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Tuesday, Aug 06, 2002

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Top cos see staff cost increasing

Bharat Kumar


SOFTWARE companies have seen an increase in staff costs for the quarter ended June 2002 as compared to the immediately preceding quarter.

However, it's the top few that have seen a sizeable increase in staff cost for the quarter, as compared to quarters ended March 2002 and June 2001, while the rest have shown marginal increases, if any. Asked to comment, Mr V Shekhar Avasthy, Assistant Manager at IDC India's software and services analysis division, says, "From the table, we see that staff costs have significantly increased only for Infosys, Satyam, Digital, Mastek, Eonour and Geometric. If one removes top three players, the rest of the data suggests that the staff costs have gone up by 6.3 per cent (June quarter AMJ 02 over 01), which just takes care of marginal salary increases and limited promotions."

He says that in some cases, onsite work could have increased leading to higher staff costs, which does not signify anything. Mr Avasthy adds, "Significantly, operating profit margins for the top three are coming down. Combined with this, the increase in staff costs only shows that the big players are able to take a hit in margins and pass it on to users. This acts as a hook to capture sales. It appears that the smaller ones have not all been able to do the same."

Mr Bhupinder Ahuja, an analyst with Deutsche Securities says, "Infosys has grown volumes by 6 per cent and 12 per cent in the last two quarters — a clear indication of revival in volumes. As a result, hiring has picked up."

Pricing has had an impact on topline and hence on the number of people a company employs.

If companies are able to sacrifice margins for more business, their topline grows, resulting in the need for more manpower. Adds Mr Ahuja, "Assume that last year this time, if a company say got $1 million for a project requiring 10 of its employees, paid them $5,00,000 in salary and other costs came to $2,00,000. This year, with the same number of employees and the same salaries, they probably get $9,00,000 as revenue. Other costs remain the same too, for, what is saved, on general and administration expenses, has to be pumped into sales and marketing to negotiate the tough environment. In effect, if your margins were 30 per cent last year, it is 22 per cent."

Commenting on the vast differences in staff costs for companies of such as size, Mr Ahuja says, "Some companies club part of sales expenses along with staff costs. That could lead to apparent differences."

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