Staff left India's second largest IT services exporter Infosys Ltd at an unprecedented pace in the last quarter, worrying its management and raising investors' concerns about its ability to win lucrative contracts even as it posted a higher-than-expected net profit for the period.
Retaining staff is a challenge for all Indian IT services firms, which rely on armies of young, mainly low-paid workers to remain competitive in an industry worth more than $100 billion.
Infosys, however, appears to be having a particularly difficult time with staff as it undergoes a restructuring aimed at lifting growth to match rivals including sector leader Tata Consultancy Services Ltd and third-ranked Wipro Ltd .
The attrition rate, currently bigger than its two rivals, is the highest ever seen and "more than we are comfortable with", Chief Executive S.D. Shibulal told a briefing after the company posted a 25 percent increase its net profit for the fourth quarter that ended March 31.
The company's annualised staff attrition rate stood at 18.7 percent at the end of March, the company said, up from 16.3 percent at the end of the same quarter last year and in line with the rate of staff exits in the previous quarter. Shibulal said the company was trying to retain staff through pay increases, promotions and other incentives.
"Clearly some of these moves are affecting relationships and client demand as they go through this transition," said Sam Mahtani, a London-based fund manager for F&C Indian Investment which owns shares in Indian IT firms, but not Infosys.
"They really need to bed down all the changes and give investors a stable ground so they don't continue to surprise investors negatively on a quarterly basis. They need to go through several quarters of building investor confidence."
Shares in Infosys, the most widely held Mumbai listed stock, rose as much as 4.7 percent soon after the earnings were announced, but gave up some of gains to trade 0.9 percent higher at 0940 GMT in a weaker Mumbai market.
The exodus of staff and senior management gathered pace after Infosys brought back from retirement its founder N.R. Narayana Murthy to help revive its fortunes in June last year.
The company, once a bellwether for the IT outsourcing industry, has been underperforming its rivals in winning contracts from the United States in Europe in recent years as it focused on high-margin consulting and software services.
Murthy has vowed to boost growth over the next