Wage hikes can impact margins to around 1.5 percent but Firstsource Solutions have enough leverage in the business to mitigate the wage hikes next year, says MD and CEO Rajesh Subramaniam.
In an interview to CNBC-TV18’s Sumaira Abidi and Anuj Singhal, Subramaniam says Q3 is seasonally a weak quarter for the company given the US holiday season but there has been improvement in profitability on account of actions taken in the past related to low profitable or non-profitable accounts for which there was a methodical basis of shutting them down or renegotiating contracts. Below is the verbatim transcript of Rajesh Subramaniam’s interview on CNBC-TV18Anuj: You got a decent growth in your net profit, Rs 48 crore versus 44 crore but the income was flat quarter-on-quarter. What led to that high net profit because I only have the basic numbers right now? Is it because of margin or some other factors?
A: Q3 seasonally is our weakest quarter given the holiday season but our improvement in profitability is on account of some of the actions that we have taken in the past in relation to low profitable or non-profitable accounts for which there was a methodical basis of shutting them down or renegotiating contracts.
All of that is playing out from Q3. A significant impact of those you will see from Q4 onwards. So on a year-on-year basis, our profit after tax (PAT) has grown by 16 percent and the other element you should keep in mind is same period last year we had interest cost only for one month. If I actually normalise the interest cost for Q3 last year with a full interest payout on our loans this year, the PAT has grown 75 percent year-on-year.
Sumaira: What kind of pricing do you have this quarter and what are the trends going forward now?
A: The pricing environment is very stable and obviously the exchange rate regime is giving us more degrees of freedom in terms of how we price and the levels of operating leverages we can drive in winning deals. But we never win or lose deals on pricing, it always comes back to capability and the pricing environment is stable to an upward bias normalised with the exchange rate regime and we are on a good place.
Anuj: In terms of wage hike cycles, where do you stand and what kind of margin impact would that have sequentially for you?
A: We have two cycles in April, we have the cycle for the agents and the Full-Time Employment (FTEs) in the business. In July we have the wage hike. Given on balance, if I take a look at our mix of business between on-shore and off-shore, our on-shore wage hikes will be roughly between 1.5-3 percent, offshore would be between 8-12 percent. So moderated for attrition that we see in the business and how we compensate our employees from the lifecycle with the company, we expect the impact on margins to be about 1.5 percent but we have enough leverage in the business to mitigate the wage hikes next year.
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