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How some firms are turning COVID-19 restrictions into a lucrative opportunity

For many IT firms, travel and facility costs have come down drastically. Insurers are realising that branches with lower footfalls can be shut down. Many other firms are using the pandemic to negotiate better rentals. The revival of wage hikes and promotions, once the situation normalises, is the only speed breaker.

Representative image

Representative image

For the top IT firms, the cost from travel have come down by 60-80 percent for FY21 (YoY), at the back of COVID-19 as per their earnings reports.

Infosys saw its travel cost reduced by 80 percent -- from Rs 2,710 crore in FY20 to Rs 554 crore in FY21. TCS’ travel cost came down by 67 percent, from Rs 3,296 crore to Rs 1,081 crore in the same period.

Wipro’s travel cost came down by 71 percent -- from Rs 1,816.9 crore in FY2o to Rs 535.8 crore in FY21 (YoY). For TCS and Wipro, total expenses declined by 2 percent in FY21.

While the total expenses increased for Infosys (by 6 percent) and HCL Tech (6 percent), expenses, as a percentage of revenue, declined by 1 percent for both the firms.

This was largely on account of the cost-cutting measures that they undertook over the last four quarters. And it isn’t just travel where companies have found a way to cut costs. Deferment of salary hikes and promotions have also been the new norm for many companies and this too has led to savings.

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Another significant cost for the firms are for facilities. IT firms have swanky campuses with multiple in-house facilities like gym, swimming pools and restaurants that the employees can avail of, making these firms attractive. However, with campuses closed, the firms were able to save the associated costs. For instance, TCS’ facility cost came down by 21 percent -- from Rs 2,702 crore in FY20 to Rs 2,131 crore in FY21.

Nilanjan Roy, CFO, Infosys, said during an earnings call last month that the company undertook aggressive cost-cutting measures such as marketing expenses, and have cut down the promotion cycle and wage hikes. While travel has naturally come down due to the pandemic, “we also did a lot of work on our strategic cost levers around pyramid and onsite and offshore automation,” Roy explained.

Better rentals

Even for those companies which haven’t completely gone for remote working and still use office spaces, the pandemic has resulted in better rental negotiations.

Gurpreet Ratra, Executive Director, T an T Realty Services, a real-estate consultancy firm based in Gurugram, said: “As a matter of fact, if a company had negotiated office space for a rent of Rs 151 per sq ft during the pandemic, it has managed to renegotiate the same space at Rs 118 per sq ft now. It’s all a matter of how smart you can get across the negotiating table”.

An analysis by ICICI Securities also said that the Indian Commercial Real Estate (CRE) office market has seen a 47 percent YoY decline in Q1CY21 (Jan-Mar’21) net absorption.

Some domestic IT firms which had been paying a rent of Rs 90 per sq ft in areas such as Golf Course Extension Road or Cyber Hub, have now managed to negotiate rentals for a larger space at half the price, just a few kilometres away in areas such as Sohna Road or MG Road.

They have also managed to convince the landlord to execute the fit-outs for them. There are others who have struck deals to include maintenance waivers and extra parking slots. Another trend doing the rounds is that of a telescopic rent agreement wherein a company agrees to a nine-year commercial lease, paying a rent of Rs 70 per sq ft for the first year, Rs 80 for the second year and Rs 100 the third year onwards.

Insurers shut branches, go for hot desking

While some companies are negotiating better terms, others are trying to work a roster system of working in office spaces to stay ahead of the curve. In the insurance sector, companies like HDFC Life Insurance have made plans to offer hot-desking facilities to staff.

There is a move to go for a ‘Phygital’ working model, which is a combination of physical and digital. Hot desking means there are no fixed seats. Employees follow a roster system to work from office. This means that one cannot simply decide that he/she will work from office on any given day. If they walk in unannounced, there won't be any seating available.

This helps corporates to save up additional floor space that can either be leased out or sold. “So, if you come two days a week, you will use that seat. On other days, some other team will use those seats. That way we can reduce office costs and reduce the number of floors required,” says HDFC Life MD & CEO Vibha Padalkar.

In FY21, the number of branches of HDFC Life stood at 390, a reduction of 30 branches, compared to a year ago. Padalkar said that the company looked at branches and the footfalls in each of them. In the insurance sector as a whole, the move is towards rationalisation of costs by closing down branches that see low footfalls. In FY21, close to 500 of the 11,600 branch offices of life insurers were shut, according to industry sources.

It is estimated that companies could save between Rs 10 lakh and Rs 1 crore on a monthly basis, if hot desking is adopted and extra floors and office space are given away on rent or leased.

Ceat was one of the first to go completely for the work-from-home system, which meant zero physical attendance in offices. The company’s parent entity, the RPG Group, has an entire building in the heart of Mumbai. All of the group’s companies, like KEC International and RPG Life Sciences, operate from that building.

Public relations company Weber Shandwick was operating from its WeWork facility at Andheri but moved out 4-5 months ago since all of its staff started working from home. Hanmer MS& L Communications exited their rented offices at Urmi Estate in Mumbai, Pune and Hyderabad. A couple of their offices have moved to WeWork, where the company is spending one-tenth the cost every month.

Wage hikes, promotions may have to restart

But this is not expected to be a perpetual norm. For companies, expenditures, such as wage hikes and promotions, that have been halted now will resume once there is a breather from the pandemic. This could result in costs going up. Companies will have to look at wage hikes, covering vaccination costs for employees and also travel costs.

Rituparna Chakraborty, co-founder and executive vice president, TeamLease Services, told Moneycontrol that many companies have realised that after the initial love affair with WFH that it takes a toll on the mental health of employees.

"There are various challenges and employees themselves want to work from office. Once vaccination is in place, things will go back to office. A few floors could be given up by corporates, but they wouldn't completely give up on their workplaces," she added.

Bhupindra Singh, Managing Director, Regional Tenant Representation, India, Colliers, told Moneycontrol that large corporates are not exiting from physical workspaces. “They are largely maintaining their footprint and the work-from-home system is not a permanent strategy,” he says.
Moneycontrol News
first published: May 14, 2021 12:10 pm

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