Despite a 15 per cent increase in the number of employees hired, the Indian IT majors have managed to reduce the average growth rate of their wage cost to half during the third quarter ending December 2007 as compared to the previous year.
According to a study by industry body Assocham, the third quarter results of top IT players, including Infosys, Satyam, TCS and Wipro (including subsidiaries), the average hike in wage cost of these companies fell to about 22 per cent during Oct-Dec 2007, as against a whopping quarter-on-quarter rise of 45 per cent during third quarter of the financial year 2006-07.
These players recruited about 25,000 employees during Q3 of FY08, as against 21,640 employees in Oct-Dec 2007, it said.
"Thinning margins due to appreciating rupee is putting pressure on the software companies to put a check on its employees' pay packages," said Assocham president Venugopal N Dhoot.
The software giant, Infosys along with its subsidiaries, almost doubled its intake of personnel to 11,683 over the quarter this year.
The staff strength of the company and subsidiaries was 88,601 as on December 31, 2007. Nonetheless, the wage bill increased by only 21 per cent in Q3 FY08 vis-à-vis a jump of 43 per cent in Q3 of FY07.
However, the company had added only 6,062 employees last year in the same quarter.
TCS, the largest IT employer in India, reported a decline in its personnel cost by 4 per cent. The amount was Rs 2,000.19 crore (Rs 20.002 billion) in Q3 of the current financial year as against Rs 2,089.34 crore (Rs 20.893 billion) in the corresponding period of the financial year 2007.
However, the recruitment plans of the company have largely remained unaltered. It employed 7,522 and 7,835 persons in third quarter of fiscal 2006 and 2007 respectively, the study said.
Wipro too recorded a slowdown in the increment of its employee compensation cost to 29 per cent in Q3 of 2007-08 from about 46 per cent in 2006-07 over the equivalent period. The corporates paid Rs 1,865.50 crore (Rs 18.655 billion) on this account during Oct-Dec 2007, where it had a payout of Rs 1,448.50 crore (Rs 14.485 billion) in Oct-Dec 2006.
According to the study the wage bill of Satyam and subsidiaries on the other hand registered a leap of 43 per cent, the highest among the four players.
The staff cost of the IT major had seen a rise of about 31 per cent during the third quarter of 2006-07 over the same duration of 2005-06.
The parent company engaged 3,424 new associates to its staff strength, it added.
A firming rupee has led to a major deceleration in the growth of the bottom line of the IT companies. The net profit growth rates plummeted to about 12-30 per cent in the current fiscal from 40-50 per cent in Q3 of FY07.
The rupee appreciated to the extent of 12 per cent during the calendar year 2007 and strengthened by about 2.5 per cent during the quarter ending December 2007.
The average growth in net profits of Wipro, TCS, Satyam and Infosys together has slowed down in Q3 of 2007-08 to 21.25 per cent, from about 29.75 per cent during October-December 2006-07.
Wipro posted an increase of 12 per cent in its margins over three months ending December 2007, down from nearly 41 per cent in the corresponding period of the financial year 2006-07, it pointed out.
TCS and Infosys also posted a lackluster increase in their margin growth rates with 19 per cent and 29 per cent respectively.
Both recorded an increase of about 50 per cent during Oct-Dec 2006.
The margins of Satyam, on the other hand, witnessed a rise of 29 per cent in the third quarter of the current financial year as against a decline of 21.5 per cent in the last fiscal.
The analysis by the industry body suggests that while few players revised their prices upwards to ward off the pressure from firming rupee, others are expected to follow suit in near future. At the same time, high emphasis will be placed on productivity efficiencies and cost controls.
The trend has already begun with TCS cutting the variable pay of its employees, it said.
The average total income growth also dipped in the current financial year to 28 per cent, from almost 38 per cent in the preceding year. Three of the top four players of the Indian IT sector witnessed a fall in the growth of their total income.
Infosys recorded the steepest fall from close to 47 per cent in Q3 of FY2007 to just 19 per cent in the same period of financial year 2007-08.
The rise in total income of Tata Consultancy Service and Wipro was 23 per cent and 34 per cent respectively, down from 46 and 49 per cent increase recorded in the third quarter of last year.
However, Satyam's total income was up by 36 per cent this fiscal in contrast to a 10 per cent increase in the preceding year.
While the global outlook on account of IT spending and US slowdown may be bleak, the domestic market is throwing newer growth opportunities. The Indian companies are increasingly realising the advantages of outsourcing.
According to the study, the domestic demand of IT-ITES services is worth $5.4 billion.
"Diversification in terms of services offered and client location will be the key to maintain the growth momentum of the sector," added Dhoot.
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