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MOSL: INDIA STRATEGY: Employee cost of corporate India: decoding a decade

Employee expense records the highest growth in eight years

• In 2022, Indian corporates focused on profitability, cash flow management, and balance sheet deleveraging to manage the post-pandemic fallout. In this report, we analyze the ‘employee cost of corporate India’ in minute detail. We use Nifty-500 as a proxy for a detailed analysis of the sectors/companies as the index contributes 90% to India’s market cap.
• After posting single-digit growth in 2020 and 2021, employee cost of Nifty-500 companies (based on 470 comparable companies having a 10-year history) clocked an eight-year high growth rate of 12.4% YoY in 2022. Employee cost of Nifty-500 companies surpassed the INR10t level for the first time in 2022 from INR5t in 2014.
• Notably, the total employee cost of corporate India stood at INR3.7t in 2012, a tad higher than the employee cost of the Technology sector alone (INR 3.4t) in 2022. Employee cost of Nifty-500 companies has compounded at 9%/10%/11% v/s sales CAGR of 8%/11%/9% for 3/5/10 years, respectively.

Technology and BFSI account for 54% of the total employee cost

• Of the Nifty-500 total employee cost of INR10.8t for 2022, 53.7% was accounted by the Technology and BFSI sectors, followed by Automobiles (6.3%), Metals (5.7%), and Utilities (5.5%).
• Employee cost surged by INR1.2t in 2022 of which 46% was contributed by the Technology sector.
• Among the top-10 sector by employee cost in 2022, the highest YoY increase was recorded in NBFCs (+23%), followed by Technology (+19%), Metals (+16%), Private Banks (+15%), and Capital Goods (+15%). Oil & Gas (-10%) and Logistics (-1%) were the only sectors to report a decline in cost.
• Sectors demonstrating lackluster growth in employee cost were Insurance (0%), Telecom (+3%), and Utilities (+4%).

 

Key observations over the past decade (2012-22)

• Total employee cost skyrocketed by ~3x over the last 10 years to INR10.8t in 2022 from INR3.7t in 2012. Further, the share of private corporates in employee cost has gone up to 75.2% in 2022 from 66.8% in 2012. PSUs’ share has declined 840bp to 24.8% in 2022.
• Technology has been the prime contributor at 31% of total employee cost in 2022, up from 24% in 2012. Technology’s contribution to the total employee cost of NSE-500 companies has gone up every single year since 2013 (barring 2018).
• The tale of two halves: During 2012-2017, the employee cost CAGR was 13% and over 2017-2022 the CAGR stood at 10%. As a % of sales, employee cost rose consistently every year to reach 12.2% in 2016 from 9.1% in 2012 and since then it has been hovering in the 11-13% band.