Infosys Holds Off Hiring, Adds To Short Term Blues

Infosys is a dynamic company that has been appearing in media reports for practically everything. In FY13, the name has popped up for a wide range of reasons ranging from revenues estimates, law suits, employee salaries, cash balance, acquisitions to foreign listing. The latest piece of news has to do with hiring.

In the beginning of the year, Infosys had given a hiring guidance of 35000 employees for FY13, including 26000 recruits from campuses. In November 2012, it said that it would delay the hiring of 17000 new recruits by 3 months in an attempt to cut costs and aid smooth steering through a difficult IT environment. However, this move seems to be facing further delays and the recruitment of the 17000 staffers could shift to the first half of FY14. However, the onsite hiring of approximately 2000 employees would continue as planned.

Utilisation Rate of Infosys (excluding trainees)

Infosys has 153761 employees (as of September 31, 2012). In the last few quarters, the utilisation rate seen in the company has reduced considerably, coming down from 78.7% in Q1FY11 to 73.3% in Q2FY13.

Apart from the hiring and utilisation trends, there was some lag seen on the employee salary front as well. While other leading IT companies raised wages in April 2012, Infosys extended the decision and announced a raise effective from October 2012. The employees’ wages were raised by 6%-8%, which was in line with the peers. For onsite employees, the raise was to the extent of 2%. A similar trend was also observed in 2009, when the company had deferred wage hikes till the middle of the year.

Q3FY13 has not been that favourable for IT companies in general. Firms like Syntel and Hexaware reduced their guidance. Cognizant’s SEC filings, which included the performance-linked incentives programme for employees, indicated rolling out of 100% incentives if 16% topline growth was achieved in 2013. Issues of reduced IT spending and delayed decisions due to a subdued global macroeconomic environment continue to display their sticky nature, clouding the outlook for IT companies. To add to the woes, Hurricane Sandy further slowed down the seasonally slow third quarter.

In this situation, it seems difficult for Infosys to be able to achieve its guidance of 5% revenue growth for FY13. So far, it has touched a revenue figure of USD 3.549 billion (48.33% of the estimated USD 7.343 billion). With the results for two quarters still to come in, including those for the slow Q3, meeting the target seems difficult. The slowdown in hiring has also been indicative of the above.

Due to the uncertainty over its performance in the near future, we maintain a negative outlook for the short term. However, with Infosys 3.0 in currently in execution mode, which is evident from the shift in focus, change in strategy and recent acquisitions, we continue to remain bullish on on the company in the long run.