IT firms hit the pause button on hiring plans

Five of the country’s 10 largest IT services firms reported a sequential decline in the sales and support staff in the quarter to September, as they let go of non-revenue generating people and put an informal freeze on hiring.

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The country’s fourth and fifth largest IT services firms—Wipro Ltd and Tech Mahindra Ltd—reported a sequential decline in the number of sales and support staff and software engineers, respectively, in July-September.

L&T Technology Services Ltd, the smallest of the three IT firms under engineering and construction conglomerate L&T, and Hyderabad-based Cyient Ltd also ended with fewer sales staff in the latest quarter. Zensar Ltd, the tenth largest IT firm, also posted a sequential reduction in workforce. This is the first sequential decline in headcount at any large IT firm since April-June of 2020.

IT services firms went on a hiring spree amid the pandemic as business shifted online. Between July 2020 and September 2022, the 10 largest IT firms added nearly a third of their workforce or half a million people, according to an analysis by Mint.

The 10 largest IT firms, together, had 1.74 million people at the end of 30 September.

But fears of an impending recession and declining profitability have changed the mood —and approach—of some of the technology services firms.

Sample this:

Wipro has “rebadged” 130 of 250 people in its facilities management group to CBRE, a real estate consultant, under which these staff that managed the large campuses of the Bengaluru-based firm will come on payrolls of the real estate consultant, two executives familiar with the development said.

Additionally, any expense item of more than $10,000 across any department at Wipro would now have to be approved by the CEO’s office.

“Profitability is under pressure,” said an executive from Wipro. “When there is uncertainty on demand, we have to take these steps (a freeze on hiring and approvals for expenses more than $10,000). We believe…all firms are becoming pragmatic on controlling costs.”

“Optimizing costs and driving operational efficiency has always been part of our strategy,” said a spokesperson for Wipro. “We rolled out our annual salary increases and quarterly promotions in Q2, and we continue to make investments in high-growth areas—FullStride cloud offerings, cybersecurity and engineering, among others.”

“Headcount movement is in line with industry cycle,” a Zensar spokesperson said in an email response. “We did mention earlier that we have taken some clear measures for margin improvement, and non-essential travel has been identified as one of the levers. The firm is in the midst of implementing a very focused and disciplined margin improvement programme that includes multiple levers, including improvement in service mix, improvement in commercials, improvement in utilization, optimization of the pyramid and optimization in support costs and cost of talent acquisition.”

The pace of hiring at the three largest IT services firms—Tata Consultancy Services Ltd, Infosys Ltd and HCL Technologies Ltd—was also the slowest in July-September in two years.

Staff costs account for 55-65% of total expenses at IT firms; for this reason, some firms are looking to go slow on hiring experienced professionals.

Wipro’s operating margin was 15.1% at the end of the September quarter, having shrunk 410 basis points from 19.2% at the end of June 2020.

Tech Mahindra’s profitability was 11.4% at the end of the latest quarter, against 10.1% in end-June 2020. But its operating margin touched a high of 15.2% at the end of the June quarter, prompting the company to put all non-essential travel on hold and hire fewer experienced professionals. “For now, most projects are not seeing positions getting backfilled,” an executive at Tech Mahindra said.

About 53% of Tech Mahindra’s 163,912 staff at the end of the September quarter are clubbed as software professionals, while 42% are BPO professionals. The remaining are sales and support staff.

An email sent to a spokesperson for Tech Mahindra went unanswered.