Indian IT companies adapt their employee structure to the ‘right size’ amid rising costs: report
As skill-specific costs have risen in the market, Motilal Oswal said in a report that he expects IT companies to try to resize their pyramids in order to compensate for increased demand and costs. For IT companies, the key to control in T3FY22’s commentary will continue to be the visibility of medium- and long-term growth, attrition and the pyramid impact of a more recent integration, according to the brokerage firm and of research.
“Recruitment across our IT coverage will continue to remain high as businesses attempt to meet demand and address growing attrition, which will be a key area for investors. The resurgence of COVID-19 cases remains another risk on the supply side, ”he said in a note.
Meanwhile, the brokerage considers the margins of most IT companies (excluding company-specific factors) to be in a narrow range, as supply pressures such as attrition and hiring are compensated by operating leverage.
After a few quarters of acceleration in attrition, there may be a stabilization of attrition for IT service providers, albeit at high levels. This should start to reflect in qualitative reviews first, as most companies report LTM attrition.
On the other hand, sharing its recommendations for actions, the brokerage said it prefers Level I players over their Level II counterparts, given their relative attractiveness to valuation and their tendency to downgrade. the valuation gap over time. “The continuation of the strong sequential growth momentum and the expectation of a qualitative commentary on growth beyond FY22 should help support the recovery of IT stocks, despite their premium valuations. “
Although valuations remain high, Motilal is positive on a good demand environment and sustainable double-digit medium-term revenue growth for IT companies, driven by the strength of demand, increased transactions on large-scale digital transformation, upward price revisions and increased cloud migration spending by large enterprises.
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