Business - India Inc may see more job cuts as efficiency levels drop

Ranjit Shinde & Jessica Mehroin Irani

MUMBAI: Though the last week’s retrenchment saga at Jet Airways saw a happy ending, the ghost of job losses still haunts India Inc.

An ETIG study of the workforce efficiency of Indian companies indicates that corporate India is witnessing reduction in per employee revenue and net profit. This may prompt some more organisations to take up job cuts to maintain productivity.

A study based on the data of 700 big and small companies that reported annual employee data reveals that two out of seven companies or about 27% of the companies reported lower revenue per employee in FY08 compared to the previous year. As many as 39% companies in the sample saw a drop in net profit (PAT) per head by similar comparison.

Interestingly, one out of four companies reported reduction in topline efficiency in FY08 compared to FY04, the year when the erstwhile Bull run began. The scene was even bleaker at the bottomline as every third company in the sample reported lower PAT per employee.

It needs to be noted that the measure of per employee revenue and profit can only be used as a broad level indicator for employee efficiency. “This method (to use revenue per employee parameter) to measure workforce productivity masks capital and skill intensities which are key performance indicators. Hence such measures should only be used to have a broad idea of efficiencies,” says Team Lease chairman Manish Sabharwal.

The trend was not secular across the sample though. The study shows that large companies with FY08 revenue in excess of Rs 5,000 crore fared better than the mid-sized companies (sales between Rs 500 crore and Rs 5,000 crore) and smaller firms (revenue less than Rs 500 crore). While just 7% of the large companies saw erosion in per employee revenue, the number was much higher at 22% and 32.6% for the mid-sized and small companies.

As per the study, banking sector companies are the least affected by erosion in employee productivity. HDFC Bank was the only bank among 49 banks in
the sample, which reported drop in per employee revenue in FY08. Gradual reduction in workforce and technology adoption can be cited as major reasons for banks to report improvement in per employee revenue.

As many as 25 banks in the sample reduced workforce in FY08 and also reported employee efficiency. “The banking sector was doing well until a few months back. This is just the tip of the iceberg. In December- January, the banks would probably see worse.” said People Connect CEO Sarjeev Sethi.

Over half of the software companies in the sample reported decline in revenue per employee, while two-third saw a fall in PAT per employee. Infosys, HCL Technologies, Oracle Financial Services and MindTree were some of the software companies that saw reduction in per head revenue.

“IT companies do maintain bench of employees which become productive as and when a new project comes. These employees add to the cost of the company, but not the revenue,” said Subramaniam Pisupathi, research head at Ventura Securities.

Other sectors such as auto ancillary and textiles also witnessed erosion in per head revenue. “These sectors are suffering from lower price realisations, which reflects in lower revenue per employee,” says Mr Pisupathi. These companies face tough competition from their peers in the low cost countries.

Most of the companies in the cement, housing finance, housing and construction and engineering witnessed an improvement in revenue per head. However, the current slowdown in the global economy is beginning to affect these sectors too.

“Until July, they were doing well. After which the financial crisis became more acute and are seeing a slowdown in the manufacturing industry. The inflation and liquidity crunch in the markets are the two primary reasons that will affect the sector,” said Mr Sethi.