KPIT freezes new recruitments, cuts variable pay by 50%

Mid-size IT firm KPIT Cummins Infosystem has frozen fresh recruitments for next three-four quarters given the turbulence in its core verticals of automotives and manufacturing. Moreover, the company has reduced variable pay component of employee salaries by over 50%. This forms a part of company’s strategy to control internal costs to protect margins at a time when new business is hard to come. The variable pay on average forms approximately 12% of total salary for KPIT employees.

“We are keeping a tight lid on our headcount. We will not be increasing the current number of employees for at least three-four quarters,” said Ravi Pandit, the company’s chairman. He also confirmed that as many as 290 employees in KPIT’s development team were let go in the three months ended March 09.

Pune based KPIT earns more than four out of every five rupees from the manufacturing vertical. The current global economic slump has impacted various segments of manufacturing industry. This spells trouble for future growth of KPIT Cummins.

“We have not provided for future performance guidance given tough times for manufacturing clients. There is no certainty about growth in revenue for the current year. However, we are trying to retain our margins by increasing productivity and cutting costs,” said Mr Pandit.

To improve productivity, KPIT has increased share of revenue from offshore activities and fixed price contracts. Offshoring revenue relative to total revenue has increased from 53% a year ago to 56.6% in the March 09 quarter. Since costs of project execution are lower in offshoring, it provides better margin compared to onsite projects. Fixed price contracts also tend to offer better realizations compared to time based pricing method. For KPIT, share of revenue from fixed contracts has gone up from 12% a year ago to 26% in the March 09 quarter.

The company declared its results for the quarter and the year ended March 09 last evening. During the quarter, revenue grew by 1.6% to Rs 209.8 crore from the previous quarter whereas net profit jumped by 14.5% to Rs 193.2 crore due to lower forex losses.
Courtesy: TheEconomicTimes