Easing Staff Cost Major Breather For IT Cos

Cost rationalisation has already been done. IT firms have resumed campus hiring this year. As the costs are under control, margin should come back to earlier levels. However, growth is still a question - Siddharth Pai, Managing Partner, Siana Capital Management, tells Bizz Buzz

Bengaluru: Indian IT services companies are likely to witness improvement in their operating margins in the coming quarters as wage pressure seen earlier has receded.

According to industry experts, the cost escalation that happened due to hiring people post-pandemic is over now and that augurs well for margin profile of these companies.

“Cost rationalisation has already been done. IT firms have resumed campus hiring this year. As the costs are under control, margin should come back to earlier levels. However, growth is still a question,” IT industry veteran and Founder & Managing Partner of Siana Capital Management, Siddharth Pai told Bizz Buzz.

In the second quarter ended September, many IT firms have shown steady operating margins as wage costs have come under control. After achieving optimum employee utilisation levels, companies have started hiring freshers during the Q2FY25.

India’s largest IT services player, Tata Consultancy Services (TCS) operating margin during the September quarter stood at 24.1 per cent. This was a drop of 20 basis points over previous year. The company said its cost structures remain unchanged.

“We made strategic investments this quarter in talent and infrastructure to ensuresustainable growth. Our longer-term cost structures remain unchanged, and we remain confident in our ability to continue delivering industry leading profitable growth,” said Samir Seksaria, Chief Financial Officer of TCS.

Similarly, Infosys reported a margin of 21.1 per cent, a drop of 10 basis points over the previous quarter. The company has retained its margin guidance of 20-22 per cent for the current financial year.

Wipro’s operating margin was at 16.8 per cent, an increase of 30 basis points over the previous quarter. This is despite the fact that the Bengaluru-headquartered firm rolled out salary hikes in September.

Wipro’s CFO Aparna C Iyer has said that there would be margin expansion in the coming quarters despite salary hikes given in September.

All these three companies have seen net headcount addition during the second quarter. As headcount addition is seen as a precursor to emerging demand, industry experts expect revenue growth to supplement operating margin in the coming quarters.

TCS reported a net headcount increase of 5,726 employees in the second quarter of FY25. Infosys’ total headcount grew 2,456 to 317,788 by the end of second quarter. This increase was reported after two quarters of decline in the total employee count by the Bengaluru-headquartered firm. Similarly, Wipro added 978 employees in the second quarter, a second consecutive quarter of headcount increase. Among mid-tier firms, Tech Mahindra led the show with headcount addition of 6,653 employees in the second quarter.

Another industry expert said that reduction in subcontractor cost and improving revenue growth would supplement margin profile in the second half of FY25.