Rising Re puts check on IT pay cheque: Assocham

Rising Re puts check on IT pay cheque: Assocham

New Delhi: If the trend noticed in India’s top four IT firms is an indication, the headcount expansion in the IT sector appears to have slowed down as companies find it difficult to maintain high growth pace in topline owing to strong domestic currency and sub-prime troubles in developed markets of U.S and U.K.

According to an Assocham study that was based on Q2 results of Wipro, Tata Consultancy Services (TCS), Satyam and Infosys which together accounted for more than 70% of the sector’s revenue, salary payments in the sector which were growing at the high rate of 64% till last year have slowed down to 25%.

Key Findings

* 12% appreciation in Rupee against U.S dollar and shut down of many mortgage finance companies led by heavy losses in sub-prime segment may have played spoil sport in IT growth story

* Sales growth of top IT firms has come down from average 45% in first two quarters in previous fiscal to 27% this FY

* TCS in its league reduced wage bill by 5% in Q2 over last year; employee compensation reduced from Rs1557 crore in Q2 of FY07 to Rs1470 crore in three months ending Sept. ‘08; in contrast, last year TCS recorded 57% rise in wage bill in Q2 FY2006-07

* Strengthening Rupee vis-à-vis U.S currency put pressure on profit margins of IT companies whose 90% revenues are dollar denominated; average growth rate of net profit of IT majors declined to 22% in April-Sept. period of current FY as compared to 48% increment in similar period last year; resultantly, companies are compelled to reduce wage hikes to cut down expenses

* Pang of weak dollar on Infosys salaries was not felt in Q1 as a 55% growth was recorded despite slowdown in growth rate at 23% and 45% in income and net profit but wage bill saw impact in Q2; employee expenses increased by mere 24% in Q2 this year compared to 55% rise last year; growth in toplines and bottomlines were likewise restricted to 18% as compared to whopping 50% rise in previous year

* Financial statement of Wipro showed similar picture; Q1 of current fiscal reported above 30% growth in staff cost as last year, but increment rate declined to 26% in Q2 as compared to 46% in FY07; income growth decelerated to 34% in three months ending Sept.’08 from 56% in corresponding period of last year and bottom line growth is down to 17% from 46% last fiscal

* Satyam Computer Services maintained its income and profit growth intact with last year figures; sales grew by 31% and bottomline by 30% in Q2 of this fiscal as compared to 36% and 28.5% growth last year; company’s expenditure on employees increased by 32% while growth rate was 45% last year

* Cumulative wage expenses of these firms as tracked by Assocham were Rs6067 crore in Q2 of current FY as compared to Rs5164 crore last year; Q-on-Q sequential growth in cumulative salary expenses of these companies is almost zero as total salary amount in Q1of this year was Rs6047 crore