How HCL Tech countered the trend of declining employee numbers

TCS's workforce will fall by 13,000 people in 2023-24, Infosys by around 26,000 and Wipro by 23,000. The only exception among India's top four high-tech services companies by market capitalization is HCL Technologies Ltd, whose employee count increased by 1,537 people in his 24th fiscal year.

Industry watchers focus on changes in employee numbers as an indicator of sales. IT services companies bill based on the number of hours their employees spend on projects.

While artificial intelligence threatens to reduce employee working hours, employee numbers continue to be linked to sales, at least for now.

This partly explains how HCL Tech bucked this trend. The company's revenue growth outpaced that of Infosys and Wipro in all his four quarters in the last fiscal, outpaced his TCS in two quarters and was almost on par with his in one quarter.

TCS's head of human resources said the company is “more focused on leveraging the capabilities we have built over the past few years”.

Still, HCL Tech shares are down 11% since the beginning of the year, while Wipro is down 4% and TCS and Infosys are up. This is partly because his 2024-25 outlook for HCL Tech was modest.

ICICI Securities said growth was expected to be between 3% and 5%, “slightly lower than the Street/Company's estimate of approximately 4% to 7%.” In its earnings call, HCL Tech also indicated that customers' discretionary spending has not yet been selected.

Recruitment moderation

Although HCL Tech has outperformed its larger competitors in revenue over the past two quarters, that's not the main reason it bucked the trend of declining employee numbers.

The main reason lies in the hiring trends of tech giants in the last two fiscal years, especially in 2021-22. During the pandemic, due to movement and other restrictions, companies across the world started rolling out digital transformation projects with the help of Indian IT services companies.

To service these projects, domestic IT companies have hired in droves and significantly expanded their employee base. From 2021 to 2022, the number of employees at TCS increased by around 100,000, Infosys by around 50,000 and Wipro by 45,000.

HCL Tech's absolute headcount growth in the last four financial years was lower than both TCS and Infosys. In 2021-22, HCL Tech's headcount growth was around 5,000 people lower than Wipro's. This gradualness is reflected in the increase in headcount in FY2024.

change of strategy

The war for talent in India's IT sector was also reflected in high attrition rates in 2022 and 2023. Infosys' turnover rate rose to a high of 28.4% in Q1 FY23 from 13.9% in the same period last year.

Similarly, TCS saw a peak attrition rate of 21.5% a quarter later in Q2FY23. HCL Tech also saw its turnover rate peak at 23.8% in these two quarters. As demand for IT services weakened, turnover rates across these companies decreased.

This voluntary downsizing and change in recruitment strategy resulted in a shrinking employee base.

Today, companies are hiring for specific skills that are in demand. We are also hiring with the aim of keeping our cost structure low. In HCL Tech's recent earnings call, Chief Executive Officer C. Vijaykumar pointed out that the company nearly doubled its graduate recruitment between 2020-21 and 2022-23.

Improved productivity

Employment changes affect productivity (revenue per employee). In FY2013, all four companies decreased in each quarter.

Although productivity started to recover in FY24, it still has not reached pre-pandemic (FY19) levels. mint It was reported last week. One of the reasons for the recovery in productivity at all four companies in FY2011 was an improvement in utilization rates (the percentage of personnel working on active projects).

For Infosys, utilization increased to 82% in the latest quarter from 76.9% in the year-ago quarter. For Wipro, the utilization rate (without trainees) rose from 81.7% to 86.9%.

However, after a certain point, utilization saturates. IT companies allocate more people to a project than they charge to provide guarantees to their clients. Therefore, you need bench power that you can immediately implement into your upcoming projects. All four companies hope to acquire more products in the coming quarters.

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