The country’s second-largest software firm, Infosys Technologies Ltd, will save between Rs 475 crore and Rs 560 crore by not giving any salary hike to its over one lakh employees in the current financial year. Reduced IT spending due to the global economic crisis would see the $50-billion Indian software export industry reporting a slower growth at 4%-7% in the current financial year against last year’s 16%. With an increased pressure on margins, most IT companies have resorted to salary freezes and are no more hiring in droves.
SD Shibulal, chief operating officer of Infosys Technologies, told FE, ?As a cost-cutting measure, Infosys will not extend any salary increase to its employees this year. The impact of the move will translate into a saving of roughly 2.2% to 2.6% of our revenues.? As per guidance provided by the company, at the end of the first quarter of this financial year, Infosys expects to clock revenues in the range of Rs 21,416 crore to Rs 21,747 crore, which is a year-on-year decline of 1.3% to a growth of 0.3%.
?Usually, offshore employees get a 10-12% salary hike, while their onsite counterparts get around 3-4% hike every year,? said Shibulal. Salaries and contribution to various employee funds is a major cost for IT companies. Infosys, which had 1,04,850 employees at the end of the last financial year, incurred Rs 9,969 crore as employee cost, making up for around 50% of its revenues last financial year, which stood at Rs 20,264 crore.
Talking about the company’s acquisition strategy, Shibulal said Infosys is studying two-three companies and is more likely to go for a string of smaller acquisitions than one large deal. ?We are always considering companies and will only acquire one that adds to our capabilities,? he said.
He added that the acquisition could be in areas of consulting or platform-based services in the BPO space. The company is also looking at companies in Germany and France. ?
Stressing on the fact that the market situation continues to remain challenging with ?sporadic action translating into short-term spending and medium size deals?, Shibulal said he does not see any reason for exuberance just yet and recovery is only expected by 2010.
The company had recently won a deal with British oil major BP Plc, along with four other IT firms, including TCS and Wipro Technologies.
The deal is expected to fetch the company revenues of around $116 million over the next five years. Shibulal claimed that Infosys’s share of revenues from the BP contract after the vendor consolidation exercise is only marginally up from what the company used to get from BP earlier, adding that several other areas with maintenance-like deals, which were earlier closed for outsourcing, would now be open to bidding for Infosys. He, however, refused to divulge details of the estimated size of the deals that could come up from the BP stable in the near future.
Like BP, several other big-ticket IT outsourcers are also in the process of consolidating their vendors with an aim of cost efficiency. On pricing pressure, which has been eroding a significant chunk from the margins of IT companies, Shibulal said half or one-third of the impact of the rate cuts has already been felt on the balancesheets so far, with the rest expected to happen in the coming few quarters.
