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<\/p>\nA quick look at the Q1FY23 performance of top-tier IT services players shows that they are still far away from getting a grip on managing attrition.<\/p>\n
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Talent retention has eroded not only their margins but also any gains they may have made from rupee depreciation.<\/p>\n
Despite robust growth numbers and strong deal pipelines, margins for all the players — TCS, Infosys, HCL Technologies and Wipro — have continued to shrink at a pace that has had the street surprised.<\/p>\n
Take the case of Infosys.<\/p>\n
The company’s margins came in at 20.1 per cent for Q1FY23, lower than its range of 21-23 per cent.<\/p>\n
The management said the compensation impact during this quarter was 160 basis points, while the street was expecting it to be in the range of 75-100 basis points.<\/p>\n
Explaining how the wage hike impact attained a level of 160 bps, Nilanjan Roy, CFO, Infosys, said low utilisation alone had impacted the margins by 40 basis points and subcontractor impact itself was 30 bps.<\/p>\n
The company has another compensation cycle kicking in Q2.<\/p>\n
The situation is the same at the other firms.<\/p>\n
Margins at TCS came in at 23.1 per cent.<\/p>\n
Analysts were expecting them to be in the 23-24 per cent range.<\/p>\n
There was a 150-bps impact on margins due to annual wage increase.<\/p>\n
The company gave a 5-8 per cent hike to employees.<\/p>\n
While top performers got bigger hikes, onsite staff took a 4-5 per cent pay increase.<\/p>\n
The rest of the impact was from higher subcontractor and travel costs, said a ICICI Direct research report.<\/p>\n
Samir Seksaria, chief financial officer, TCS, said: “It has been a challenging quarter from a cost management perspective.<\/p>\n
“Our Q1 operating margin of 23.1 per cent reflects the impact of our annual salary increase, the elevated cost of managing the talent churn and gradually normalizing travel expenses.”<\/p>\n
Wipro too is facing such a situation with a 200 bps impact on margins in Q1FY23.<\/p>\n
Margins came in at 15 per cent for the quarter; the decline was led by a 130 bps impact due to drop in utilisation, higher subcontractor cost and internal investment, while 20 bps was impacted due to Rizing (they acquired this company during Q1) acquisition.<\/p>\n
With higher pay and other retention policies, attrition continues to zoom everywhere, save Wipro.<\/p>\n
Attrition at Infosys touched 28.4 per cent, up from 27.7 per cent in Q4FY22 and much higher than 13.9 per cent in Q1FY22.<\/p>\n
TCS attrition was 19.7 per cent, much higher than 17.4 per cent in Q4FY22.<\/p>\n
During the quarter, the company had a net headcount addition of 14,136, taking its total headcount to 606,331.<\/p>\n
HCL Technologies attrition for the quarter was up at 23.8 per cent. Attrition was at 21.9 per cent in Q4FY22 and 11.8 per cent in Q1FY22.<\/p>\n
The company said that it will take a few more quarters before the attrition starts to come down.<\/p>\n
Wipro was the only company which reported a drop in attrition from 23.8 per cent in Q4FY22 to 23.3 per cent in Q1FY23.<\/p>\n