The Hindu Business Line : Profit per employee dips for software cos

In absolute numbers, top players (the first five in the Table in addition to TCS, which upped its headcount by 10,871 to 45,714) had added 54,285 employees for the year ended March 2005, while the same players added 49,089 the previous year. But the percentage growth in manpower for these six companies slowed to about 30 per cent between 2004 and 2005 compared to 62 per cent between 2003 and 2004.

Interestingly, the more people they add, the less profit these companies seem to make per employee, save for Infosys and Wipro Technologies, both of which have seen a slight annual increase on this count. In other words, these companies need more people to realise the same amount of profit.

Figures for Wipro Technologies include its BPO arm's contributions, which are significant. The BPO business contributed to 11 per cent of Wipro Tech's Rs 6,075 crore revenues for the year. BPO employees numbered 15,673, which is more than a third of Wipro Tech's entire manpower count. Typically, a BPO operation requires greater investments in the early years of the business but could yield returns in the long run. This could be one reason why operating profit per employee is lower for Wipro than for Infosys.

Significantly, the industry crossed the one-million-employee mark recently, including BPO and IT employees in user organisations. The top five companies in the Table, along with TCS, currently employ close to a fifth of that strength.

In the backdrop of an increase in offshore projects (Infosys saw 52 per cent of its revenues coming from offshore work compared to 47 per cent the year before), a few aspects crave attention.

If operating profit per employee dips, it could suggest a drop in margins either due to lower billing rates or rising costs. It could also indicate that the return on net worth for offshore projects could 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.)

Satyam Computer, Mastek and Polaris saw some fall in operating profit per employee while HCL Technologies and Cognizant saw only a marginal fall. iGate Global Solutions' figures slumped between 2003 and 2004, but rose back a bit for the year ended March 2005.

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