The Hindu Business Line : Revenue per employee falling for IT cos

IT companies continue to need more employees to generate the same revenues. After IT spending slumped in the US starting 2000, IT companies have seen a decline in per employee figures on the revenue and profit counts.

The top three companies in the attached table have together added close to 25,500 (or about 51 per cent more) to their combined employee strength between June 2003 and June 2004. Their revenues have not grown as fast their employee numbers. For instance, Infosys showed the fastest revenue growth at about 39 per cent.

Only two companies in the table, Mastek and Zensar, have not seen their revenues per employee dip between the quarters ended June 2003 and June 2004. Interestingly, Polaris was the only company that saw a rise in revenues per employee between June 2002 and June 2003 (Rs 2.76 lakh to Rs 3.60 lakh), but that gain now seems to be losing pace.

Back to the present, operating profit per employee has dipped for several companies. Only Wipro Technologies, the Mastek Group and Zensar Tech have seen an increase on this front.

In the backdrop of an increase in offshore projects, a slump in revenue per employee along with a rise in operating profit per employee is positive. But, if there is a decline on both counts, then there is cause for concern. Here, a few aspects crave attention.

As operating profit per employee dips, then, it could suggest a drop in realisation. It could also indicate that the return on net worth for offshore projects be lower compared to onsite efforts. (Return on net worth here indicates profits as a proportion of amount invested.)

And, operating leverage for offshore projects is higher than for onsite projects is the final conclusion you could come to. (Here, operating leverage is the proportion of fixed costs to total costs. Since offshore projects typically require infrastructure investments, the proportion of fixed costs to total costs could be higher here, compared to onsite projects, which require little or no such investments.)

iGATE Global, which, like Infosys, Satyam and Polaris, has seen both revenue and operating profit per employee decrease between June 2003 and June 2004, feels that the return on net worth for offshore projects could be higher. Mr N. Ramachandran, CFO, iGATE, replying to an e-mail from Business Line said, "Projects almost always have two elements - offshore and onsite. For pure offshore projects, the capital employed tends to be lower since these operate at higher volumes. The returns thus can be higher than those from onsite projects."

However, he disagrees that operating leverage could be higher for offshore projects compared to those onsite. Though, he says, "Offshore projects generally tend to have higher margins because of the cost structure."

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