Hike in manpower costs eroding net profits

New Delhi, Oct 30 | Updated: Oct 31 2005, 07:34am hrs
With rising headcounts and higher salaries, staff cost across sectors in India is increasing faster, than the growth in net profit.

According to an analysis of Q2 results of 100 companies by Assocham Eco Pulse (AEP), while the net profit and total income of India Inc. is growing at a rate of 18% and 20% respectively, the staff cost is rising much faster, at 22%.

During Q2, the IT and ITeS sectors witnessed the maximum rise in staff expenses, which went up by 36%, against the net profit growth of 29%, and growth in total income by 30.5%.

Indias largest software company, TCS, registered a striking staff cost growth of 133%, as compared to a topline and bottomline growth of 28% and 60% respectively.

Satyam Computers recorded a staff cost growth of 39.24%, as compared to a net profit growth of 25.7%.

Geometric and Flextronics software recorded a 35% and 29% increase in staff costs, respectively.

President of Assocham Anil K Agarwal said: Salary hikes and increasing head count have made companies incur more expenditure on their employees.

The pharmaceutical sector registered the lowest growth in staff cost at 13%, but its average net profit showed negative growth, at 29%. With increased spending on R&D, the pharma sector is witnessing a rise in expenditure on manpower.

GlaxoSmithKline and Elder Pharma recorded a staff cost growth of 29% and 60% respectively during Q2, 2005.

The only sector which is able to buckle down staff cost growth is automobile.

The automobile sector registered a staff cost growth of 15%, as compared to a 31% growth in net profit.

For example, Bajaj Auto saw a 10% increase in staff cost as compared to a topline and bottomline growth of 28% and 33% respectively.

Financial services and banks also came under huge pressure of increased manpower cost, which went up by 22.4%, as compared to their net profit, which dropped by 2%. Expanding retail business and increased competition led to a high growth in manpower cost.

The magnitude of growth in BFSI can be gauged by figures of LIC Housing and Geojit Financial Services, which registered a growth of 138% and 101% growth in manpower cost, respectively.