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Infosys profits boom but rising wages start to bite

Antony Savvas

Indian outsourcer Infosys Technologies has posted a 37% increase in quarterly profits for the three months ending June, but says margins have been hit by higher wages awarded to its low-paid Indian staff. 

OvumHolway analyst Samad Masood said, “The main challenge for Infosys and its Indian offshore peers is the rising costs of their business.

“Margins are being eroded as these companies expand overseas and hire more Western staff. Additionally, staff costs in India are increasing as demand for experienced Indian outsourcing executives has rocketed.

"For example, some media reports say that Infosys's staff costs grew 15% year on year in the first quarter due to salary rises intended to stop employees jumping ship to other competitors.”

Infosys is second only to Tata Consultancy Services in the Indian outsourcing market, and the two are currently battling it out for big contracts from Dutch-owned bank ABN Amro.

ABN Amro is believed to be considering outsourcing up to 2,300 IT jobs to cut costs as part of its contract plans, with India a strong candidate to get many of the jobs. After a recent jobs cull ABN is already down to about 3,500 IT employees. 

IBM and Accenture are also bidding for the contracts, which include application development and maintenance.

Infosys’s net profit for the first quarter rose to 5.32bn rupees (£70m) from 3.88bn a year ago. Sales rose 36.5% to 20.71bn rupees.


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