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Friday, December 16, 2011

IT sector:-Industry outlook/prospects/competition/high and low prices/beneficiaries/listed stocks/recommendation/saturation point/views/potential

The IT sector has spearheaded creation of new jobs in the last five years. Higher demand for outsourcing to curb costs and growing contract size with multi-year tenures has driven the need for skilled labour in the sector. While all the top-tier IT exporters have increased their headcount significantly over the years, not all of them have been able to maintain employee productivity.TCS, Infosys, and HCL Tech have shown improvement in dollar-denominated revenue per employee in the last two years. Cognizant (listed on Nasdaq) and Wipro, on the other hand, have reported a fall in employee productivity. The analysis is based on the trailing twelve-month revenue in dollar terms of the top five IT exporters in each of the nine quarters ended September 2011. Revenue in dollar denominated form offers a comparable platform since the impact of rupee-dollar rate movement is different for different companies based on accounting practices and foreign exchange hedging policies.

TCS, the country's largest IT exporter, reported a nearly 4% increase in per employee revenue between September 2009 and September 2011. The company's headcount rose by 72,800 during the period, the highest addition among peers.

Infosys recorded an improvement of 7.5% in its employee productivity measured in terms of revenue per head even though its revenue grew at a slower pace than most peers. The improvement then could be attributed to a smaller addition of 36,369 employees to its headcount between September 2009 and September 2011.

HCL Technologies was the biggest beneficiary with a 9% growth in revenue per employee during the period. This is because of its higher focus on experienced employees (laterals). These employees can be utilised for multi-tasking due to their domain expertise. More than any one else, HCL has stressed on developing domain expertise in the last few years. Cognizant has been the biggest loser. The company's revenue per employee fell by 3.6% in the said period. Cognizant has focused more on reinvesting its profits in expanding to new geographies and verticals without stressing on higher profitability. This can be a reason for the steep fall in revenue per employee.

Wipro's revenue per employee has also fallen by 2% despite its attempts to make revenue less dependent on headcount.

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