Top IT services firm hit the pause button on hiring amid weak earnings

After a period of whirlwind expansion since the outbreak of the Coronavirus pandemic, Indian IT services companies are now hitting the pause button. This comes at a time when five of the ten largest firms recorded a sequential decline in the sales and support staff in the September quarter, as they let go of non-revenue generating employees, thereby putting an unofficial hiring freeze.

According to a report published in LiveMint, the fourth and fifth largest IT services firm- Wipro and Tech Mahindra Ltd, reported a significant decline in the number of their sales, support staff, and software engineers, respectively, in the quarter that ended September.

L&T Technology Services Ltd, the smallest of the three IT firms under L&T, and Hyderabad-based Cyient Ltd, also ended with fewer sales staff in the quarter. The tenth largest IT firm, Zensar Ltd, also witnessed a sequential decline in the workforce. According to the report, this is the first significant reduction in headcount at any large IT firm since the first quarter of 2020.

As businesses switched online amid the pandemic, IT services companies went on a hiring spree. The report states that between July 2020 and September 2022, the ten largest IT firms added nearly a third of their workforce or half a million people. By the end of the second quarter of FY22, the ten largest IT companies, together, had 1.74 million people.

However, fears of an impending recession and declining profitability have contributed to the change of mood for these IT services companies, along with their approach.

The pace of hiring was also the slowest in Q2 FY22 in the last two years for companies like Tata Consultancy Services Ltd, Infosys Ltd and HCL Technologies Ltd. As staff cost accounts for 55-65 per cent of total expenses at IT firms, some companies are now looking to slow down on hiring experienced professionals.

At the end of the September quarter, Wipro’s operating margin was at 15.1 per cent, after having shrunk 410 basis points from 19.2 per cent at the end of June 2020. On the other hand, Tech Mahindra’s profitability stood at 11.4 per cent in the quarter, compared to 10.1 per cent at the end of June 2020. However, Tech Mahindra’s operating margin by the end of the June quarter touched a high of 15.2 per cent, which prompted the company to put all non-essential travel on hold and hire a few experienced professionals.