India's Top 4 IT Companies are Struggling. Here's Why...

The stellar growth in earnings of Indian IT companies, one quarter after the other, reminds us of fairytales where everything is good and nothing is wrong with the world.

Imagine a perfect professional world where all employees are happy and dedicated to their company.

They are motivated by the work environment and satisfied with the salary they receive.

This is only good to imagine and very hard to believe in real life. We do not live in a perfect world.

Things are not perfect in India's IT industry. Just like any other industry, employees come and leave.

Employee attrition was and continues to be a big problem for the Indian IT industry. Employee attrition occurs when employees quit, for various reasons.

Attrition is an inevitable part of any business, but most importantly, this is a bigger problem for the people-intensive IT industry.

At times, IT companies' attrition rate has been as high as 25%.

Yes, 25%.

At that rate, it's like having an absolutely new employee roster every 4 years!

Think about the implications.

Covid Impact?

As the job markets remained dry during the initial months of Covid-19 pandemic, attrition rates dropped.

During the period when the Covid-19 impact was most felt, attrition rates did drop for the top three IT companies - Tata Consultancy Services, Infosys, and Wipro.

Employees found it wiser to stick to their jobs.

But now, the scene has changed. Demand for digital talent is booming and employees are jumping ship at every chance they get.

The benchmark salary of an IT fresher has almost doubled in the last 2 years. The attrition rate in some companies is at a shocking 20-30% per annum.

Let's have a look at what's happening on the attrition front for top 4 IT companies in India.

#1 Tata Consultancy Services (TCS)

At TCS, retaining existing talent has always been the main aim rather than acquiring new talent.

For the twelve months ended March 2021, TCS' IT services attrition rate was at an all-time low of 7.2%.

As of September 2021, TCS has a total headcount of 528,748 employees. TCS' attrition rate for last twelve months (LTM) was at 11.9%, which is the lowest in the industry.

But how has TCS managed to keep attrition rates low?

TCS is one of the largest campus recruiters. Given the large fresher intake, TCS invests heavily in training and development initiatives to keep talent and technology ready in a short time.

Have a look at the table below which shows TCS' attrition rates going back the past 10 years.

Year	Attrition Rate	No of Employees
FY12	12.20%	238,583
FY13	10.60%	276,196
FY14	11.30%	300,464
FY15	14.90%	319,656
FY16	15.50%	353,843
FY17	10.50%	387,223
FY18	11.00%	394,998
FY19	11.30%	424,285
FY20	12.10%	448,464
FY21	7.20%	488,649

Data Source: Company Website

Prior to this period, the company's attrition rate stood at 14.4% (FY11), 11.8% (FY10), 11.4% (FY09), 12.6% (FY08), 9.9% (FY07).

TCS has always stayed ahead of its peers in terms of attrition and maintained stable rates.

#2 Infosys

Coming to Infosys, the attrition rate has picked up over the past couple of years due to strong demand environment.

Rising Attrition: A Worry for Infosys

Year	Attrition Rate	No of Employees
FY10	13.40%	113,796
FY11	17.00%	130,820
FY12	14.70%	149,994
FY13	16.30%	156,688
FY14	18.70%	160,405
FY15	18.90%	176,187
FY16	13.60%	194,044
FY17	19.00%	200,364
FY18	16.40%	204,107
FY19	20.40%	228,123
FY20	20.70%	242,371
FY21	15.20%	259,619

Data Source: Annual Reports

Why has Infosys' attrition rate remained high compared to peers?

Well, Infosys is a mass hirer. One reason for high attrition rate can be over staffing.

There may be other issues with the company's work culture, lack of employee engagement process or various such reasons.

The company's COO UB Pravin Rao, during an earnings call had said rising attrition was a concern and Infosys had gone for multiple employee interventions, including promotions for retaining the workforce.

In its latest results for quarter ended September 2021, Infosys said its attrition climbed to 20.1% from 13.9% in the June 2021 quarter amid the talent war.

Rising attrition often leads to tweaks in margins. Incidentally, despite the rising attrition, Infosys upped its revenue guidance.

The company said it has not seen such a war for talent and also upped its fresher hiring from 35,000 (announced earlier) to 45,000 in fiscal 2022.

#3 Wipro

For the latest quarter ended September 2021, Wipro reported an attrition of 20.5%, up from 15.5% in the previous quarter.

This was the highest, followed by Infosys at 20.1% and TCS at 11.9%.

In fact, Wipro has now seen consistent increase in attrition rate in the last four quarters.

This comes even as Wipro rolled out salary increments to 80% of its people. The second such boost within a year.

Quarter Ended	Attrition Rate
Dec-20	11.00%
Mar-21	12.10%
Jun-21	15.50%
Sep-21	20.50%

Data Source: Company Filings

As employees are finding several opportunities in the IT industry, attrition has picked up at Wipro.

The company's CEO Thierry Delaporte said the attrition rate was higher than what the company would like it to be. He also added that several reasons can be cited for a shift in employees' mindset.

As attrition is rising, Wipro, just like Infosys, is going on a hiring spree.

Wipro will be hiring 12,000 freshers in fiscal 2022. The company further said it will recruit 30,000 freshers from campuses.

This is highest number of jobs Wipro has offered during campus placements in a single year.

Wipro's March End Attrition Rate Over the Years

Year	Attrition Rate	No of Employees
FY16	14.90%	123,577
FY17	16.30%	137,688
FY18	16.80%	163,827
FY19	17.60%	175,690
FY20	14.70%	188,270
FY21	12.00%	201,665

Data Source: Annual Reports

#4 HCL Technologies

HCL Technologies fared better when compared with Infosys and Wipro.

Still, the attrition rate came in higher sequentially and also at an all-time high.

For the quarter ended September 2021, HCL Technologies' attrition was 15.7%, up from 11.8% in the previous quarter.

While Wipro gave a salary boost to 80% of its employees, HCL turned to stock options, quarterly bonuses, and salary hikes to retain employees.

Like its peers, HCL Tech is also going big on hiring. During the quarter, HCL Tech hired 11,135 people - the highest in the last 24 quarters.

You read that right! Not the last 24 months...but the last 24 quarters.

While announcing results, the company's chief HR officer said they expect to hit 20,000-22,000 more freshers in fiscal 2022.

He added that attrition is likely to plateau by the December quarter, and the fourth quarter is likely to see better numbers.

Will attrition rates go north going forward?

A huge number of employees leaving their jobs remains a big concern for IT firms.

As demand for IT services companies remains robust, attrition rates are likely to rise in the coming quarters.

The same is suggested by the officials of top IT companies.

Attrition rate of IT companies has been rising consistently but is in-line with growing demand for talent.

Companies require the best minds. Result? We are seeing a war for retaining and hiring best talent.

Here's what Financial Writer at Equitymaster, Aditya Vora wrote about rising attrition rates in an edition of Profit Hunter.

• Why are IT employees in high demand right now?
  
  It's because of the big increase in demand for IT services.
  
  So why has demand for IT services increased?
  
  Well, that's because of the convergence of digitalisation, automation, and the success of innumerable technology platforms and apps.
  
  Concepts like cloud storage, IOT (Internet of things), Artificial Intelligence (AI), and Machine Learning (ML) have now come of age.
  
  Companies need skilled talent to write the code for automation, to develop software that tracks what you click online so as to generate ads, to maintain billing details on the cloud space provided by Amazon or Microsoft...and much more.
  
  As the world becomes more connected, the role of Indian IT companies has evolved from outsourcing to becoming a partner in innovation.

As per Aditya, the IT sector ticks all the boxes from an investment point of view.

To know why read his article here: The Booming IT Industry is Positive for these Stocks.

Do note that hiring a new employee is always a costlier affair. It incurs recruitment expense and training cost coupled with a temporary loss of productivity.

But this is the hard truth for the sector and we have to live with it.

So, will all this put pressure on the margins of the IT industry going forward?

Only time will tell.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...