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IT companies may face higher attrition, pay hikes expected

IT companies may face higher attrition, pay hikes expected
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First Published: Tue, Mar 16 2010. 11 04 PM IST

Photo by Madhu Kapparath / graphic by Ahmed Raza Khan/Mint
Photo by Madhu Kapparath / graphic by Ahmed Raza Khan/Mint
Updated: Tue, Mar 16 2010. 11 04 PM IST
Our channel checks and interaction with Infosys Technologies Ltd management indicate that attrition is much below the alarming levels being cited in media reports (4,000 employees). That said, attrition is picking up at Infosys, after a lull.
While its new human resource (HR) policy, iRace, is being attributed as one of the key reasons, lower replacement of those who have quit the company voluntarily is also contributing to the attrition. Despite the relatively strong fresher hiring during FY09-10 at Infosys, low volume growth had introduced slack in Infosys’ employee age-pyramid. As a result, we believe, employees leaving the company on their own are being replaced with available internal resources (with less experience).
Photo by Madhu Kapparath / graphic by Ahmed Raza Khan/Mint
Our channel checks indicate that Infosys’ new career development programme, iRace, has not gone down well with all employees. As part of the programme, Infosys is reportedly introducing new levels within the existing organization structure. Some employees believe this will delay their promotions. In addition, the programme has elicited quite a number of adverse opinion pieces on Internet discussion forums, suggesting that Infosys may have to revisit its HR strategy.
Other larger vendors have to deal with high employee utilizations. Tata Consultancy Services Ltd and Wipro Ltd have among the highest employee utilizations (excluding trainees) in their history. We expect acceleration in revenue growth towards the first half of FY11 and they have to increase their billable resources to avoid a lateral hiring rush.
Our channel checks indicate that lateral hiring is already picking up at these vendors and given the high fresher intake during the third and fourth quarters of FY10, we expect the billable resources to materially increase in the first half of FY11.
Our recent interactions with managements indicate that there has been a strong recovery in deal pipelines after the last quarter of 2009. While mid-cap vendors are likely to lose out owing to the nature of these deals (vendor consolidation, multi-service, etc.), larger vendors, we reckon, are benefiting from the pick-up in the deal pipeline. Managements are also indicating a recovery in discretionary spend and as such, we expect growth to accelerate towards the first quarter of FY11.
In addition to poor revenue growth, mid-cap vendors have to battle relatively severe headwinds of salary hikes and attrition. Among mid-cap vendors, we prefer Patni Computer Systems Ltd and InfoTech Enterprises Ltd due to their better revenue visibility.
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First Published: Tue, Mar 16 2010. 11 04 PM IST