The Hindu : Business : Wage bill takes a beating in IT companies

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Wednesday, Nov 21, 2007
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Wage bill takes a beating in IT companies

Special Correspondent

Rising rupee, U.S. sub-prime crisis put pressure on margins of IT firms, says study

Halt to
hiring spree
Cos. forced to cut down on expenses

NEW DELHI: Going by the trend noticed in India’s top four information technology (IT) firms, the headcount expansion in the IT sector appears to have slowed down as the companies find it difficult to maintain high growth pace in topline owing to strong domestic currency and sub-prime troubles in the developed markets of the U.S. and the U.K.

Indicating this, an Assocham Eco Pulse (AEP) study based on second quarter results by the top four IT companies — Wipro, TCS, Satyam and Infosys — which account for more than 70 per cent of the sector’s revenue, highlighted that the salary payments in the sector which were growing at the high rate of 64 per cent till last year have slowed down to 25 per cent.

Commenting on the study, Assocham President Venugopal N. Dhoot said a 12 per cent appreciation in rupee against the U.S. dollar and the shut down of many mortgage finance companies led by heavy losses in the sub-prime segment could have played spoil sport in the IT growth story. Sales growth of the top IT firms has come down from an average 45 per cent in first two quarters in the previous fiscal to 27 per cent this financial year.

TCS move

In fact, Tata Consultancy Services, in its league, reduced the wage bill by 5 per cent in the second quarter over the same period in 2006-07. The employee compensation reported by the company declined from Rs. 1,557 crore Rs. 1,470 crore.

In contrast, last year the IT giant recorded a 57 per cent rise in the wage bill in the second quarter.

Strengthening of the rupee vis-À-vis the U.S. currency has put pressure on the profit margins of the IT companies whose 90 per cent revenues are dollar denominated.

As per the AEP study, the average growth rate of net profit of IT majors has declined to 22 per cent in the April-September period of the current financial year as compared to 48 per cent increment in the similar period last year.

As a result, the companies are compelled to reduce the wage hikes to cut down the expenses.

“Hedging against further appreciation of the rupee may secure the revenue growth in the coming quarters but any slowdown in the U.S. economy may dampen the IT sector growth”, said Mr. Dhoot.

The study stated that the hiring spree of the IT companies seems to have slowed down and the employment outlook for the current financial year is not as encouraging as in the last year.

The pang of weak dollar on Infosys salaries was not felt in the first quarter as a 55 per cent growth was recorded despite a slowdown in growth rate at 23 per cent and 45 per cent in income and net profit. But the wage bill saw the impact in the second quarter.

The employee expenses of the company have increased by a mere 24 per cent in the second quarter this year as compared to 55 per cent rise last year.

The growth in toplines and bottomlines were likewise restricted to 18 per cent as compared to a huge 50 per cent rise in the previous year.

The financial statement of Wipro has also portrayed similar picture.

The first quarter of the current fiscal reported above 30 per cent growth in staff cost as last year, but the increment rate declined to 26 per cent in the second quarter as compared to 46 per cent in 2006-07.

Deceleration

Income growth decelerated to 34 per cent in the three months ending September 2007 from 56 per cent in the corresponding period of last year. Bottomline growth is down to 17 per cent from 46 per cent last fiscal.

Satyam Computer Services has been able to maintain its income and profit growth intact with last year figures.

Its sales grew by 31 per cent and bottomline by 30 per cent in the second quarter of this fiscal as compared to 36 per cent and 28.5 per cent growth respectively last year. But the company’s expenditure on employees increased by 32 per cent while the growth rate was 45 per cent last year.

The cumulative wage expenses of the four companies tracked by AEP were Rs. 6,067 crore in the second quarter of the current financial year as compared to Rs. 5,164 crore last year. The quarter-on-quarter sequential growth in the cumulative salary expenses of these companies is almost zero as the total salary amount in the first quarter of this year was Rs. 6,047 crore.

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