Tata Consultancy Services (TCS) has recently made the decision to implement a salary hike for its employees, despite the potential impact it may have on the company's operating margin. TCS CFO Samir Seksaria has disclosed that this annual salary increase, effective from April 1, is projected to result in a 200-basis-point reduction in the operating margin, which currently stands at 23.2%. Nonetheless, TCS, being India's largest software services exporter, expresses confidence that improved efficiencies will help counterbalance this impact.
Apart from the salary hike, TCS has also initiated the promotions cycle and has rewarded exceptional performers with a raise ranging from 12% to 15% during the most recent annual compensation review. The company is pleased to note that its attrition level continues to decrease and expects to return to its industry-leading, long-term range in the second half of the year.
During the June quarter, TCS reported a further decrease in attrition for its IT services, which stood at 17.8% over the past 12 months. As of June 30, the company's workforce has grown to 615,318 employees, comprising a diverse composition of 154 nationalities, with women accounting for 35.8% of the total workforce.
TCS reiterates its commitment to honoring all the offers made and plans to leverage the capacity built in the previous year. This commitment to salary hikes stands in contrast to reports indicating that Infosys has deferred such hikes for the June quarter. The challenging global macro environment has had an impact on the demand for Indian tech companies, necessitating strategic responses.
While TCS has experienced significant revenue growth, expanding its order book to $10.2 billion during the June quarter, concerns regarding near-term demand persist due to global economic uncertainties.
TCS CEO K Krithivasan acknowledges that some non-business-critical projects are being paused, deferred, or re-prioritized by clients due to uncertainty and a focus on return on investment. This trend aligns with the reduction in discretionary spending by clients and the deferred annual pay hikes observed by HCLTech, a smaller rival of TCS.
In the first quarter, TCS reported a consolidated revenue increase of 12.6% to ₹59,381 crore, along with a 16.8% rise in profit to ₹11,074 crore. While there have been no significant project cancellations or ramp-downs, the recovery in demand remains uncertain as clients grapple with short-term uncertainties.