IT major Infosys, on Friday, reported a net profit of Rs. 2,886 crore for the quarter ended June 30, 2014, recording a 3.5 per cent decline on a sequential basis. Compared to the year-ago quarter, however, net profit is up by 21.6 per cent.
In dollar terms, net profit saw a sequential decline of 1 per cent. Revenues, too, saw a sequential decline of 0.8 per cent compared to the quarter ended March. Compared to the year-ago period, however, revenues are up 13.3 per cent.
The company has retained its annual revenue guidance of seven to nine per cent (in dollar terms), which will continue to lag the industry’s forecast of 13-15 per cent. The company has added 61 new clients and forecasts a “healthy deal pipeline” in the coming quarter. Presenting his last company results, S. D. Shibulal, CEO and MD said that “overall the demand environment is largely stable.”
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However, employees at Infosys do not appear to have a sense of this stability going by the growing attrition rates at the 1.61 lakh-employee strong IT major. Infosys reported an alarmingly high attrition rate of 19.5 per cent, climbing past the “all-time high” of 18.7 in the previous quarter.
Meets expectations These results met analysts and market expectations, with the company managing to register a year-on-year growth in volumes while maintaining operating profit margins at 25.1 per cent (down sequentially by 40 basis points). The company had projected a fall of 200-220 basis points given it had effected wage hikes in the quarter, however, the focus on cost rationalization—a priority set by founder N.R. Narayana Murthy during this time—and better employee utilization helped constrain this and keep operating margins stable.
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The $8 million payment made to the Foundation, which incoming CEO Vishal Sikka enthusiastically tweeted about this morning as “giving purpose to our work”, is to comply with the government’s mandatory norms under the new Companies Act which requires companies to pay at least two per cent of the average profits over three preceding years towards any CSR activity. Mr. Shibulal said that the amount was exactly 2 per cent of the average profits.
Attrition continues unabated
In recent months, top-level exits at Infosys have dominated headlines, a good number of which appear to have been linked to the company's CEO hunt which concluded last month. However, a larger casualty and deeper source for concern at Infosys is another climbing statistic: overall employee attrition.
Infosys reported an attrition rate of 19.5 per cent for the quarter ended March, up from 18.7 per cent in the previous quarter. The rise is even more alarming compared to the year-ago quarter when attrition had touched 16.9 per cent. In Q1 2013, this figure was a manageable 14.9 per cent.
Infosys’ attrition rates are way above peers with Wipro’s attrition at around 15 per cent and TCS’ attrition at around 11.3 per cent.
The attrition is notwithstanding the fact that Infosys gave two wage hikes in the previous year, in June and in April, averaging 6-7 per cent for offshore employees and 1-2 per cent onsite.
Predictability concerns CEO and Managing Director S.D. Shibulal said that the company did not look at salaries as the only criteria to retain employees. “We have gone to the employees to understand what they want. It wasn’t about salaries alone; their concern was predictability, career growth and variable pay. We have addressed this by giving schedules for promotions, promoting 7,500 employees this quarter and improving career growth prospects with fast-tracking, introducing tech streams and so on.”
In the quarter ended June, 2014, over 10,627 employees left the company, which reported a net addition of 879 in the quarter.