The share of employee cost in sales for a sample of 45 public sector undertakings (excluding banks and financial institutions) dipped from 5.1% in FY11 to 4% in FY12. This is in fact the lowest employee cost-to-sales ratio since FY07.
Of the sample set, more than 60% of companies saw a reduction in employee cost with respect to total sales in FY12. The total operating expense of all these PSUs grew at a compound annual growth rate (CAGR) of 15.2% since FY 2007 while revenue could grow only 14.3%.
According to data compiled by FE Research, major public sector undertakings such as Bharat Petroleum, FACT, Hindustan Petroleum, IndianOil and GAIL have substantially reduced their employee costs in the range of 10-23% in FY12.
One reason for the decline in staff cost ratio is a reduction in the number of employees at major companies. A more significant reason, according to CPSE sources, could be the petering of pay arrears. The pay revision for CPSE employees was announced in 2009 but its implementation was done with a time-lag. So companies had to pay arrears in the previous years. The bulk of the arrears was paid in the year 2010-11, leading to comparative decline in staff cost last year.
The aggregate revenues for the sample companies grew by 26.7% in FY 12, while profit for the same period went up only 6.2% against a growth of 9.6% in FY11. Though there is a substantial reduction in the employee cost, an increase in raw material cost and finance cost dent the PSUs? profitability.