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TCS manpower cost as a percentage of revenue has dipped by 20 bps: Milind Lakkad

Milind Lakkad, Chief HR Officer and Samir Seksaria, CFO, in conversation to ET Now

IT companies are growing, dominance and agility has increased and the short to medium term outlook is looking bright. The challenge is on the wage and attrition front. How are you managing it ?

Milind Lakkad: Yes, the job market is hot and higher attrition is a concern. But overall, our employer brand coupled with our robust talent acquisition and talent development model helped us manage the supply side challenges much better. Yes, hiring costs have gone up marginally, but we balance it with the good talent mix coming from the campus as well as from the markets. We have been able to do that in this quarter.

Our manpower cost as a percentage of revenue has dipped by 20 bps and that is actually the proof of what we are trying to do here.

What are the chances that you would be able to manage this entire uptick in the wage inflation/attrition cycle because up until now, because of the brand and because of what you commit to your employees in terms of career path, TCS was not affected, but given that the crunch is so strong, it is coming not only from existing IT companies, it is also coming from the startup world. TCS also could be hit and the hit could come with a lag.

Milind Lakkad: We have a robust model. Maybe because of some short term volatility there will be some blip here and there in a quarter or so. But in general we believe in this model and we believe that we will be able to manage our cost very, very well like the way we always do on a longer horizon. We invest significantly in talent development and it has been our core competency and a differentiation in the market for many years.

We are going through a boom time like never before. On the demand side, are clients cognisant of compulsions which are kicking in? Are you getting a sense that raw material cost — in this case wage — and impact of attrition is getting compensated and billing rates and margins are likely to inch higher?

Samir Seksaria: What we see as supply side challenges are transitional in nature and we expect them to be short term. Our contracts with our customers are long term and we do not foresee passing on transitionary challenges back to our customers. Our pricing has remained stable and we expect our pricing and realisation to remain stable.

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The trend which the management spotted exactly a year ago is that incrementally things will look up. IT outsourcing is going through a major transition and new architecture is getting created. Do you think your whole viewpoint on this entire cycle turn got endorsed with each passing quarter, the deal size for TCS is only increasing?

Samir Seksaria: Absolutely. The trends which we are seeing in the market and the strong momentum we have is backed by either normal outsourcing deals or in terms of enhancement of digital core or in terms of cloud transformations, all of which are seeing increased demand and participation by customers. That is definitely bound to continue.

But things are normalising now. The third wave hopefully will not be that strong. Will it also normalise for TCS in terms of the SGNA cost, travel cost and whatever cost saving levers you were able to adopt because of work from home, may not be at play any more?

Samir Seksaria: From an overall perspective there have been savings in some of the discretionary costs in the past but they have been offsetting investments whether it is in terms of making a technology infrastructure more secure, more agile or in terms of enabling various things in the new normal way of working.

Having said that, the discretionary expenses are seeing an uptick and we expect most of the discretionary expenses to get back to normal by the end of this financial year. Expenses like travel, recruitment as well as marketing have already started seeing an uptick.

Since we are going through an extraordinary boom and there is a big departure from the normal, what happens to the IT outsourcing cycle? Typically Q3 because of furloughs and holidays tends to be a bit slower. Will that start normalising now?

Samir Seksaria: The way the calendar is spread out, seasonality is built in. In terms of number of working days of festival seasons, furloughs to an extent are bound to be there, but given that demand surge also remains, how much of the incremental demand or the surge will be able to offset the seasonality is something which we will have to wait and watch out for.

Fresh offers in the last four quarters was at about 75,000, it has almost doubled. Is that in line with your company philosophy where you will keep on hiring at the lower end so that even if there is attrition in the middle layer, new employees and low cost will ensure that the aggregate cost does not go higher?

Milind Lakkad: Our larger intake is primarily because of higher demand and some of it is because of larger attrition. Because of the higher demand, I expect these numbers to continue. We will hire another 35,000 trainees in this year itself and continue the trend in the coming FY23 and follow on.

You have hired 75,000 new employees this year. When do you think you would be able to reach the mark of 10 lakh employees for TCS?

Milind Lakkad: The point is we are focusing on how we basically build our business, how do we basically bring in new services, new markets, newer customers and focus on both growth and transformation. All of that will need a significant number of people and whatever it takes to do, we will deliver that.

I am focssing more on where we grow from a business standpoint? What happens to the number of people in turn is an outcome of how we grow and what is the pattern of that growth.

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