The IT companies are incurring high talent retention costs like retention bonus, out-of-cycle wage revision, salary hikes and others to hold on to their people, which in turn has been impacting the margins. Further, India’s $227 billion IT industry, led by Tata Consultancy Services Ltd. and Infosys, is bracing for an economic slowdown with some analysts predicting a global recession.
Infosys Chief Financial Officer (CFO) Nilanjan Roy warned that the company making competitive compensation revisions to reduce attrition levels will impact margins in the immediate term.
Expecting Infosys' margins to remain under pressure in the short-term, Nirmal Bang said that going forward, levers for margins would be revenue growth on the back of continued gain in market share, automation, cost efficiencies from pyramid restructuring, optimisation of subcon cost due to aggressive hiring, increase in utilisation and favorable pricing.
The pyramid restructuring model is having a larger number of employees with less experience and fewer employees with more experience, which will lead to a reduced wage bill and can be implemented as part of the firms' strategy to cut costs.
“It would continue to make strategic investments in talent through hiring and competitive compensation revisions, which will impact margins in the immediate term, but it is expected to reduce attrition levels and position the company well for future growth. It continues to optimize various cost levers to drive efficiency in operations," said analysts at Nirmal Bang on Infosys.
Infosys' wage hikes given both onsite and offshore have been higher than in the past and especially for junior employees has come within 9 months instead of the typical 12 months while TTM based voluntary attrition has inched up, the quarterly annualized attrition seems to be trending down. The fresher hiring can be ramped up, as unlike in the past,
Technology spending may also be hurt by customers bringing employees back to workplaces, dampening the demand for remote services that surged during the early part of the Covid-19 pandemic.
“We believe headwinds from increase in travel costs, wage hikes for senior employees in Q2FY23 and supply-side cost pressures will weigh on margins. Tailwinds from pyramid optimisation, reducing subcon costs, and pricing power will be backended," said analysts at ICICI Securities.
