Infosys share falls 2% on cutting employee variable pay for June quarter

Shares of Infosys, the country’s second-largest IT services company, dropped over 2% in opening trade on Tuesday amid a report that the IT major has decided to cut the variable payout for employees for the first quarter of FY23. The Bengaluru-headquartered company has lowered the average variable payout of employees to about 70% for the June quarter due to the impact on margins in the backdrop of rising employee overhead costs. The move came days after rivals TCS and Wipro deferred or reduced variable payouts for the April-June quarter of the current fiscal, citing margin pressure.

“The margin impact in the current quarter has reflected on the performance bonus for this cycle,” the company reportedly told its employees over email.

Extending losses for the second straight session, Infosys share price opened 1.8% lower at ₹1,546.55, against the previous closing price of ₹1,575.45 on the Bombay Stock Exchange (BSE). In the first hour of trade so far, the IT heavyweight declined 2.52% to hit an intraday low of ₹1,535.70. In comparision, the BSE Sensex was trading 69 points higher at 58,843 levels, with 22 of 30 shares flashing in the green zone. Meanwhile, rival Tata Consultancy Services (TCS), the country’s most valued IT firm, was down 0.5%, while other largecap players Wipro, HCL Technologies, Tech Mahindra fell in the range of 0.5%-2%. The S&P BSE Information Technology was also down 1%.

The stock trades 21% lower than its 52-week high of ₹1,953.70 touched on January 17, 2022. The counter hit a 52-week low of ₹1,367.20 on June 17, 2022. The largecap share has delivered a negative return of 11% to its shareholders in the past one year, while it has fallen more than 18% in the current calendar year 2022. In the last one month, the stock has risen 2.5%, while it lost over 3% in a week.

Last month, Infosys reported lower-than-expected earnings in June quarter as margins took a hit on account of annual wage hike cycle and higher employee overhead costs. The company reported a single-digit growth of 3.2% in its consolidated net profit at ₹5,360 crore for the quarter ended June 2022, as compared to ₹5,195 crore in the year-ago period. The revenue from operations grew 23.6% to ₹34,470 crore in Q1 FY23, as opposed to ₹27,896 crore in Q1 FY22.

During the April-June quarter of 2022, the operating margin dropped by 3.6 percentage points to 20.1%, from 23.7% in the June 2021 quarter. The margins contracted on a yearly basis due to wage hikes and the continued rationalisation of employee costs amid high attrition despite the industry continuing to add record freshers. The margins were also impacted due to an uptick in travel expenses as the economy opens up and visa-related costs. The workforce at Infosys at the end of the June quarter comprised 3,35,186 employees, as compared with 2,67,953 employees. The voluntary attrition rate (LTM-IT services) stood at 28.4%, against 27.7% in the previous quarter and 13.9% in the corresponding quarter of the last fiscal.