The margins for IT companies improved slightly as supply chain issues abated to an extent, and the depreciation of the rupee bolstered operational profit.
However, margins for the top four IT companies, TCS, HCL, Infosys, and Wipro, continue to lag vis-a-vis the same quarter last year- largely due to continued employee cost pressures from high attrition numbers being reported.
The top four IT companies reported a boost in margins for the first time in four quarters in Q2FY23, with margins rising anywhere between 0.1 to 1 per cent.
HCL saw the largest increase from 17 per cent in Q1FY23 to 18 per cent in Q2FY23, followed by TCS, whose margins improved from 23.1 per cent to 24 per cent in the same period.
Infosys and Wipro bettered their margins by 0.5 per cent and 0.1 per cent, respectively, to 21.5 per cent and 15.1 per cent .
The margins continue to lag year on year, with TCS reporting an operating margin of 25.6 per cent in Q2FY22, HCL (19 per cent), Infosys (23.6 per cent) and Wipro (19 per cent).
As per experts, the rupee’s depreciation versus the dollar played a major role in boosting margins.
In their follow-up commentary to the results of IT majors, Motilal Oswal cited many reasons, including cost optimization, depreciation in the INR v/s the USD, and lower sub-contractor expenses, boosted fresher hiring in the past few quarters as reasons for the easing of margin pressures for top IT companies.
At the same time, the stock-broking firm believes that only the lower end of the margin guidance being put forth by the IT companies is achievable in the present macro environment.
IT companies are also optimistic that margins will likely increase from the second half of fiscal 2023 as attrition numbers peak for IT majors.
However, margins for IT players continue to be lower than the run rates they achieved in FY22 as operational cost pressures continue to be present. Anuj Sethi, Senior Director, CRISIL, noted, “the present margin pressures are due to an increase in employee costs and higher travel expenses. Besides increased back to office trends which have also led to higher admin costs.”