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The operating margin of Indian IT professionals is expected to improve as attrition – the main factor that has dented company profitability in the past few quarters – registers a significant decline as the demand cycle is expected to moderate and layoffs across the industry have cooled the “job market”. According to experts, attrition, or the number of employees leaving in the last 12 months, has fallen in the range of 17-18% in the technology industry.
Top management of IT companies such as , HCLTech and told ET that there is a decline in attrition percentage on a quarterly basis and this could translate into better operating margin and service delivery. The major IT companies are due to announce their financial results for the December quarter starting on January 9.
Certainly, the number of declines in the last twelve months (LTM), published by leading companies along with quarterly results, will continue to remain high in the near term for Indian IT companies before coming down, as it is calculated on an annual basis. basis.
“While reported attrition over the past 12 months is expected to remain flat or perhaps even increase slightly, we have seen quarterly attrition decrease significantly over the past two quarters,” said Milind Lakad, chief human resources officer of the largest software services in the country firm TCS.
Spending has reached unprecedented levels reaching as much as 30% for some companies due to the demand for digitization projects caused by the pandemic. This put a significant strain on the margins of companies that were forced to hire replacements at higher wages and spend more on training costs.
“That (spending reduction) is actually one of the good things happening this quarter (October-December). A decline that is reducing over a period of time will certainly help us improve our margins and the quality of our services to our customers,” Pratik Agarwal, chief financial officer of HCLTech told ET last week.
Agarwal said the metric was “down significantly” on a quarterly basis compared to the quarter ended in September.
Tech Mahindra CFO Rohit Anand, told ET that the company’s quarterly annualized loss narrowed to 16% during Q2FI’23 from 18.1% sequentially. “We started witnessing a decline in outflows from the previous quarter itself. We have implemented measures such as wide-ranging increases, promotions and retention incentives, including professional growth opportunities, to stem attrition,” he added.
According to Sunil C, CEO of TeamLease Digital, the contraction in the IT services sector is at 17-18% compared to the peak of 25% seen during the first half of 2022. “While companies were running at a healthy 12% during the pre-pandemic period , which is a healthy number for the sector, even the current range is a significant improvement,” he added.
Overall, hiring flows have also eased since the second quarter and with cautious job turnover, the rate of attrition is expected to slow (and) reach pre-pandemic levels, according to insights from TeamLease Digital.
Global companies such as Microsoft, Cisco and Amazon have announced layoffs around the world, and in some cases their own
Indian operations are also affected. This has led to a relaxation in terms of employees looking for other opportunities, while turnover has also fallen from the peak levels seen over the past 12 months.
And globally, attrition has decreased.
Last week, Accenture Plc said there had been a sharp drop in the number of layoffs. It fell from 20% during the June-August quarter to 13% in the September-November quarter. This was an improvement from the quarter with cyclically low spending. “This year the decline has decreased even more, and we are really pleased with that.” That means we have to hire fewer people to replace, less recruiting costs, and you saw that in our improvement in G&A (general and administrative) expenses this quarter, and there’s less time to ramp up new hires,” said KC McClure, CFO. director, Accenture in an analyst call.
Among Indian companies, Tech Mahindra
reported the smallest loss during Q2 of 19.6% while
Infosys reported the highest number of declines among the top five Indian IT companies. It gained 27.1% despite falling 130 basis points consecutively. HCLTech’s attrition was 23.8%, while Wipro’s metric declined 30 basis points sequentially to 23%. India’s largest software exporter Tata Consultancy Services was the only company in the top four to report a sequential decline – 21.7%, up more than 180 basis points. All of these companies reported declines of 12-20% in the quarter ended March 2020 – pre-pandemic levels.
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