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IT Sector Companies Show Positive on Q1 results; VISA Restrictions Emerge as Pain Points

24 July 2019

The closing of the first quarter of the financial year showed high points for the IT companies in India whose revenue and profit figures rose up. The companies saw their share prices go up in wake of the results and have over come any bearish sentiments which may have been prevalent in the market.

Among the things which worked well for this sector was outsourcing of its projects which boosted the profitability and revenue, and the high number of commissions and projects bagged by companies in the country.

However, while outsourcing to others led to increase in revenue, it also played a small role in the attrition, along with the stringent VISA norms which acted as another major cause of attrition.

The three major IT giants TCS, Infosys and Wipro showed an increase in year on year profits and by 10.8%, 5.2 % and 12.6% respectively. The revenues of these companies also saw a growth and signaled to a positive outlook for this sector.

In Infosys, apart from the growth in revenue and profit percent, the most talked about figure was their attrition rate, which touched 20.3% this quarter which was highest in the sector. While there were several reasons to be attributed to this, one of the major reasons was a low appraisal.

The company’s changes in management has also played a role as the CEOs have been changing at a swifter pace for the past four years. Company’s current CEO Salil Parekh has barely completed a year replacing the previous interim CEO.

However, apart from these reasons, restrictions on VISA norms prohibiting employees’ on-site opportunities is also a major reason. Chief Operating Officer at Infosys UB Pravin Rao last Friday said, “A big part of this attrition is for people with three to five years experience. For this set, the earlier value proposition was on-site (foreign posting) opportunities, which was a big thing. But, given all the mobility challenges due to restrictive visa regimes, these opportunities are fewer. That is probably one reason why they (these employees) look forward to moving to other opportunities, where either they are able to get higher compensation or different kinds of jobs.”

The company has considered bringing back Employee Stock option Plans (ESOPs) for mid-level employees and has also targeted soft issues such as flexible timings, other perks and activities etc.

On the other hand, rival TCS has reported an attrition rate of 11.3 percent. This company while also facing the pain point of strict VISA norms, has worked earned well by outsourcing. The share prices of the company’s stock price dropped post the result announcements as the company also announced dividends to its stock-holders.

Similarly, with Wipro -country’s leading software exporter- the profits reported were 12.6 percent YoY. While the revenue grew on a year on year basis, the same saw a decline on quarterly basis. Ahead of the announcements, the company’s shares fell. However, post the announcement of their Q1 results, Wipro stock opened with a bullish sentiment.

The company’s top management attributes the growth in revenue to acquisition of three clients falling in the 100 million plus bracket.

One major bottom line of all three company’s results had been massive hiring in this quarter, and higher is still expected in the next quarter.

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