IT services and SaaS: utilisation, attrition, TCV and the metrics nobody defines the same way

An IT services firm turns over thousands of crores, earns a fat margin, and converts nearly all its profit to cash - and its balance sheet is almost empty. A pile of cash, some receivables, negligible plant, little else. The asset that actually earns the money - tens of thousands of skilled people - sits nowhere on it, because you cannot own employees. So for the one sector where the financial statements are almost beside the point, reading the firm well means reading the operating metrics that sit outside the accounts entirely. illustrative

That would be simple if those metrics were clean. Two of the headline numbers are systematically distorted. Reported revenue growth is earned in dollars, euros and pounds but reported in rupees, so a favourable currency move flatters it - the honest rate is the lower constant-currency figure. Total contract value, the deal-win metric, sounds precise but is defined differently by every company: one counts only new deals, another folds in renewals, a third includes pass-through costs, so identical reported TCV growth can mean quite different things. The two people-metrics - utilisation and attrition - are the most honest and the most forward-looking, moving before the financials show anything at all.

This module reads an IT services firm, and its SaaS-product cousins (SaaS - software sold as an ongoing subscription rather than a one-off licence), through the numbers that matter: correcting the headline growth for currency, reading TCV against each firm's own definition, and treating utilisation and attrition as the leading indicators they are. The pristine balance sheet confirms the firm is asset-light and cash-rich; it says almost nothing about whether the firm is winning. That verdict lives in the operating metrics.

Correct two headline numbers before you trust them; read two people-metrics because they move first.

Read constant-currency growth, not reported. An IT firm bills in foreign currencies and reports in rupees, so a weaker rupee turns the same dollar revenue into more rupees and flatters the headline; a stronger rupee understates it. Neither has anything to do with winning or losing work. Constant-currency growth restacks the numbers at fixed exchange rates to show the underlying rate - and it is the figure to read. A firm reporting 11% growth with 9.5% constant-currency growth grew its business by 9.5%; the rest was the exchange rate. This is the discipline of separating the number that moves with the business from the one that moves with the weather: the currency is noise, the constant-currency rate is signal.

Utilisation - the factory-utilisation of a people business. An IT firm's capacity is its billable people, and utilisation is the share of them actually deployed on client work rather than sitting on the bench between projects. Benched people are paid but earn nothing, so utilisation is a direct margin lever: a few points higher fills the factory and lifts the margin, a few points lower means idle cost dragging it down. Rising utilisation with growing revenue is efficient growth; revenue growing only because headcount was added while utilisation fell is growth bought with idle cost.

Attrition - the number that moves first. Attrition is the rate at which employees leave, and it is one of the most forward-looking figures in the sector. High attrition forces the firm to rehire - often at higher salaries in a tight market - and to absorb the disruption of losing experienced people mid-project, both of which pressure margins and delivery in the coming quarters, before the revenue or margin line shows the strain. A spike is an early warning; falling attrition on a growing base is a firm whose people and margins are secure. It leads the financials, which is exactly why it is worth reading.

Total contract value - the metric nobody defines the same way. TCV is the value of deals signed in a period - the forward book, a genuine leading indicator of revenue. But it is not standardised: one company counts only net-new deals, another includes renewals (real, but not new business), a third folds in pass-through costs that carry no margin. So the same reported TCV growth can mean very different things, and comparing two firms' TCV directly is a category error. The number is useful against a single company's own consistent definition over time; it is meaningless compared across companies without knowing what each one counts. The same caution applies to SaaS metrics - ARR (annual recurring revenue, the run-rate of subscription revenue), net revenue retention, bookings - which every company defines to its own advantage.

For most businesses you read the statements first. For an IT firm you barely read them at all - and that inversion is sharpest against a bank, whose balance sheet is the entire business.

A reader who studies an IT firm's balance sheet learns that it holds cash and receivables and little else - which is true and beside the point. The business lives in the utilisation, attrition, deal wins and revenue per employee that sit entirely outside the accounts. For a bank the instinct is right and the statements are the whole story; for an IT firm the instinct misleads, and the statements are a footnote to metrics that are not on them.

Read the composite IT services firm. On the financials it looks excellent and almost featureless: revenue of ₹4,780 crore in the final year, a 17% EBIT margin (EBIT - earnings before interest and tax, the operating profit), near one-to-one conversion of profit to cash, and a balance sheet of little more than ₹1,980 crore of net cash and ₹1,000 crore of receivables. The return on equity looks high - largely because the equity base is tiny, since the business needs almost no capital. The financials confirm it is asset-light and cash-generative and tell you almost nothing else. illustrative

Now the operating metrics, which do the real work. Reported growth in the final year was 11.2%, but constant-currency was 9.5% - about 1.7 points of the headline was a currency tailwind, not new work won; the honest rate is 9.5%. Utilisation held around 82%, so the billable factory is reasonably full and supporting the margin. Attrition tells a story the revenue line does not: it spiked to 24% in the third year - intense wage and delivery pressure - before the firm brought it back to 14% by the fifth. That spike would have pressured margins in the quarters that followed, an early warning visible in the people-metric well before it reached the P&L.

The deal pipeline and quality signals close the read. Large-deal TCV grew from ₹1,200 crore to ₹2,100 crore, with a jump in the final year - a healthy forward book, read against the firm's own definition, never compared with a rival's. Revenue per employee rose from ₹76 lakh to ₹92 lakh, a genuine sign of moving up the value chain into higher-margin work. And top-five client concentration fell from 34% to 29%, spreading the risk that one large client leaving could dent the business. Corrected growth, utilisation, attrition, TCV, revenue per employee, concentration - together they describe a solid, improving firm, and none of them is in the financial statements.

Three traps catch careful readers. The first is reading reported growth as the business - crediting a currency tailwind to the company, and later marking the same firm down for a currency headwind. Constant-currency is the honest measure in both directions. The second is comparing TCV - or any SaaS metric - across firms as if it were standardised: one counts renewals, another only net-new, a third folds in pass-through, and the same is true of ARR, bookings and retention. Identical reported growth at two firms can mean genuinely different things, so ranking on the number is a category error. The third is reading the cash-rich balance sheet as a low-risk business: the clean financials and lack of debt look safe, but the real risks are operating and strategic, and none of them is on the balance sheet.

And even read perfectly, the operating metrics have limits. They read near-term health, not whether the firm's skills will still be wanted - a firm with strong current metrics can be sitting on a skill base the market is about to stop paying for, and whether it is reskilling fast enough is a judgement about strategy that no operating number captures. Nor does TCV, however carefully read, tell you the margin or the certainty of the work behind it: a large book can be won by pricing aggressively to keep people utilised, and the value signed is not the value realised if clients defer, descope or cancel. Even within one firm's consistent definition, TCV measures the size of the forward book, not its profitability. The metrics measure the aggregate; the specific dependencies - on a few large clients, on a delivery model, on particular skills - sit in the concentration disclosure and the management commentary, and they are where a firm with healthy headline metrics can still be fragile.

How it comes up. When an IT firm reports strong growth, a sharp analyst separates the business from the currency and probes the deal quality: "Reported growth was 11%, but what was constant-currency, how much of TCV is net-new versus renewals, and what's your utilisation and attrition trajectory into next year?" The question strips out the currency, tests the TCV definition, and reads the leading people-metrics.

A good answer gives the numbers the question asked for:

"Constant-currency growth was 9.5% - the rest was the rupee. On TCV, the ₹2,100 crore is net-new plus new-scope on existing accounts; we exclude pure renewals, and renewals separately were about ₹900 crore. Utilisation is 82% with room toward 84% before we hire ahead, which supports margins. Attrition is down to 14% from the 24% peak, so wage pressure is easing. Net-new deal momentum is the number I'd point you to, and it's genuinely improving."

It gives constant-currency growth, defines TCV precisely and separates renewals, and reads utilisation and attrition forward - enough to judge both the real growth and the deal quality.

An evasive answer stays fluent and says nothing the question asked for:

"We're delighted with our strong double-digit growth, robust deal bookings and healthy demand environment. Our people are our greatest asset and we continue to invest in them. We remain confident in our growth outlook and our ability to deliver value to all stakeholders."

"Double-digit growth" without the constant-currency figure, "robust deal bookings" without defining TCV or splitting renewals, "our people are our greatest asset" in place of the utilisation and attrition numbers - a firm whose reported growth was mostly currency and whose TCV was mostly renewals would answer in exactly these words.

The follow-up nobody asks: "What is TCV excluding renewals, and how does your definition compare with how you reported it two years ago?" That forces the deal metric into a consistent, comparable form. If "strong bookings, robust demand" is allowed to stand, an investor credits a renewal-inflated, possibly redefined TCV as new-business momentum. The silence is the tell - either the net-new deal flow is weak beneath the headline, or the definition has quietly been broadened to flatter it.