Mid-Size IT Companies Struggle To Maintain Growth, Margins

Source: EconomicTimes.com

Indian mid-size software companies, hit by the double whammy of a rising rupee and wage inflation are scrambling to form strategies to sustain growth and margins.

Higher prices from customers, better utilisation, increased onsite revenues and lower wage hikes are the countermeasures being adopted.

Tech-Mahindra Ltd. vice chairman and managing director Vineet Nayyar summed it up nicely. "We did manage to produce results which still outperform the market but going forward our margins would be under huge pressure."

It reported a better performance with a 59% profit growth in the June quarter. Hexaware Technologies, which has been consistently growing at more than 35% over the last four quarters, saw its net profit actually dip.

Executive chairman Atul Nishar said the management had decided not to issue guidance for the current quarter. "We will wait for the rupee to stabilise."

The tech sector has seen wages rising 15-18 percent annually, but companies are rethinking the quantum of hikes for next year.

"There should be other ways of incentivising employees rather than just pay hikes," said CP Gurnani, head of international operations, Tech Mahindra.

Global brokerage house Credit Suisse in a snap-shot of 14 mid-size firms,said "even excluding the rupee impact," salary hikes in some companies should bring down near-term margins.