Making an effort to shrug off sluggish growth rates, the Tier-ii information technology companies step into a new financial year witnessing tremendous pressure on bottomlines and profitability. Though markets have begun to look up, IT firms are not yet successful in convincing clients to increase billing prices. On the other hand, salary costs have gone up significantly.

Dr Ganesh Natarajan, Vice-Chairman and Managing Director of Zensar Technologies, captures the performance of the Tier-ii companies in the last year and in the new financial year. “Companies like us have grown pretty well but profitability is under pressure. But silver lining is that it is going to be a better a year from the demand point of view,” he commented.

Zensar, which is into IT and BPO services, crossed the Rs 1,000-crore mark in 2010-11 by achieving Rs 1,389-crore mark from Rs 953 crore in the previous year, showing a growth of 19 per cent. Net profit marginally grew to Rs 131 crore (Rs 128 crore). Its employees costs went up to Rs 741 crore (Rs 621 crore) in the year.

Infotech Enterprises, which also crossed the Rs 1,000-crore mark to register a turnover of Rs 1,118 crore, too found results disappointing. It registered a lesser net profit in the fourth quarter and for the full year. Salary costs went up to Rs 746 crore in the year as against Rs 543 crore. Operating margins fell to 14.3 per cent (21.6 p.c.) for the quarter and to 15.2 p.c. (22 p.c.) for the full year.

But rising attrition rates would force companies to continue with higher salary hikes in the next two years. Mr Amitabh Das, Chief Executive Officer of Vati Consulting, felt that IT and ITES industry might have to provide for hikes of 15 per cent in the next three years, keeping in view price pressure and shrinking bottom-lines.

“Salary hikes will be higher than the average for professionals coming with niche skills and domain expertise. They will bring in more to their employers from the customers and hence the differential hikes,” he felt.

Angel Broking subscribes to this view. Commenting on Infotech results, it said impact of salary hike due in the first quarter of 2012 and employee addition would again sweep of the margin gains considerably.

Chennai-based Polaris Software Lab posted increase of 15 per cent in net profit in the fourth quarter at Rs 57.58 crore and 26 p.c. year-on-year at Rs 202.46 crore.

Dr Ganesh Natarajan observed that companies need to invest on IP and develop non-linear streams and expansion of platforms to increase revenues.

Patni Computer, which is being acquired by iGate, registered flat growth in gross margins of 33.1 per cent in the quarter ended March 31, 2011, at Rs 280 crore (Rs 271 crore) as revenues went up by just 4 per cent to Rs 847 crore from Rs 820 crore). Net income fell drastically by 33 per cent quarter-on-quarter at Rs 1180 crore (Rs 176.46 crore).

But there is optimism in the companies as it entered the new financial year. Dr Ganesh Natarajan said billing rates for his company was likely to increase at least by 2-3 per cent.

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