Uncovering the Truth: How AI Legalese Decoder Can Help Expose Why Tech Workers are Earning Less for Their Employers
- May 6, 2024
- Posted by: legaleseblogger
- Category: Related News
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Impact of Covid-19 on Revenue Contribution per Employee in IT Services Companies
BENGALURU : The revenue that each employee contributes to top IT services companies has been consistently falling ever since the covid-19 pandemic ended, a Mint analysis of companies like Tata Consultancy Services (TCS) Ltd, Infosys Ltd, Wipro Ltd, HCL Technologies Ltd, Accenture Plc and Cognizant Technology Solutions Corp. showed.
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The revenue that each employee contributes to top IT services companies has been consistently falling ever since the covid-19 pandemic ended, a Mint analysis of companies like Tata Consultancy Services (TCS) Ltd, Infosys Ltd, Wipro Ltd, HCL Technologies Ltd, Accenture Plc and Cognizant Technology Solutions Corp. showed.
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The pandemic saw companies world over scrambling to digitize their businesses, a trend that made IT services companies hire people in droves to handle the demand. The pandemic’s gone now, but the hired people are still around, mostly. And revenues have stopped climbing at the levels seen during the pandemic. So, the money earned per employee is getting squeezed.
The pandemic saw companies world over scrambling to digitize their businesses, a trend that made IT services companies hire people in droves to handle the demand. The pandemic’s gone now, but the hired people are still around, mostly. And revenues have stopped climbing at the levels seen during the pandemic. So, the money earned per employee is getting squeezed.
Plus, at least two analysts said that IT firms’ clients are increasingly preferring the offshoring model—where a job is done ‘offshore’ for a client like, say, in India—which has led to lower billing per employee and, consequently, revenue as well.
Who has seen how much fall in revenue per employee
Noida-headquartered HCL Tech has the highest RPE among the top four, at $58,532 for FY24, but it also saw the steepest drop in that number, 12.5% less compared to FY19. Cross country rival Wipro reported the lowest RPE of $43,868 among the top four in FY24. Likewise, TCS saw its RPE fall 6.3% to $47,815 in FY24 from FY19. But for Infosys, it gained 3% to $56,208.
Infosys, over the last four years has seen amongst the fastest revenue growth out of its peers but at the same time, it has also seen a decline in headcount. In the past 12 months, the Bengaluru-based IT company has seen a decline of 25,994 employees, as of the financial year ended March 2024.
The impact of rising offshoring
At least two analysts attributed the fall in revenue per employee to higher offshoring compared with the pre-covid times. “Offshore delivery has gone up. Increase in offshore delivery mix contributes to lower revenue per employee but also drives higher volumes,” said Apurva Prasad, vice-president for institutional research at HDFC Securities.
Working ‘onsite’, or on a client site like, say, in the US would allow an Indian IT company to generate higher billing per employee than in an offshoring model that has the job being done in, say, Bengaluru.
“There has been a 500-700 bps increase in offshore revenue business compared to the pre-covid levels,” said a Mumbai-based analyst on condition of anonymity. “Employee expense as a percentage of an IT company’s revenue has increased and with the offshore shift, this proportion must have gone down but has not because salaries given to employees have gone up from FY19.”
The covid period sparked a hiring spree for IT companies as companies across industries looked to digitize their operations. This caused IT companies to hire more people to match the client load.
As IT companies had to hire more people, their wage bills spiked as they had to pay more salaries to those people. According to a Mint report, employee wage costs at India’s biggest IT companies reached a six-year high as of the quarter ended September 2023.
While Indian IT bore the brunt of low revenue per employee, things at bigger foreign peer Accenture were not all that different.
The global situation
As of FY23, each employee at Accenture contributed about $88,187 to its revenue, which is almost double than the average of its Indian IT peers. Still, RPE declined 3% from FY19 to FY23.
Indian IT companies follow the April-March financial calendar, while Accenture and Cognizant follow September-August and January-December financial calendars, respectively.
Accenture declined to comment on Mint’s queries whereas emails sent to Cognizant, Tech Mahindra, HCLTech, Wipro, and Infosys went unanswered until press time.
The Dublin-headquartered company gets almost 50% of its revenue through its consulting business, which has higher pricing power.
“Accenture has been using the global delivery model and they have more than three lakh employees based out of India. As that number kept going up, average bill rate came down and revenue per employee came down. Having said that, Accenture’s revenue per employee is more than that of its Indian IT peers because their onsite employees likely command higher bill rates due to the high-end consulting work. Even if they are based out of India, they will have higher bill rates due to sheer brand equity and bargaining power that Accenture commands,” said Girish Pai, consultant to Nirmal Bang Institutional Equities.
On the other hand, profitability per employee tanked for each of the above-mentioned IT companies barring Accenture, whose FY24 numbers are not out yet, from FY19 to FY24. At least two analysts attribute lower profitability per employee now as compared with the pre-covid period to higher margins during FY19.
Wipro reported the steepest drop in profitability per employee from FY19 to FY24. “Wipro having the lowest profitability per employee can be correlated to its margins. Before the company acquired Capco, they were operating at much superior margins,” said Prasad. Wipro acquired British consulting firm Capco in April 2021 to strengthen its consulting business
As of FY21, Wipro reported an operating margin of 20.3%, and as of FY24, the margins for the Bengaluru-based IT company came in at 16.1%.
Sanjeev Hota, vice president – head of research at Sharekhan, believes that the rupee’s depreciation against the dollar could not aid the profitability per employee.
“Rupee depreciation against the US Dollar is always a short-term thing. If the rupee depreciated against the dollar, the client will also ask for a cut in the billing rate,” said Hota in a response to Mint’s query.
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