ETtechThe operating margin of Indian IT majors is expected to get better as attrition -- a major factor which was dragging down profitability of the companies for the last few quarters – is registering a significant drop as the demand cycle is expected to moderate and industry wide layoffs have cooled off the "job market". According to experts, the attrition or number of employees leaving in the last 12 months has come down in the range of 17-18% across the tech industry.
The top management of IT majors such as Tata Consultancy Services, HCLTech and Tech Mahindra told ET that there is a fall in the attrition percentage on quarterly basis and it could translate into better operating margin and delivery of services. The top IT companies are set to announce their financial results for the December quarter starting from TCS on January 9.
“While last 12 month’s reported attrition is expected to remain stable or may even inch up a bit, we have seen quarterly employee churn come down materially over the past two quarters,” said Milind Lakkad, chief human resource office of the country’s largest software services firm TCS.
Attrition had touched unprecedented levels going up to even the 30% mark for some companies due to the pandemic driven demand of digitisation projects. It had led to significant strain on the margins of companies who were forced to hire replacements at higher wages and spend more on training costs.
“That (attrition dropping) is actually one of the good things that is happening in this quarter (October-December). The attrition coming down over a period of time will certainly help us in improving our margins and the quality of our services to our clients,” Prateek Aggarwal, chief financial officer, HCLTech told ET last week.
Aggarwal said that the metric was down “significantly” on a quarterly basis compared to the September-ended quarter.
Tech Mahindra CFO Rohit Anand, told ET that the company’s quarterly annualized attrition was down to 16% during Q2FY’23 from 18.1% sequentially. “We began witnessing a drop in attrition from the previous quarter itself. We have deployed measures such as broad-based hikes, promotions and retention incentives including professional growth opportunities, to stem attrition,” he added.
According to Sunil C, CEO, TeamLease Digital, attrition in the IT Services sector is down to 17-18% from a peak of 25% seen during the first half of 2022. “While the companies were operating 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, the hiring funnel has also shrunken since Q2 and with cautious shifting of jobs, attrition rate is expected to slow down (and) hit pre-pandemic level, according to insights from TeamLease Digital.
Global companies such as Microsoft, Cisco and Amazon have announced layoffs globally and, in some cases, their Indian operations too have been impacted. This has resulted in a cool off in terms of employees looking for other opportunities while the switch hikes, too, have plateaued from peak levels seen during the last 12 months.
Globally too, attrition has come down.
Last week, Accenture Plc said there has been a sharp dip in attrition numbers. It has fallen from 20% during the June-August quarter to 13% in the September-November quarter. This was an improvement on a cyclically low-attrition quarter. “This year attrition came down at a tick more, and we are really pleased with that. It means we have to hire fewer replacement people, less recruiting costs, and you saw that in our improvement in G&A (general and administrative) expenses this quarter, and there is less ramp-up time for new hires,” said KC McClure, CFO, Accenture in an analyst call.
Among the Indian companies, Tech Mahindra reported lowest attrition during Q2 at 19.6% while Infosys reported the highest attrition number among the top five Indian IT firms. It clocked 27.1% despite a 130 basis point fall sequentially. HCLTech’s attrition was flat at 23.8% while Wipro’s metric moderated 30 basis points sequentially to 23%. India’s largest software exporter Tata Consultancy Services was the only company among the top four to report a sequential uptick in attrition–21.7%, up 180 basis points. All these companies reported 12-20% attrition in March ended quarter in 2020–the pre-pandemic level.
The top management of IT majors such as Tata Consultancy Services, HCLTech and Tech Mahindra told ET that there is a fall in the attrition percentage on quarterly basis and it could translate into better operating margin and delivery of services. The top IT companies are set to announce their financial results for the December quarter starting from TCS on January 9.
To be sure, the last-twelve-month (LTM) attrition number, which is published by top companies along with quarterly results, will still remain high in the near-term for Indian IT companies before tapering off as it is calculated on an annualized basis.
“While last 12 month’s reported attrition is expected to remain stable or may even inch up a bit, we have seen quarterly employee churn come down materially over the past two quarters,” said Milind Lakkad, chief human resource office of the country’s largest software services firm TCS.
Attrition had touched unprecedented levels going up to even the 30% mark for some companies due to the pandemic driven demand of digitisation projects. It had led to significant strain on the margins of companies who were forced to hire replacements at higher wages and spend more on training costs.
“That (attrition dropping) is actually one of the good things that is happening in this quarter (October-December). The attrition coming down over a period of time will certainly help us in improving our margins and the quality of our services to our clients,” Prateek Aggarwal, chief financial officer, HCLTech told ET last week.
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Aggarwal said that the metric was down “significantly” on a quarterly basis compared to the September-ended quarter.
Tech Mahindra CFO Rohit Anand, told ET that the company’s quarterly annualized attrition was down to 16% during Q2FY’23 from 18.1% sequentially. “We began witnessing a drop in attrition from the previous quarter itself. We have deployed measures such as broad-based hikes, promotions and retention incentives including professional growth opportunities, to stem attrition,” he added.
According to Sunil C, CEO, TeamLease Digital, attrition in the IT Services sector is down to 17-18% from a peak of 25% seen during the first half of 2022. “While the companies were operating 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, the hiring funnel has also shrunken since Q2 and with cautious shifting of jobs, attrition rate is expected to slow down (and) hit pre-pandemic level, according to insights from TeamLease Digital.
Global companies such as Microsoft, Cisco and Amazon have announced layoffs globally and, in some cases, their Indian operations too have been impacted. This has resulted in a cool off in terms of employees looking for other opportunities while the switch hikes, too, have plateaued from peak levels seen during the last 12 months.
Globally too, attrition has come down.
Last week, Accenture Plc said there has been a sharp dip in attrition numbers. It has fallen from 20% during the June-August quarter to 13% in the September-November quarter. This was an improvement on a cyclically low-attrition quarter. “This year attrition came down at a tick more, and we are really pleased with that. It means we have to hire fewer replacement people, less recruiting costs, and you saw that in our improvement in G&A (general and administrative) expenses this quarter, and there is less ramp-up time for new hires,” said KC McClure, CFO, Accenture in an analyst call.
Among the Indian companies, Tech Mahindra reported lowest attrition during Q2 at 19.6% while Infosys reported the highest attrition number among the top five Indian IT firms. It clocked 27.1% despite a 130 basis point fall sequentially. HCLTech’s attrition was flat at 23.8% while Wipro’s metric moderated 30 basis points sequentially to 23%. India’s largest software exporter Tata Consultancy Services was the only company among the top four to report a sequential uptick in attrition–21.7%, up 180 basis points. All these companies reported 12-20% attrition in March ended quarter in 2020–the pre-pandemic level.
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