Startup layoffs a big breather for Infosys

A Blessing in Disguise

- Startup boom led attrition problem for IT sector

- Now, they face liquidity crisis

- Majority startups sacking employees

- IT firms offer compensation hikes

- Demand outlook remains strong for IT cos

Bengaluru: India's second largest IT services firm Infosys expects its high employee attrition rate to come down in coming quarters on the back of several employee engagement initiatives, layoffs seen in startups along with its move to open more tier-II centres in India.

In its analyst call, management of Infosys said that its localisation efforts have also started to pay dividend with easing of supply side pressure.

"The management (of Infosys) expects attrition to be contained given the start-up ecosystem is facing issues in funding which was the source for attrition. Given the ecosystem is fragile, some points from attrition should reduce," ICICI Securities said in a note.

Infosys reported an attrition of 27.7 per cent in March quarter of FY22, which was the highest among its peers.

Management also indicated that in the event of a slowdown or recession, supply-side pressures could also ease directionally, providing bit of tailwinds to profitability, the brokerage firm said.

In the analyst presentation, the company said it has given three compensation hikes in last six quarters along with giving bonus and promotions.

As part of its localisation efforts, Infosys now has six regional hubs in the US. The company has also seen huge headcount growth in Eastern Europe, Mexico, Canada and Philippines, which act as near-shore centres for the Bengaluru-headquartered IT firm. The IT firm has hired 3,000 freshers in the US as part of localisation efforts in the US.

Despite anticipation of slowdown in the global economy, Infosys said the company has not seen any change in demand environment.

"Demand outlook remains strong today among global macro trends," it said in the presentation adding that global technology services market is expected to grow between five and six per cent over the next five years.

The IT firm said that its cloud services offerings under 'Cobalt' have evolved as the key differentiator for the company. "Last 4 years demonstrated a successful strategic blueprint that we executed well. Going ahead, we see strong opportunities in digital and cloud. We have several levers to drive high margins and we are well-poised to gain market share and deliver value," Infosys said.

The IT firm remained confident of meeting its margin guidance given the several levers it has to optimise cost. Factors like pyramid rationalisation, onsite-offshore mix, sub-con usage, and automation could help in supplementing margin going ahead. Especially, Infosys has a large headroom to reduce its sub-contractor cost, which has shot up to about 11 per cent from 6.5 per cent before the pandemic.