While the gains are good, the numbers are not higher than the margins reported in Q3FY22 for most firms
Attrition continues to moderate. This trend also started last quarter
Despite seasonal weakness, high furloughs and other economic challenges, the top 4 IT companies- TCS, Infosys, Wipro and HCL- saw their margins improve in the third quarter of FY23 as attrition levels dipped on a quarter-on-quarter basis.
As the European winter sets in, and western markets such as the UK and mainland start to falter due to geopolitical reasons, India’s top IT companies mostly continue their trajectory of recovering their operating margins. This recovery started in Q2FY23. TCS, Wipro and HCL saw their margins grow to 24.5 per cent, 16.3 per cent, and 19.6 per cent, respectively. Infosys reported stable margins at a quarter-on-quarter level of 21.5 per cent. While the gains are good, the numbers are not higher than the margins reported in Q3FY22 for most IT companies.
Improvement in margins is on par with analyst predictions which indicated that rupee depreciation and moderation in attrition, amongst other factors, will aid in the recovery. However, the gains are lower than most expert estimates.
Speaking to investors, Samir Seksaria, Chief Financial Officer, TCS, said, “Moving to the operating margin, we had 70 basis points benefit from the currency movement. Operational rigour, including utilisation, and reduced use of subcontractors, resulted in a net benefit of 0.3 per cent or 30 basis points, offset by a 50 basis points headwind from higher third-party expenses and increasing cost of return to normalcy. “
Attrition continues to moderate. This trend also started last quarter. All four companies have seen their attrition numbers decrease to 21.3 per cent (TCS), 21.7 per cent (HCL), 24.24 per cent (Infosys) and 21.2 per cent (Wipro). Attrition numbers are still high on a year-on-year level, as much as 6 per cent higher than the same time last year in TCS’ case.
Top IT CXOs have indicated that attrition will likely trend down in the subsequent quarters.