TCS, Infosys, Wipro see costs go up amid war for talent | Economic Times

Bengaluru: Indian IT services providers—Tata Consultancy Services (TCS), Infosys and Wipro—have seen wage costs rise consistently as demand for skilled talent shot up on account of increased investments by global companies in digitising their operations.IT sector analysts said while the Covid-19 pandemic has increased demand for IT services companies and led to higher attrition and margin pressures due to wage hikes, metrics such as increased offshoring and reduction in discretionary spends were likely to offset headwinds in the short term.“In the near term, there are some known headwinds—such as wage increase cycles that companies are getting into—but I still expect margins to operate higher than pre-covid levels,” said Apurva Prasad, DVP-Research, Institutional Equities, at HDFC Securities.Employee costsTCS, India’s largest IT services firm, saw expenses on employee benefits rise to Rs 91,814 crore for the year ended March 31, 2021, from Rs 85,952 crore in the previous reporting period. Employee benefits as a percentage of revenue increased to 55.92% in FY21, from 54.76% in FY20.Bengaluru-based Infosys saw salary costs escalate to Rs 55,541 crore in FY21, compared to Rs 50,887 crore in the previous year. However, the company’s hefty revenue growth in the recently concluded fiscal meant that employee benefits as a percentage of revenue dipped to 55.28%, compared to 56.05% in FY20. The Salil Parekh-led firm increased spending on contract workers to Rs 7,084 crore, compared to Rs 6,714 crore in FY20.TCS does not specifically reveal expenditure on sub-contracting costs.Wipro saw employee benefit expenses grow to Rs 33,237 crore in FY21, from Rs 31,657 crore in the previous year. Its salary costs as a percentage of revenue grew to 53.66% in FY21, from 53.52% in FY20. The company has, however, consistently reduced costs for subcontracting—from Rs 9,052 crore in FY20 to Rs 8,361 crore in FY21. It was still higher at Rs 9,472 crore in FY19.Attrition ratesAttrition is another major concern due to growing competition.Infosys recorded an attrition rate of 15.2% for FY21, similar to the previous fiscal year. The company said it will address this through employee engagement, salary hike and promotions in July. It gave an interim salary increase in January.TCS said attrition rate for the year stood at 7.2%, while Wipro was able to reduce its attrition to 12.1% in FY21 from 14.7% in FY20.TCS, Infosys and Wirpo declined to comment for this story, citing the mandatory silent period ahead of their first quarter results.Salary hikesTop Indian IT firms are giving salary hikes twice this year to retain talent as rivals and multinational firms look for trained talent to implement digital solutions.Wipro Chairman Rishad Premji has said that with the rapid shift to digital, the demand for talent will outstrip supply and become a “key dependency” for growth.“Already we see new delivery models, such as ‘work from anywhere’ and ‘crowdsourcing’, become the mainstay,” Premji told shareholders in its annual report for fiscal year 2020-21, which was released last week.Infosys has maintained that the higher attrition rate is due to demand for talent as more companies offshore. “One is growth itself has picked up and on top of it, most of the growth volumes are happening in India, and consequently, there is tremendous demand for talent and that’s resulting in higher attrition,” Infosys COO Pravin Rao told analysts in April.Offshoring has gone up by 400-500 basis points on average across IT services firms, which itself could have given a 150-basis-point increase in margins, Prasad of HDFC Securities said. “The structural benefit that the sector got post the pandemic will continue and attrition and supply-side headwinds are transient and should go away.”