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MphasiS to convert fixed costs to Variable
Business Standard

Bibhu Ranjan Mishra / Bangalore March 05, 2009,

No salary cuts yet, but can’t say what will happen three months ahead, says CEO.
IT and BPO service provider, MphasiS, is looking to convert more of its fixed costs into variable ones to cope with the current economic downturn.
While it is yet to finalise the areas, staff pay and infrastructure seem to be the likely places to begin.

“When the times are uncertain, we want cost variability to be higher than the usual. Our focus will be to ensure our financials continue to stay healthy,” said Ganesh Ayyar, CEO.

In the wake of the global financial meltdown, many IT services’ companies have announced that the variable component of pay will be affected. This part is linked with the company’s revenue and operating margin, and varies from 20-50 per cent of salary, based on seniority.

MphasiS employs about 30,000 people across all its businesses, including BPO operations; it says there has been no cut in any salary. But can’t commit on plans for the near future.

“We will see how the market pans out, and if the situation really gets that bad, we will revisit that decision. But nobody can make a prediction of what is going to happen three to six months down the road,” said Ayyar, who joined MphasiS after over 20 years of service with HP.

According to MphasiS’ (interim) Chief Financial Officer, Susanto Banerjee, the company has already been working to so convert its fixed costs, “progressively over the quarters.” And is looking at fixed costs involving infrastructure. “We are thinking of having our future infrastructure on pay-per-use basis,” he said.

MphasiS’ revenue was Rs 978 crore in the quarter ending January 31, and its general and administrative expenses stood at Rs 67.3 crore, an increase of 17 per cent over the quarter ending October 31, 2008. As a percentage of revenues, these expenses increased marginally to 6.9 per cent in that quarter from 6.4 per cent in the previous one. “We are looking at some of these costs, which give us flexibility in operations,” said Banerjee.

The company added 1,193 people in the previous quarter, including 574 freshers; taking more of the latter for transaction-based projects is likely, Ayyar said, depending upon the project mix. “We are going to campuses for freshers because that’s an investment we want to make for our future business, and that’s where we can build a competitive cost structure.”