Techies can expect lower hikes, hiring freeze in mid and senior level: Ramani Dathi (2023)

“Our internal estimates is that starting January, there can be a pick up in the IT hiring momentum but because the companies are not increasing their permanent employee headcount, the gap between demand and supply they are planning to bridge using contract staffing and that should play to our benefit.”

“Over the last few months and quarters we have seen a substantial dip in IT demands and open positions. Accordingly, we are reducing our head counts and costs. For the next foreseeable future, we are not factoring in any increase in our core headcount and whatever revenue growth that we have, ideally should flow down into the bottom. So for the next few quarters we are projecting a consistent margin expansion on a QoQ basis,” says Ramani Dathi, CFO,

Teamlease Services



I want to start with the numbers first up because it seems maybe the wage hikes have impacted the earnings. When do you see your margins recovering to those 3.5% levels and what has been the impact of the associate and core employee wage inflation on your margins?
The wage hikes have impacted our overall margins severely because typically we used to have annual hikes in the range of 5% to 6% year on year but over the last two years, we have seen a trend of 12% annual hikes. Coupled with that, we also made some investments internally in expanding our core teams and capabilities because at the beginning of the year, we thought IT will continue to give us more headcount which is a higher margin business for us and we increased our investments but over the last few months and quarters we have seen a substantial dip in IT demands and open positions.

So accordingly, we are reducing our head counts and costs. For the next foreseeable future, we are not factoring in any increase in our core headcount and whatever revenue growth that we have, ideally should flow down into the bottom. So for the next few quarters we are projecting a consistent margin expansion on a QoQ basis.

You are talking about a dip in headcount largely from the IT space and even if we are looking at your overall headcount, it has been quite flat on a sequential basis. What is the headcount addition target for the rest of the year? How are you looking at overall demand momentum in light of the factors that you have flagged off?
In Q1, in general staffing we have added about 13,000 headcount but in the current quarter we have added only about 5,000 in general staffing. Clearly we have seen the open positions coming down in few verticals especially e-commerce and telecom and there are few verticals where compared to last year and last quarter, the demand has come down. However, for the next two quarters, we are seeing strong numbers coming from BFSI, retail and consumer verticals.

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We are confident of maintaining a run rate of about 8,000 to 10,000 headcount addition for next two quarters in general staffing business. However, in IT staffing, the head counts may remain flattish or may even slightly come down for the next two quarters.

Your revenue growth rate slowed. What kind of growth rate should one expect going from here? Are 25-30% year on year growth assumptions realistic according to you?
Yes, the 20% revenue growth year on year is definitely realistic because 90% of our revenue was contributed by general staffing. Even though IT is contracting, since 90% is from general staffing and includes all the verticals and all industries, we are not seeing any massive slowdown. Typically in the past, we have demonstrated a growth rate which is 4X of GDP rate. Considering that, we are still confident of maintaining upwards of 20% revenue growth.

We are seeing a drop in the growth rate of demand for tech talent right now in the technology sector. But some of the Indian players have gone on record in saying that they are in hiring mode but specifically when it comes to the startup universe and the kind of layoffs that we have been seeing of late, how badly has hiring been impacted?
In the last three-four months, the hiring is on complete freeze and only attrition backed filling is happening. That is how we maintained head counts and revenues broadly and as you rightly mentioned, the startup space and companies which are not cash positive on their bottom line, we are seeing headcount reduction.

Otherwise in the rest of the large IT services companies, in Indian companies at this point in time we are not seeing any headcount reduction. There is definitely a hiring freeze but we are not foreseeing a reduction. In fact, our internal estimates is that starting January, there can be a pick up in the momentum because they are not increasing their core headcount, their permanent employee headcount. The gap between demand and supply they are planning to bridge using contract staffing and that should play in our benefit.

Can you give us a sense of what is happening on the ground? Campus recruitments were all honoured; you are talking about hiring freezes but do employers who want their employees to come back to offices and not indulge in moonlighting, do they go back to their homes because increments can also be impacted?

Definitely this year even the annual hikes in IT and tech industry will be much lower compared to last two years because during the Covid years, the annual hikes were in the range of 20-25% for IT professionals. We are not seeing a similar trend this year.

Also what has happened is over the last two years, the IT services companies, product companies have increased their head counts dramatically and now they are trying to optimise their current base and increase the productivity of their existing employees instead of adding more people. We are seeing the slowness especially at mid and senior level. So maybe at fresher level, companies are still doing some sort of hiring, but at mid and senior level, there is a complete hiring freeze. At least till January, we are not seeing any pick up in momentum for IT and tech hirings.

Meta is laying off 11,000 people; back home, Byju’s, Unacademy are trimming the workforce. You are saying hiring may pick up in January but what is changing in January because we are reading these bad headlines in November. Why will things change in two months?
Let me correct myself, I am not saying everything will change from January but since for last four-five months, companies are not adding any head count at all, there can be a small delta between their demand and the supply and that delta can play in the benefit of contract employees, I am not talking about the fact that there will be an increase in overall hiring for IT employees, the permanent hiring may still not improve even from January but as far as contract employment is concerned, there can be some open positions in the temp staffing space.

Would it be fair to say that this kind of high attrition that we are seeing for IT companies back home is going to be the normal trend or will it normalise now?
Surprisingly the attrition even for last two-three months also has been at a very high level but we also believe that it would come down because so far the attrition in IT services and product companies got absorbed by the startup space but now even the startup companies are going on layoff modes and hiring freeze so ideally the attrition levels should come down but at this point in time we are still have a very high attrition rate in IT.

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