TCS To Tech Mahindra: All You Need To Know About Employees, Attrition And Wages

India's top five information technology companies net hired a little over 3.3 lakh employees since March 2021 at an aggressive pace, as clients adopted digitisation, leading to demand for skilled manpower. Still, the companies continue to witness high churn.

The result: the average attrition rate for the top five companies more than doubled, from 10.62% to over 23% on a 12-month trailing basis as of quarter ended June 30.

The top tech companies added 20% to their workforce, taking the total employee base to over 1.5 million at the end of June 2022.

The companies have also adopted a hybrid model of work, allowing employees to work from home and offices. But that hasn't helped much as they struggle to get talent to service new orders that increasingly require digital transformation of work flow, business front-end, cloud storage as well as use of machine learning and artificial intelligence to optimise costs.

Among India's big-five tech companies, Tata Consultancy Services Ltd., HCL Technologies Ltd. and Infosys Ltd. increased their headcount by a quarter since March 2021, while Wipro Ltd. and Tech Mahindra Ltd. increased headcount by nearly a third over the last five quarters.

A BQ Prime analysis indicates that the growth in headcount since March 2021 has outpaced revenue growth so far for TCS, HCL Technologies, Infosys and Tech Mahindra, implying the firms have created a bench as they are optimistic about future orders despite murmurs of recession in the developed markets.

TCS, Infosys and HCL Technologies seem to have had a headstart as the two companies began hiring aggressively since the second quarter of the previous fiscal.

"We have been hiring both lateral talent and fresh talent, and we think we have some additional capacity. That was the reason net hiring was lower than what we had in the past," C Vijaykumar, managing director and chief executive officer at HCL Technologies Ltd., told analysts at the quarterly earnings call in July.

This, even as they faced a tight labour market and heightened churn. Some of the companies were able to forecast aggressive churn even as order flows increased due to digitisation for clients. The significant jump in large orders between June 2021 and December 2021 led them to focus on creating a bench at the cost of margins.

Hiring is a two- to three-quarter process, and many of the offers converted into joining in the January-March quarter for some of the tech majors.

Annualised attrition has been the biggest focus of the street as companies struggle to retain talent with promotions and multiple wage hikes during the fiscal.

Amid high demand from startups, tech majors struggled with lateral talent. Attrition rates more than doubled for all, with TCS posting just short of 20% and Infosys at close to 30%.

"Our expectation is that attrition will start tapering off in the next...three months, four months...whatever is the time," Rajesh Gopinathan, chief executive officer at Tata Consultancy Services, told analysts during the first quarter earnings call.

Tech companies have resorted to hiring fresh graduates who require extensive training. That has led to the largest bench of employees in absolute terms for the top companies.

It also means these companies are sitting at lower employee utilisation, revenue per employee, and face margin pressure till the new additions can be deployed into various contracts.

Employee costs for all companies have been rising over the last three quarters as joining of hires picks pace. IT companies are also faced with rising sub-contracting costs in addition to hiring cost, till new hires are deployed into projects successfully and replace the sub-contractors. Sub-contracting cost has risen significantly for Infosys and Tech Mahindra.

The top four companies have seen their employee cost as a percentage of revenue rise, putting pressure on operating margins which have dipped between 100-200 basis points on employee hiring and wage hikes to retain talent.

Wipro has seen the highest increase in the employee costs as percentage of revenues, followed by TCS, HCL Technologies and Infosys. Tech Mahindra has been spending higher on sub-contractors.

Tech companies have guided for easing attrition rates by the end of the year. A cooling startup ecosystem in the last few months has eased availability of lateral talent for IT companies.

Yet, despite a rise in hiring at the entry level, tech companies will have to reconcile to operating margins that remain at the lower end of their guided range. This could perhaps be a permanent shift in margin band for the industry.