×
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT

Talent war leads to profit squeeze at IT firms

The $227 billion IT services industry is witnessing high attrition rates due to a dearth of digital talent in India
Last Updated 13 April 2022, 16:10 IST

Infosys Ltd reported a weaker-than-expected profit in the fourth quarter as India’s No.2 software services exporter struggled to keep a lid on employee-related costs.

The news came just days after larger rival Tata Consultancy Services (TCS) also missed quarterly profit estimates as it spent more money to hire and retain employees.

The $227 billion IT services industry is witnessing high attrition rates due to a dearth of digital talent in India. Additionally, the pandemic made many employees comfortable with the idea of working from anywhere and prefer working for startups and others offering more flexible options.

The talent war has forced employers, especially technology companies, to shell out more to make potential employees an offer they can’t refuse and provide retention bonuses to keep their best employees, driving up costs.

“We expect the high attrition rates of the IT majors to continue as they will not be able to nimbly increase salaries across the board to fight back,” said Abhay Agarwal, a fund manager at Piper Serica, which provides portfolio management services.

Infosys saw an attrition rate of 27.7 per cent in the fourth quarter, higher than TCS’s rate at 17.4 per cent. Infosys started the recently concluded financial year with an attrition rate of 10.9 per cent and that number rose to 25.5 per cent by the end of the third quarter, showing a sustained increase in the number of people voluntarily leaving the company. It plans to offer salary hikes from April and expects to hire 50,000 freshers this year.

“The industry is still not immune to the ongoing talent war. While battling attrition rates and pressures on margins, the continued focus on their hiring and skilling strategies, and investment in employees will yield positive outcomes,” said Vijay Sivaram, the CEO of Quess IT Staffing.

Goodbye, Russia

Infosys also decided to take a page from the playbook of global software firms such as Oracle and SAP, and boycott Russia due to the country’s escalating conflict with Ukraine.

"We have less than 100 employees there working with our clients. We have initiated how we can transition all of that work outside of Russia, we have no work with any Russian client today and we have no plans for any work with any Russian client going ahead," Infosys Chief Executive Officer and Managing Director Salil Parekh told reporters on Wednesday.

Infosys’s net profit in the three months ended March 31 rose 12 per cent to ₹5,686 crore, missing the analysts’ average estimate of ₹5,961 crore, according to Bloomberg. Revenue jumped 22.7 per cent to Rs 32,276 crore, while analysts on average expected ₹32,709 crore.

Infosys, which posted revenue growth of 19.7 per cent in constant-currency terms for the 12 months ended March 31, 2022, said it expected revenue growth of 13 per cent to 15 per cent in the year ahead.

“Our view is that with a guidance of 13-15 per cent and good hirings, growth will gain going forward,” Parekh said during a press conference at its Bengaluru headquarters.

Infosys, which clocked an operating margin of 23 per cent in the recently concluded financial year, sees that number at 21 per cent-23 per cent in the next year.

ICICI securities said that the revenue growth outlook reflected another strong year, but the operating margin forecast showed “continued cost pressures due to demand-supply mismatch”.

It had said earlier this week that while Infosys was well-positioned to gain market share due to its digital and cloud capabilities, its margins would remain under pressure due to higher costs.

It had assigned a “reduce” rating for the company, estimating growth to moderate in the current financial year citing the lack of mega deals.

Infosys signed large deals worth a total contract value of $2.3 billion in the fourth quarter. That number was $2.53 billion in the third quarter and $2.1 billion in the year-ago period. It posted 110 gross client additions, compared with 111 in the third quarter and 130 in the year-ago period.

CapitalVia Global Research analyst Likhita Chepa said TCS outperformed Infosys.

“TCS had a far better result, along with the strong order book and employee counts. TCS did good work in the last quarter,” Chepa told DH.

Analysts Aniket Pande & Heenal Gada of ICICI Securities expect the broader Nifty IT to start underperforming the Nifty 50 index due to slowing revenue growth, margin headwinds, elevated consensus expectations and valuations, and a weak macro environment.

“Higher inflation will lead to postponement of discretionary spends, and focus on cost optimisation will increase,” they said earlier this week.

Check out DH's latest videos

ADVERTISEMENT
(Published 13 April 2022, 16:10 IST)

Follow us on

ADVERTISEMENT
ADVERTISEMENT