At a time when most analysts see margin pressure on domestic IT firms due to increased onshore hiring, Infosys on Wednesday said that the company expects hiring of fresh graduates in the US to its workforce to aid its profit margins, at least in the short-term.
As a part of its localization drive, the Bengaluru-based company, during the past 12 months, have added 4,000 engineers in the US, and is looking at hiring 6,000 more by 2021.
“In terms of margins, we have not outlined anything in the market what will the impact be. What we are noticing today is recruitment from colleges in the US, at least in the very short-term, will be beneficial to our margins in FY19,” Salil Parekh, CEO & MD of Infosys said at Morgan Stanley’s annual India summit in Mumbai.
Amid immigration-related concerns in several markets such as the US, Europe, Australia and New Zealand coupled with the push by local governments, Indian IT services companies are aggressively expanding their local workforce in these geographies. Besides, the shifting business models also requiring them to have a sizable employee base in onshore locations to service clients locally.
As the cost of hiring a local resource is always far higher than the sending an Indian national to the client site, investors have raised concerns over its possible impact on the EBIDTA margin of these IT firms.
Interestingly, despite seeing a margin uptick in the Q4 of FY18, Infosys had given lower margin guidance of 22-24 per cent for FY19. In March quarter, the company’s operating margin stood at 24.7 per cent.
The company had said, it was looking at making investments in enhancing digital capabilities, reskilling of people and expanding operations in global locations which are expected to impact the margins.
“Over time, as the pyramid evolves, we will look at how this works, but, in the very short-term, we see that as a positive thing,” Parekh added at the Morgan Stanley meet.
Of the 4000 people it has hired in the US during the past 12 months, 800 were fresh recruits from campuses. In the ongoing fiscal, the company plans to increase this number to 1,000.
“The way we have looked at it, we have announced 10,000 local hires in the US and we have already achieved 4,000 in last 12 months including 800 college graduates. We have a plan that this will become close to 1,000 college graduates per year in the coming fiscal and the fiscal after that,” said Parekh.
On the impact of tightening visa norms on business growth, Parekh said that it wouldn’t impede growth of the IT firm. “We think, the environment is such that if we do the things in the right way, this (local hiring) is going to be a further expanding our business. So, we don’t see it as a constraint but the dynamics globally is different and the business model needs to evolve to adapt to it,” he added.
In the investor presentation, Infosys also reiterated its renewed focus on digital space, pegging the market opportunity at $160-$200 billion. Revenues from digital segment for Infosys stood at $2.79 billion in FY18, which is around 25.5 per cent of its total revenues.
Parekh also said that as part of company’s capital allocation policy, Infosys had already announced $400 million of special dividends to the investors and would soon decide on the rest $1.6 billion.
The Road Ahead
* Infy plans to add 10000 people to its US workforce by 2021
* Company has already hired 4000 in FY18
* This includes 800 fresh college graduates
* Plans to add 1000 fresh graduates in the US for next 2 years – Business Standard