Attrition at TCS reaches record highs; it could get worse, warns management

For Tata Consultancy Services (TCS) – India’s largest and second largest IT service provider in the world – the waste percentage reached a record 17.4 percent in Q4FY22. The board has, following the announcement of the Q4 results, warned that the waste situation could get even worse with each improvement.

According to analysts, in the short term, the attrition rate at TCS could even reach 20 percent. The current situation is even worse than the second quarter of FY15 when the number had reached 16.2 percent.

The company hopes that due to record rentals at TCS the result number will come down. The reason is that with the IT industry, too, hiring in large numbers, the supply-side pressure would be less. In 2021-22, the company added 35,209 employees in Q4, bringing the total to 592,195. It is the highest quarterly acquisition ever.

For FY22, it added more than 100,000 employees – 2.5x the figure of FY21.

The company said it would also continue to add a similar number of people in FY23. In the first quarter of FY23, TCS has a target of 40,000 net additions.

Attrition at TCS reaches record highs;  it could get worse, warns management

According to the company’s submission, employee spending for the fourth quarter of FY22 was at Rs 28,353 crore by 20 percent up.

Despite such high staff additions and challenges on the supply side, management reiterated that it strives for a margin in the range of 26-28 percent. The operating margin stood at 25 percent in Q4, and 25.3 percent for the entire FY22. The fiscal year witnessed an impact of 230 basis points due to revenue and tactical interventions, in addition to an impact of 100 basis points due to subcontractor costs.

Samir Seksaria, CFO, TCS, said the company can operate in the 26-28 percent margin band. “We’ll double our operational levers to help us get closer to this band … In FY23, at least initially, we’ll see some churn and pressure on the margin.”

He also noted that some of the providers are realizing better through an increase in prices and a better portfolio mix, doubling down on operational levers such as using automation, increasing productivity, and optimizing fees for advisors, and currency support.

However, De Strjitte expects the margin to remain under pressure for some time. According to ICICI Research note, the margin will be under pressure up to FY24, resulting in a margin control of 30 bps in FY22-24E.

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