Infosys, HCLTech, & LTIMindtree shift wage hikes to Q3 to sustain margins amidst weak demand

Margins may inch up

Aggregate margins may inch up by 25 basis points (bps) sequentially, with HCLTech leading the pack and Coforge at the bottom, according to brokerage firm Jefferies. While Infosys, Wipro, LTIMindtree, HCLTech, and Tech Mahindra are expected to report a 20-110 bps margin expansion, bellwether Tata Consultancy Services (TCS) and Coforge are likely to report a 30-110 bps margin contraction.

Brokerage Nomura expects Infosys’ margin to improve by 10 bps to 21.2 percent quarter-on-quarter (QoQ). The brokerage also expects India’s third-largest IT firm, HCLTech, to report a massive 120 bps margin improvement to 18.3 percent, sequentially.

Nonetheless, not all firms are equally benefiting from this cost-saving measure. Coforge, for example, is expected to see a margin contraction of 110 bps in the second quarter due to wage hikes, offset partially by higher utilisation and lower visa costs. This indicates that mid-tier players, while participating in the deferment, may still face headwinds related to earlier commitments to employee compensation.

Another mid-tier player -Tata Elxsi- expects adjusted margin to decline by 140 bps, sequentially, due to lower utilisation and impact of wage hikes to junior employees, according to Kotak Institutional Equities.

Moneycontrol has reached out to Infosys, HCLTech, LTIMindtree, and L&T Tech Services for comments on this report. This story will be updated as and when they respond.

Going forward, a consensus that the worst is over gives analysts optimism that wage hikes are around the corner. Pareekh Jain, Founder and CEO of industry insights platform EIIRTrend, said that IT companies will start losing talent, if they do not hike wages in the next quarter.

“When growth returns, they will start losing talent. And that's why they are going to campuses,” Jain said.

Job market: A factor?

Analysts Moneycontrol spoke to said the job market is currently stagnant and companies are aware of it. This is an additional factor why companies are not worried about absence of hikes triggering resignations.

According to Gaurav Parab, Principal Research Analyst, NelsonHall, several other factors, such as attrition being under control and withholding of promotions have given clarity to companies to hold on to hikes.

“While the results will be decent this time around, they (IT companies) feel assured that they are not going to bleed talent at this point, because of the job insecurity among employees,” Parab told Moneycontrol.

However, certain delivery teams within these large enterprises dole out salary hikes for top performers. “Though not part of an enterprise-wide programme, each unit has a budget to address exceptional talent, especially, let's say, in AI now,” Parab added.

The saying in the industry currently is that retaining the job itself is a bonus.

Deliberate attempt?

After a year-long lull, IT companies have spoken about their plans to hire fresh graduates in the current fiscal year, which would imply an impact on existing employees.

A Moneycontrol analysis of the announcements made by India’s top IT companies, including TCS, Infosys, HCLTech, Wipro, and Tech Mahindra, show that around 81,000–88,000 fresher roles are up for grabs in the current financial year.

Many of these companies, based on their organisational pyramid, are aiming to reduce their workforce to specific experience segments, such as those with 5-10 years or 15-20 years of experience.

“So, if many employees leave, companies will be happy they are going,” said Yugal Joshi, leader, - technology services research at management consulting firm Everest Group.

However, the dilemma is that the options for these employees are severely limited in the current job market. “Where would they go? What are the exit options? People keep switching, but at an aggregate level, there is definitely a challenge,” Joshi said.