Attrition continues to hound IT bellwethers 5-6 quarters down the line

Though companies are saying they are managing supply side constraints by hiring more freshers and by subcontracting, exits is clearly impacting margins and profitability

The attrition rate at Infosys touched a record high of 27.7 per cent in the fourth quarter of FY22 on an LTM (last twelve months) basis, the company revealed on Wednesday. Recently, India’s largest IT services player Tata Consultancy Services (TCS), too, recorded record attrition in the March quarter at 17.4 per cent.

Attrition in the IT services industry has been going up over the last 5-6 quarters because demand has returned and companies are rushing to hire talent.

In Q3FY22, Infosys had reported an attrition rate of 25.5 per cent; in Q4FY21, the figure was 10.9 per cent.

“Attrition is 27.7 per cent on an LTM basis. Actually, attrition for the quarter came down by close to 5 per cent both in percentage and absolute terms. Of course, because of the tail effect of using an annual basis, the figure will continue to climb but the good news is we've seen some stability, and hopefully with the interventions we are looking such as salary hikes, we should continue to see some improvement,” said Nilanjan Roy, CFO, Infosys.

Roy said with freshers coming into the system, the attrition pressure should reduce. In FY22, Infosys hired around 85,000 freshers; for FY23, it plans a fresher intake of more than 50,000.

For the quarter ended march 31, 2022, the company added 22,000 freshers.

Though IT companies are saying that they are managing the supply-side constraints by hiring more freshers and taking on subcontractors, these remedies are impacting margins and profitability.

In the case of Infosys, the Q4 margin was down 200 basis points. Similarly, TCS reported a flat Q4 margin at 25 per cent, lower than the company’s aspiration of maintaining its margin in the 26-28 per cent range.

Roy said: “We were sitting at a utilisation rate of 88.5 per cent, which is uncomfortably high for us. We consciously brought it down to 87 per cent. Some of the impact is also because of seasonality -- Q4 has fewer working days compared to the previous quarter. Part of the impact on the margin was due to the headwinds on the revenue side.” 

If one looks at the employee cost to the company, for both TCS and Infosys, it has gone up significantly. In the case of TCS, employee expenses went up 20 per cent for FY22. At Infosys, it was up by 15.2 per cent.

Similarly, subcontractor expenses zoomed to Rs 12,606 crore for FY22 at Infosys, from Rs 7,084 crore in FY21.

Company	Attrition Q4
TCS	17.4%
Infosys	27.7%
Accenture*	18%

*Accenture fiscal year ends on August 31. The above numbers are for Q2 ended Feb. 28