Information technology companies are feeling the pinch of rising staff cost.
During the quarter ended December 31, 2002, staff cost of top 20 IT companies increased 36.70 per cent over the corresponding period of the previous year.
In the July-September 2002 quarter, these costs had increased 30.15 per cent (20.31 per cent in the previous two quarters).
The increasing staff costs are way out of line with the rise in these companies' sales, leading to a squeeze in margins.
In the October-December 2002 quarter, sales jumped 24.82 per cent against 14.141 per cent and 9.37 per cent, respectively, in the previous two quarters. In the January-March 2002 quarter, sales actually declined 0.67 per cent.
Rising staff costs on top of the appreciating rupee have started eating into the profit margins of information technology companies.
The net profit growth of IT companies has declined to the single digit levels from a growth rate of over 100 per cent in 1999-2000 and in 2000-2001.
During the quarter under review, the net profit of the 20 infotech firms rose by a modest 4.85 per cent.
The main reason for this was staff costs which accounted for 39.08 per cent of the total sales, compared with 35.69 per cent in the October-December 2001 quarter.
If the ratio of staff costs to sales had remained at 36.69 per cent, the net profit of IT companies would have gone up by around 21 per cent during the quarter under review.