Southern IT/ITeS firms see profits spurt post-crisis rejig

Cost-cutting steps ensured the revival

Thanks to cost cutting measures, rationalisation of wages, they have been able to reap desired rewards battling the twin hydra of price pressures and shrinking margins in the industry, ensuring their profit before tax (PBT), as also operating profit before tax, depreciation & interest (OPBDIT) clock double digit growth.

According to a quarterly update by CII Southern Region & IMaCS (ICRA Management Consulting Services Limited), accessed by Deccan Herald, the cluster of 92 IT & ITES companies (of the 215 across country) in the four southern states achieved a 1.7 per cent year-on-year (Y-o-Y) growth in the third quarter (Q3) of 2009-10 when net sales reached Rs 14,640 crore.

The net revenue in Q3 of last year at Rs 14,485 crore, however, was 8.2 per cent higher. But despite the lower revenue growth in Q3 2009-10, the industry achieved much better profits as the study observes.  The profit before tax (PBT) in Q3 2009-10 at Rs 3,992 crore, for example, saw 27 per cent spurt against the same quarter last  year while the PBT at Rs 3,130 crore in Q3 2008-09 was 20 per cent lower than the same quarter previous year.

Rupee appreciation
It may be noted that the IT & ITES sector was hard hit in fiscal year 2008 and fiscal year 2009, being adversely impacted by rupee appreciation rendering IT & ITeS exports rather uncompetitive. Likewise, sharp slowdown in domestic and export demand also affected the overall performance.

Weak sales
Although their sales performance was weak throughout fiscal year 2009, the study points out, that there has been substantial improvement in cost cutting during Q3 of fiscal year 2010.

The employee wage costs came down to Rs 5,994 crore in reporting quarter as against Rs 6,353 crore in same quarter of 2009 indicating a dip of 5.7 per cent. The employee costs as a percentage of operating income was 41 per cent in Q3 of 2010 as against 44 per cent in 2009.  Likewise, interest cost dropped to only Rs 30 crore in Q3 2009-10 as against Rs 237 crore a year ago.

With all-round efficiency and tactical measures to achieve cost savings and greater productivity becoming the sine quo non for sustained performance and survival to tide over tough times, the industry saw it bear anticipated results and to meet forecast targets.  
DH News Service