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Surge in travel costs hurts IT companies

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CHENNAI: Top IT giants have been grappling with costs of hiring and retaining talent for some time now. But, to make matters worse, another cost component has been slowly inching up in the past few quarters and hurting margins.
Business travel is back with a vengeance and travel costs nearly doubled year-on-year (YoY) in the June-ended quarter at tier-1 IT firms and increased 30-40% on a quarter-on-quarter basis. Travel expenses now are close to pre-Covid levels and analysts anticipate further rise in in coming quarters owing to inflation.
Travel expenses as a percentage of revenue have almost doubled YoY at top-tier IT firms. From ranging between 0.4% and 0.8% of revenue last year, it is currently at 1.1-1.8%. TCS, for instance, recorded total travel costs of around Rs 559 crore in the quarter compared to Rs 345 crore in June 2021.
Margin outlook was kept unchanged by most. But companies now expect margins to end up at the lower end of the guidance range. “We keep our margin guidance at 21-23%. With the increase in costs, we will be at the lower end of the margin guidance,” Infosys CEO Salil Parekh said in an earnings call.
Analysts at Kotak Institutional Equities said in a recent report, “Ebit margin of tier-1 IT declined by a sharp 90-240 basis points (100bps = 1 percentage point) on a sequential basis. YoY decline was much sharper at 240-410bps.”
Cognitive intelligence platform UnearthInsight’s CEO Gaurav Vasu said that over the last two quarters there has been a substantial increase in travel expenses.
Kotak Securities VP (fundamental research) Sumit Pokharna said companies are making attempts to be more disciplined in costs such as travel. But rising air fares and increased travel for new client meetings in a competitive environment has led to an increase in these costs as a percentage of revenue, he added.


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