TCS builds higher bench, increases subcontracting as it prepares for demand

Tata Consultancy Services (TCS) has expanded its bench and stepped up subcontracting to prepare for an anticipated demand, hiring employees ahead of deployment as new business opportunities materialise.

“As we build future capacity and navigate demand transitions, we have invested in a higher bench and increased hiring of subcontractors to meet near-term skills and delivery requirements,” TCS said at the company’s earnings call.

TCS said subcontracting had increased both in India and overseas, primarily to align available skills with client demand. Asked whether higher visa costs had contributed to the rise, the company said the increase was driven mainly by the need to match skills with demand, though visa costs could have played a part. “Some part of it could be linked to that also, but not completely,” it said.

TCS’s workforce stood at 598,056 employees at the end of the quarter, up from 593,798 in the previous quarter, an increase of 4,258 sequentially.

The company said its hiring strategy was balancing experienced talent, early-career talent and internal mobility, with a focus on strengthening AI and domain expertise and improving deployment readiness.

“As client demand evolves, we remain focused on strengthening AI and domain expertise, improving deployment readiness and investing in continuous learning,” it said.

The company also said it had onboarded 10,000 graduates from universities this year. An analyst pointed out that TCS had added 14,000 freshers in the previous quarter and asked about the 10,000 additions this quarter.

Asked whether employee additions outpacing revenue growth reflected confidence in near-term demand, TCS said it was hiring to meet anticipated requirements, particularly for next-generation skills. “We are seeing definitely the demand up and especially for next-gen skills. So, all our hiring are to fulfil and capture those demands,” the company said.

On whether the expanded bench reflected broader demand or a mismatch between supply and demand, management said capacity creation preceded deployment as new business was secured.

“If you look at some of the new instances which we are adding, first we need to get them and then the deployment happens with the lag. So that’s where the capacity creation,” management said.

TCS said the overall demand environment remained largely unchanged from the previous quarter, with discretionary programmes lacking near-term value continuing to face scrutiny. However, its order book remained healthy, with quarterly total contract value (TCV) at $9.6 billion, excluding the Porsche and Best Buy deals.

Higher subcontracting could also influence margins. TCS reported an operating margin of 24% for the quarter, against its long-term aspiration of 26-28%.

Asked about potential margin-improvement levers, management acknowledged that subcontracting could help. “Subcontracting, given the rate at which it has increased, definitely is one of the levers.” Productivity, utilisation and other cost-control measures were also cited as avenues for improvement.

Subcontracting involves engaging workers through external vendors rather than employing them directly. While it can provide flexibility in matching skills to demand, its impact on margins depends on the relative costs of external and in-house resources.

TCS, however, indicated that investing in growth remained its near-term priority, without specifying a timeline for achieving its long-term margin target.

Meanwhile, the company’s annualised revenue from artificial intelligence (AI) reached $3.1 billion, accounting for more than 10% of overall revenue. Management said the AI business was generating margins higher than the company average.