Higher costs arising from staff, sub-contracting and outsourcing, and materials pulled down CMC Ltd's net profit in the April-June 2011 period.

Net profit, on a consolidated basis (includes profits from wholly-owned subsidiary CMC Americas), in the reporting period was lower at Rs 35 crore, against Rs 46 crore in the corresponding period last year.

Its standalone net profit was down by 36 per cent to Rs 26 crore (Rs 41 crore in April-June 2010).

On a year-on-year basis, the consolidated net profit of the IT company was dragged down as material cost jumped by 90 per cent to Rs 37 crore; sub-contracting and outsourcing costs went up 31 per cent to Rs 80 crore; and staff cost increased by 25 per cent to Rs 96 crore.

Operating margins

Operating margins of the company dropped from 21.6 per cent ending June 2010 quarter to 16.4 per cent in this June 2011 quarter.

The company attributed the fall in net profit in the first quarter to a sharp 84 per cent increase in its tax expenses. The tax expense of the company which stood at Rs. 7.9 crore in the quarter ending June 2010 went up to Rs. 14.67 crore to the June 2011 quarter.

“Tax expenses have gone up this quarter because the STP (Software Technology Park) scheme benefit was no longer available from April 1,” said Mr J K Gupta, Chief Financial Officer, CMC.

“We had already announced that we expected the tax rate, which was 15 per cent last year, to go up to 25 percent this year. However, the current quarter saw the tax rate was around 29 per cent,” he said.

The manpower count of the company was up by 5 per cent this quarter, adding to the expenses as well.

The company added about 16 clients this quarter, said Mr. R Ramanan, Managing Director and CEO.

CMC's international business contributes to about 58 per cent of its revenue, of which the US is the biggest market. The US market alone accounts for 47 per cent of its international revenue.

“The business in the US grew by about 37 per cent compared to last year, while the quarter-on quarter growth was up by 19 per cent,” said Mr Ramanan.

The company said that apart from the US and European markets, it was also looking at emerging markets such as West Asia, Africa and the neighbouring SAARC countries.

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