It is attrition rates and not the wage hikes dampening Indian IT cos earnings

• The Indian IT sector is in trouble – not entirely due to recessionary concerns or smaller deal wins.
• The problem is a lot more internal – it’s the record number of employees leaving them.
• Despite employee wage costs increasing, analysis by Business Insider India reveals a rather surprising statistic – read on to find out.

Earnings of Indian tech companies in FY23 is off to what some would call a sobering start. The three giants, TCS, Infosys and Wipro reported a sequential decline in profits, blaming wage hikes and increased travel costs, among other things.

A previous Business Insider India report highlighted that Indian IT companies have spent up to 62% of their revenues towards salaries and wages of their employees, with the total salary bill for FY22 coming in at ₹3 lakh crore.

For context, the Indian government spent a similar amount towards providing fertilizer subsidy, clearing Air India’s debts, clearing export subsidy dues and providing four months of free ration for 80 crore ration card holders in the country.

Over the last five years, giants like TCS, Infosys and Wipro have maintained their salaries outflows at an average of 53-55%, while the smaller players like L&T Infotech (LTI) and Mindtree shelled out the most, between 60-63%.

In the first three months of FY23, Indian IT companies spent an average of 57% of their revenues on employee wages, and some companies like Infosys even offered single and double-digit wage hikes to their high-performing employees.

Don’t blame the wage “hikes”

However, scratching the surface of these earnings suggests it’s not the wage hikes dragging earnings down – it’s the attrition rates and the resulting training they need that is to blame.

Indian IT companies have not been able to stem the tide of employees leaving them – TCS, the largest of the lot, saw the worst sequential increase in its attrition rates, while Infosys continued to have the worst overall rates.

Of the six IT companies which have released their numbers, Wipro performed the best, with an attrition rate of 23.3% – even that is high, since the company lost 1 in 4 employees in the last 12 months, rendering the 3-4 months training expenses worthless.

To compensate for these high attrition rates, Indian IT companies have been on a hiring spree, and a bulk of these hires are freshers who need training of 3-4 months.

Overall, amongst TCS, Infosys and Wipro, the rate of addition of new employees was the highest at Infosys – its workforce increased 25% on a year-on-year basis. Even on a sequential basis, Infosys added the most, at 7%.

As a result, average wages have actually declined

Overall, these six companies have nearly 15 lakh employees amongst themselves, as against 12.3 lakh employees a year ago – this is an increase of nearly 22%.

The total employee wages at the end of Q1 FY23 stood at ₹67,301 crore, increasing from ₹55,796 crore a year ago – a growth of nearly 21%.

Wages have not kept up pace with inflation – the average wage actually fell from ₹4.54 lakh a year ago to ₹4.5 lakh in Q1 FY23.

It is not clear how Indian IT companies plan to bring attrition rates back under control, but it is critical for them to improve this especially at a time when recessionary concerns have started having an impact on their top as well as bottom lines.

Even the largest Indian IT company is not immune to this, with its deal sizes shrinking.

SEE ALSO:

Zomato tanks 14% wiping out ₹1,000 crore investor wealth – here’s what is happening

TCS crosses the 6 lakh employee milestone even as 1 in 5 quit in the first quarter

Wipro’s net profit drops 12% drop in Q1 as recession fears grip its non-US clients