Tech slowdown may hurt TeamLease

The company will record muted results in the second half of FY23 due to the weakness in the sector, Kotak Institutional Equities said in a report.

“Our recent industry discussions suggest that staffing headcount in 2HFY23 will be impacted due to weakness in the IT/ITES sector and hiring freeze or cost-cutting initiatives in new-age startups,” Kotak’s December report said.

Kotak cut the staffing firm’s earnings per share (EPS) estimates by 7-9% for 2024-25, citing expected impact on margins from pricing pressures on contract rates and the drop in growth triggers.

TeamLease agreed on the impact to its business. “Yes. We are facing strong headwinds in IT and startups, which will impact our headcount addition and margin expansion,” a company spokesperson said in response to Mint’s queries.

These comments come on the back of hiring freezes at many IT and ITES companies. Mint had reported in October that there is a 20% drop in contract hiring by IT services companies, which prefer to retain their permanent workforce to contract staff.

Analysts at Kotak expect the second half of this fiscal to see the recruitment firm’s “growth trajectory to slow down”.

The drop in contract staffing comes on the back of a ballooning crisis in the IT sector, where companies have slowed hiring after two years of hiring frenzy. From the second half of 2021 until a quarter ago, companies were rolling out 60-70% hikes and making counter-offers as businesses across sectors needed tech teams who can digitize and bring in cloud computing.

However, saddled with a large bench strength—employees who have been hired but yet to be deployed—and clients facing a slowdown in the US, tech firms are slashing their hiring targets for the coming fiscal.

Onboarding of campus recruits has been delayed in many tech firms by six months and the spillover to the next year means reduced need for contract workforce.

TeamLease said it did not have clear visibility on the recovery of IT/ITES in the fourth quarter, and “given the lukewarm hiring in third quarter festive season, second half (H2) growth rate can be lower than the first half (H1 of the fiscal).”

Interestingly, hiring during the festive season after two years of the pandemic was high for last-mile delivery hiring by logistics, e-commerce and food tech platforms but the brokerage firm estimated that it did not make the cut.

“According to industry discussions, festive season hiring in logistics/e-commerce/tech was lower than expected, which is likely to impact new mandates in the future 2-3 quarters as well,” said Kotak.