Staff cost eats into profit

Written by Pradip Kumar Dey | Updated: Jul 18 2011, 08:07am hrs
The employee cost of major Indian PSUs in percentage terms grew faster than their total income and operating profit during 2007-2011, owing to pay revision. An FE study of 41 PSUs shows that the ratio of staff cost to total income grew from 3.01% in 2006-07 to 3.55 % in 2010-11. And the ratio of staff cost to operating profit also increased from 18.62% to R25.28% during the four-year period.

The aggregate income of the 41 PSUs increased by 57.2% (compound annual growth rate of 11.98%) from R7.08 lakh crore in 2006-07 to R11.14 lakh crore in 2010-11. Year-on-year (YoY), the total income of PSUs increased from 13.3% during 2007-08 to 21.5% during 2010-11.

In 2009-10, income growth of PSUs was a negative -5.7%. The companies were affected by factors like lower demand in the economy and appreciation of the rupee. Inflationary pressures also impacted the economy.

Among the 41 PSUs, the highest CAGR in total income was registered by Engineers India (44.79%) followed by Gujarat State Petronet ( 33.63%) and MMTC (31.05%). A negative CAGR in total income was seen with SCI, Hindustan Copper, Dredging Corporation and Orissa Minerals.

Staff cost of the 41 PSUs increased by 85.4% (CAGR :16.7%) during the four-year period. The highest CAGR in staff cost was seen in the case of Hindustan Organic Chemicals, (72.17%) followed by Gujarat State Petronet (40.09%) and NHPC (31.22%). A negative CAGR in staff spend was seen only in the case of ONGC. The lowest CAGR of staff spend was seen with PTC India (5.12%).

The operating profit of the 41 PSUs also increased by 36.6% (CAGR: 8.11%) to R1.56 lakh crore during 2010-11 from R1.14 lakh crore during 2006-07. The highest CAGR of operating profit was seen in the case of Tide Water Oil (54.93%) followed by PTC India (42.68%) and Engineers India (39.23%).

Nearly 30% of PSUs showed a negative CAGR of operating profit during last four years. Mention may be made of Orissa Minerals, Dredging Corporation and National Aluminium.

Among the 41 PSUs, a significant increase in staff cost was seen in the case of IOCL. Its staff cost rose at a CAGR of 25.18% during the study period. The staff cost to total income ratio of IOCL increased from 1.18% in 2006-07 to 1.93% in 2010-11.

The operating profit CAGR of IOCL was 2.85% during 2006-11, which is significantly lower than the CAGR of total income and staff expenditure. Its staff cost to operating profit increased from 17.97% to 39.45% during the period.

BHEL bucked the trend. Its CAGR of staff cost was 21.89 % against the CAGR of total income of 24.42% and the CAGR of operating profit of 24.08% during the last four years. The staff cost to total income ratio of BHEL decreased from 13.61% in 2006-07 to 12.54% in 2010-11. The staff cost to operating profit ratio also declined from 60.48% to 56.33%.

Similarly in the case of NTPC, the CAGR of staff cost was 24.44%. This was higher than the CAGR of total income of 13.76% and operating profit of 6.76%.