The companies are rolling out salary hikes and promotions and coming up with new benefits to stem the exodus, but efforts over the last three quarters have yielded little success.
For the companies, this worry coincides with rising margin pressure and fewer large deals as their biggest markets, the US and Europe, may tip into recession as central banks raise interest rates aggressively to contain runaway inflation.
Four of the five companies reported an increase in wage costs as a share of revenue, as they struggled to retain employees with promotions and frequent salary hikes, a Mint analysis showed.
“The top services companies need to invest, to attract and retain talent in key areas, especially high-performance employees, and deliver on projects. Gone are the days when the top ‘brands’ alone, whether TCS or Infosys, were good enough for retention," said Prasanto K. Roy, a technology policy consultant.
On average, wage costs as a share of revenue rose to 55.2% in the quarter ended 30 June from 54.3% in the preceding three months.
While Infosys and Tech Mahindra saw the biggest jump (of 1.6 percentage points), TCS was close behind, with a rise of 1.5 percentage points (to 57.5% from 56%). Only HCL Technologies saw a slight decline (to 55.3% from 55.8%).
Wipro reported the largest wage cost burden as a share of revenue, at 58.6%, followed by TCS at 57.5%.
The soaring wage costs come at a time the tech service sector has tried all means to reduce the manpower churn. For the last four quarters, there has been a hiring frenzy across sectors as corporates have steadily poached staff from tech firms in an attempt to digitize their own services.
However, as global tech majors such as Apple, Google and Microsoft slow down their pace of hiring, there is a looming fear that tech services, too, may get hit as deal sizes shrink.
“At this point in time, demand has slowed down a little, but is still very healthy. Due to offshoring, I expect the demand situation to continue to stay healthy in the immediate future," said A.R. Ramesh, director of digital business solutions, professional staffing and international engagement of Adecco India. “However, employee costs have shot up significantly, but this is expected to stabilize soon."
Mint’s analysis of the quarterly data showed that growth in employee benefit costs outpaced revenue growth for all the companies, barring Infosys.
TCS’s June quarter revenue rose 16% from a year earlier, slower than the 18.2% increase in wage costs. For Infosys, India’s second-largest software services company, revenue growth at 23.6% outpaced the 20.4% rise in wage costs. Rival HCL’s revenue rose 16.9%, while wage costs surged 21.2%. Wipro’s wage costs grew by 22.8%, while revenue grew by 17.9%. June quarter wage costs and revenue grew 26.9% and 24.6%, respectively, for Tech Mahindra.
The tech firms are using no-poach agreements and coming up with multiple promotions to retain talent.
“We can’t give very big hikes because it impacts our profitability, and the focus now is to retain key talent," said a senior executive from one of the tech firms.
June quarter attrition for the companies was 19.7% for TCS, 28.4% for Infosys, 23.8% for HCL, 23.3% for Wipro, and 22% for Tech Mahindra. Wipro and Tech Mahindra were the only ones to see a slight dip in attrition numbers when compared with the previous quarter.
Total expenditure for the tech companies rose more than 20% from the year-ago period for all five companies, even as revenue growth remained below that mark in most cases. This affected profitability.
On both an annual and sequential basis, each of the five companies saw operating margins getting squeezed. Tech Mahindra saw its margin narrow by 240 basis points sequentially and 360 basis points from a year earlier, the most among the companies. One basis point is 0.01%.
Analysts at ICICI Securities said further headwinds were likely on Infosys’s margins, from an increase in travel costs, wage hikes for senior employees and supply-side cost pressures.
For Wipro, the brokerage forecast cost pressures emerging from the quarterly promotion cycle starting from 1 July, wage hikes from 1 September, and increased travel and discretionary costs.
Manjul Paul contributed to the data analysis.
