Shares of top-tier Indian information technology (IT) services companies have corrected marginally in the past two trading sessions, thanks to the appreciation in the rupee, but they continue to trade close to their all-time highs. The share prices of Tata Consultancy Services Ltd, or TCS, and Infosys Technologies Ltd are just 4% and 5.5% away from their all-time highs. At current levels, valuations are at 24-25 times trailing earnings, implying expectations of strong growth.
According to an analyst, current valuations imply expectations of growth of around 20% in the next fiscal.
Thanks to the sharp improvement in the demand environment in the recent past, Indian IT companies may well deliver growth in the high teens next year. But this isn’t reflected in the gross hiring targets of some large companies. TCS recently reiterated that it plans to hire 30,000 employees in the next fiscal. This number looks impressive and represents growth of 20% on the current employee base of around 150,000. But note that the company has been losing around 5,000 employees every quarter on a consolidated basis in the past few quarters, and if attrition continues to be at similar levels, the net addition would be only 10,000 in fiscal 2011. Attrition has risen this year, so the net addition number could well be lower. Now, TCS’ employee utilization rates are rather high at over 80% excluding trainees, and so it doesn’t have the luxury of catering to growth opportunities with employees who are currently on the bench. It would have to increase its number of billable resources to take advantage of the increase in demand. In that backdrop, the gross hiring target of 30,000 which would translate into a net hiring target of 10,000 or less is far from exciting. Sure, the hiring number is a moving target and TCS and other companies may well change their target during the year. But it’s naive to get excited about the 30,000 figure.
Graphic: Yogesh Kumar/Mint
According to an analyst, the gross hiring target announced by companies isn’t a great lead indicator of revenue growth based on historical trends.
One would just have to wait for Infosys’ revenue growth guidance in mid-April to get a better picture of how fast Indian IT companies may grow in the next fiscal.
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