After Q2 Spike, Birlasoft Sees Attrition Easing

Birlasoft Ltd.’s employee churn spiked in the quarter ended September as it becomes tough to retain talent for software services providers amid growing demand for digital services.

The mid-sized information technology company's attrition rate rose to 24% from 16.5% in the prior quarter. This is a passing phase and not a Birlasoft-specific issue as the industry is losing employees at a fast clip, Dharmender Kapoor, managing director and chief executive officer at the company, told BloombergQuint’s Niraj Shah in an interview.

Employee costs will inch up for the next few quarters, Kapoor said. The company is upskilling freshers and hiring aggressively. Its total headcount increased to 12,065, with a net addition of 557 sequentially.

“Attrition will start softening by the end of this quarter,” he said. “It will soften to a good extent by the end of the fourth quarter of FY22 because the pent-up demand would have gone already."

Q2 Highlights (QoQ)

• Revenue rose 6.7%, led by cloud and base services.

• Business & technology, and enterprise solutions grew 6.2% and 1%, respectively.

• Deal wins were marginally lower than expected with the total contract value at $140 million; $104 million came from net new wins.

Deal Pipeline

The total contract value, or potential revenue from deals, was lower as cloud deals are smaller and for a shorter duration, Kapoor said. Still, it won a $20-million deal from a new client.

While the active customer client count fell by 10 to 280, revenue growth from large clients increased 21% year-on-year. Clients will not sign large deals and the total contract value may not look impressive but the growth numbers will look good because of the smaller deals, he said.

While deal wins in the ongoing third quarter will be unpredictable, a few companies might have to deploy their budgets before 2021 ends, he said,

Margins

Birlasoft’s Ebitda margin narrowed 98 basis points sequentially and 107 basis points over a year earlier to 15% because of a wage hike, higher sub-contractor costs and investments. A significant pickup in attrition was partially offset by improvement in utilisation, he said.

The management expects the attrition rate to come down in 90-180 days. Kapoor also expects furloughs to be lower in the third quarter as clients implementing digital transformation look for a lower turnaround time.

Digitisation

According to Kapoor, IT companies are getting replacement work as the world is already digital. But clients are also engaging with software companies for newer, transformational work, which will help keep the deal run rate going for the next three to five years, he said.

Companies may offer recurring revenue-driven digitisation work as opposed to a one-time sale, providing software companies even more business, he said.

Sticking To Guidance

Kapoor is confident of sustaining the revenue growth momentum and delivering mid-teen growth in FY22 on the back of broad-based demand. He reiterated the company's target to reach $1-billion revenue by FY25, with an operating margin of 18%.

Watch the full interaction here