Attrition at TCS touches record high; it may get worse, warns management

For Tata Consultancy Services (TCS) — India’s largest and the world’s second-largest IT services provider — the attrition rate touched an all-time high of 17.4 per cent in Q4FY22.

The management, following the announcement of the Q4 results, has warned that the attrition situation could become even worse before any improvement.

According to analysts, the short term, the attrition rate at TCS could even touch 20 per cent.

The current situation is even poorer than the second quarter of FY15 when the number had touched 16.2 per cent.

The company hoped that because of record hiring at TCS, the attrition number will come down.

The rationale is that with the IT industry, too, hiring in large numbers, the supply-side pressure would ease.

In 2021-22, the company added 35,209 associates in Q4, taking the total to 592,195.

It is the highest quarterly addition ever.

For FY22, it added more than 100,000 employees -- 2.5x the FY21 figure.

The company said that it would continue to add a similar number of people in FY23, as well.

In the first quarter of FY23, TCS has a target of 40,000 net additions.

According to the company filing, employee expenses for the fourth quarter of FY22 at Rs 28,353 crore were up 20 per cent YoY.

Despite such high employee additions and supply-side challenges, the management reiterated that it aspires to have a margin in the range of 26-28 per cent.

The operating margin stood at 25 per cent in Q4, and 25.3 per cent for the entire FY22.

The financial year witnessed an impact of 230 basis points due to increments and tactical interventions, besides an impact of 100 basis points due to subcontractor costs.

Samir Seksaria, CFO, TCS, said the company can operate in the 26-28 per cent margin band.

“We will double down on our operational levers to help us get closer to this band… In FY23, at least initially, we will see some churn and pressure on the margin.”

He also noted that some of the levers are better realisation through an increase in pricing and a better portfolio mix, doubling down on operational levers like the use of automation, increasing productivity, and optimising fees to consultants, and support from currency.

However, the Street is expecting the margin to remain under pressure for some time.

According to ICICI Research note, the margin will be under pressure till FY24, resulting in a margin contraction of 30 bps in FY22-24E.