IT firms cut flab, sack 3,000 in Q1

First sequential decline in a decade as 8 of top 15 software firms report drop in manpower

For the first time in a decade, information technology (IT) companies reported a sequential decline in their employee strength in the April-June 2017 quarter.

The combined headcount of the country’s top 15 listed IT companies was down around 3,000 employees, compared to the number at the end of March this year.

The squeeze is widespread, with eight of the 15 companies reporting a quarter-on-quarter decline in their employee strength, during the first quarter of FY18.

In all, around 1.12 million people were working for these top 15 IT companies at the end of June 2017 quarter, down from around 1.123 million people at the end of March this year.

Some of the companies reporting a decline in headcount include Tata Consultancy Services (TCS), Infosys, Tech Mahindra, Oracle Financial Services, Mphasis and Persistent Systems, among others.

The companies that reported net additions to their headcount last quarter include Wipro, HCL Technologies, Hexaware, Mindtree, and KPIT Cummins.

The analysis is based on the results presentation by various listed companies and their annual reports.

The sample includes the figures of the erstwhile Satyam Computer, which is now part of Tech Mahindra after its merger with Mahindra Satyam.

IT companies, including Wipro, Infosys, HCL Technologies, Persistent, Tech Mahindra and Hexaware, declined to comment on the development.

Among individual companies, Tech Mahindra witnessed the biggest contraction in its headcount last quarter, followed by Infosys and TCS.

Tech Mahindra’s employee strength reduced by around 2,000 people to a little under 116,000 in the first quarter at the end of the last quarter.

Infosys saw a net decline of 1,811 people in its headcount, while TCS reported 1,414 decline in its staff strength during the last quarter.

Ajoyendra Mukherjee, the global head of human resources at TCS, said that the gross hiring of employees would be lower in fiscal year 2018 than in the last year across geographies, while speaking during the company’s first quarter result presentation.

In contrast, HCL Technologies was the single-biggest hirer in the last quarter, adding nearly 1,800 people to its staff strength last quarter, followed by Wipro with 1,309 more people.

Experts blame the decline in staff to the ongoing slowdown in the industry and pressure on profit margins.

“Revenue and volume growth have almost come to a halt for most IT services companies. Besides, margins are falling steadily, forcing companies to change their business practices, leading to elimination of many jobs that involve repetitive tasks.

This is showing in the shrinking headcount numbers,” said Rituparna Chakraborty, executive vice-president and co-founder, TeamLease Services.

Every additional rupee of the industry’s revenue now costs greater salaries and wages than in the past.

Salary and wages are now equivalent to 53.7 per cent of the industry’s net sales on average, up from 47.2 per cent in FY14.

The result has been a decline in employee productivity and downward pressure on operating margins.

Chakraborty doesn’t see any immediate return of mass jobs in the industry.

“The industry is now going through a technological transformation, leading to a change in skill requirement in the industry.

The mass hiring of engineers from campuses would be now be replaced by hiring of people with specific skills in domains such as artificial intelligence, 3D printing or language skills, among others,” she says.

Market experts say the global slowdown and protectionism in developed markets is to blame.

“The industry is now growing in low single digits due to a combination of global slowdown and protectionist trade policy in the US, the biggest market. The pain is likely to stay for another two years at least,” said G Chokkalingam, founder & managing director, Equinomics Research & Advisory.

Also, automation and robotics are replacing people in some areas.

“With investments in new technologies such as automation and robotics, it’s only natural that many roles would get replaced by robots or get automated, thereby enhancing efficiency and productivity, and reducing headcount,” said Anne Prabhu, senior partner at Hunt Partners.

This is showing in the financial performance of listed companies.

Their combined salary and wages was up just 4.6 per cent year-on-year (YoY) during the April-June 2017 quarter, growing at the slowest pace since FY09, and down from 14 per cent YoY growth in FY17.

Companies’ combined net sales was up just 2.4 per cent YoY in the last quarter, growing at the slowest pace in over a decade.

The previous low was 3.9 per cent growth during FY10, in the wake of the 2008 global financial crisis.

The combined operating profit (excluding other income) was down 1.7 per cent YoY last quarter, the worst since FY09.

The combined net profit was down 1.3 per cent last quarter, the worst in a decade.

The maximum pain for the industry is, however, on the margins, with the sample core operating margin (excluding other income) now down to 22.1 per cent (of revenue), the lowest since FY09 when the industry was jolted by the accounting scandal at the erstwhile Satyam Computer.

At its peak, the industry reported operating margins of 26 per cent in FY14.

Photograph: Parivartan Sharma/Reuters