euro, and neither of them is a customer.
A contractor runs a team of twenty electricians. His income is the number of electricians on paid jobs, times the days they work, times his day rate. If three sit at home waiting for work, he still pays them. If he wins a big building contract, the money arrives month by month as the work gets done, not on the day he signs. And if he is paid in another city’s currency that suddenly buys more rupees, his income rises though he did no extra work.
An IT services company is that contractor with a few lakh employees. Headcount, utilisation and billing rates are the three dials; a signed deal is future revenue, spread over years; and because it bills in dollars and pays salaries in rupees, the exchange rate flatters or punishes every quarter. Almost every number in its results is a view of one of those dials.
The revenue engine, and the three dials
- Billable employees
- staff who can be charged to a client, excluding support functions
- Utilisation
- share of their available time actually billed
- Realised rate
- the price per hour achieved after discounts and write-offs
Example: A company that keeps headcount flat but lifts utilisation from 82% to 86% grows billed hours by about 5% without hiring anyone — and since salaries do not change, most of that extra revenue falls to profit.
| What is reported | Which dial it watches | What to look for |
|---|---|---|
| Net headcount addition | Future capacity | The earliest demand signal: companies hire ahead of work they expect. Several quarters of falling headcount usually precede weak growth. |
| Utilisation | How much of capacity is billed | Rising utilisation lifts margins; above the high 80s there is little slack left, so growth will soon need hiring or subcontractors. |
| Revenue per employee | Rate and mix | Whether the company is selling higher-value work or simply more people. |
| Fixed-price share | Who keeps productivity gains | On fixed-price work, finishing faster raises margin and overruns cut it; on time-and-material the client pays for every hour. |
| Subcontracting cost | Capacity bought at a premium | A rising share means the company could not staff demand with its own people, usually at thinner margins. |
| Attrition (last twelve months) | Cost of keeping capacity | High attrition forces wage increases, replacement hiring and training, and disrupts delivery. |
Three growth rates, and the one that counts
Indian IT companies earn mostly in dollars, euros and pounds and report in rupees, so the same quarter produces three growth figures. Rupee growth includes the rupee’s move against every currency. Reported dollar growth removes the rupee but still includes the euro and pound moving against the dollar — the cross-currency effect. Constant currency growth removes both, restating this period’s revenue at last period’s exchange rates. Only the last one measures work sold.
Margins: where they come from, and where they go
- The wage cycle. Most companies give their annual increase in one quarter, and that quarter’s margin falls by a predictable amount. Compare margins with the same quarter last year, not the one before.
- The pyramid. A delivery organisation is a pyramid — many junior engineers under fewer senior ones. Hiring freshers widens the base and lowers average cost; a year with little fresher hiring ages the pyramid and quietly raises it.
- Onsite versus offshore. Work done at the client’s location costs several times more than the same hour delivered from India. A shift of effort offshore raises margin; a client demanding more people onsite, or tighter visa rules, lowers it.
- Utilisation and subcontractors. Covered above: the cheapest margin gain is billing more of the bench, and the most expensive capacity is contractors.
- Currency. A weaker rupee helps, a stronger one hurts, with hedges smoothing and delaying both.
Deal wins are future revenue, not this quarter’s
Large deal wins are announced by total contract value — the whole sum over the contract’s life, commonly three to seven years. A $700 million seven-year deal is about $100 million a year once it has ramped up, and ramping up can take several quarters while the client’s old vendor hands over. Part of a large TCV is often a renewal of work already being billed, which protects revenue but does not add to it. The ratio of deals signed to revenue billed in the same period (book-to-bill) above one suggests revenue should grow; the split between net new and renewal tells you by how much.
Beneath deals, look at the client buckets most companies disclose: the number of clients above $1 million, $10 million, $50 million and $100 million of annual revenue. Clients moving up the buckets means the company is winning a bigger share of existing relationships — usually the most profitable growth there is. And check concentration: a top client providing a large share of revenue is a single point of failure.
The cash, and the one balance-sheet line to watch
IT services needs little capital: offices and laptops rather than plants. Most companies therefore convert a high share of profit into free cash flow and return much of it through dividends and buybacks. The line worth watching is receivables including [[unbilled revenue]] — work done but not yet invoiced, often shown as contract assets. When unbilled revenue grows much faster than revenue, work is being recognised faster than clients are agreeing to pay for it, which is how a revenue problem first appears on a balance sheet.
A quarter that looks better than it is
An IT company reports rupee revenue up 7% and operating margin up one percentage point. Constant currency growth is 0.5%, headcount fell 2%, and utilisation rose three points. The chairman calls it “a quarter of resilient execution”.
An IT company’s dollar revenue is flat on last year, but its rupee revenue rose 5% and margins improved. The most likely reason is:
IT company ki kamai = kitne log billable × kitna time bill hua (utilisation) × rate. Kamai dollar mein, tankhwah rupee mein — isliye rupee kamzor hua toh bina extra kaam ke revenue aur margin dono badh jaate. Headline mein 8% growth, par constant currency growth 2% — baaki 6% sirf currency ka khel. Isliye pehle CC growth dekho. Bada deal (TCV) is quarter ki kamai nahi — 5-7 saal mein aata hai, aur uska kuch hissa purane kaam ka renewal hota hai.
- Revenue is billable people × utilisation × rate. Headcount additions, utilisation and revenue per employee each watch one dial.
- Read constant currency growth first; rupee and reported dollar growth mix in currency moves.
- A weaker rupee lifts revenue and margins without any extra work — and reverses when the rupee strengthens.
- Deal TCV is spread over years and often includes renewals; ask how much is net new and how fast it ramps.
- Watch unbilled revenue growing faster than revenue, and discretionary work that is cut first in a downturn.
Mark it done to track your progress through the curriculum.
Common questions
Short, direct answers to what people ask about this topic.
- constant currency growth meaning in IT companies
- Constant currency growth is revenue growth recalculated as if exchange rates had not moved from the comparison period, so it shows how much more work the company actually sold. Indian IT firms earn in dollars, euros and pounds but report in rupees; rupee growth mixes business growth with currency moves, and even dollar growth is distorted when the euro or pound moves against the dollar. Constant currency strips both out, which is why analysts treat it as the headline growth figure.
- why does a weak rupee help Indian IT companies
- Because most of their revenue is earned in foreign currency while most of their costs — salaries in India — are paid in rupees. When the rupee weakens, each dollar earned converts into more rupees but the salary bill does not change, so both rupee revenue and the operating margin rise without any extra work being sold. Forex hedging delays the effect by some quarters, and the benefit reverses when the rupee strengthens.
- TCV meaning in IT deal wins
- TCV, or total contract value, is the full value of a contract over its entire life — often three to seven years — announced when the deal is signed. It is not revenue for the quarter: a $700 million, seven-year deal adds roughly $100 million a year once fully ramped up, and part of a reported TCV may be a renewal of work the company already had. The useful questions are how much is net new, how long the contract runs and how fast it ramps.
- what does utilisation rate tell you about an IT company
- Utilisation is the share of billable employees’ available time actually charged to clients. Rising utilisation lifts margins without any new hiring, because the same salary bill earns more hours of revenue; falling utilisation means people are on the bench waiting for projects. Very high utilisation is a warning of its own: there is little spare capacity, so new demand will force hiring or costly subcontracting.