This section of the publication provides a review into current and past financial performance of the top 86 listed IT companies in terms of revenue where comparable information is available.

Large companies enjoy higher market share

60% of our sample comprises of small size firms that accounted for 4.8% of the total turnover in FY07. Around 33% of the sample was medium size firms that also accounted for around 20.8% sample turnover. Notably, large size firms contributed about 74.4% of the turnover. A brief profile of three categories, with respect to our sample is shown in

Graph 1 :

D&B Research
Source: CMIE Prowess Database

Top six corners major chunk of revenue

Moreover top six companies together contributed over 29.3%, whereas remaining 44 companies contributed around 13.36% of the total IT industry revenue. This indicates the dominance of top six companies in the industry. The graph below depicts the cumulative contribution of the top companies to the total IT industry revenue in FY07.

D&B Research
Source: CMIE Prowess Database & NASSCOM

Sample companies beat industry average

The 86 companies out performed industry average by reporting 42.4% growth in revenue for the fiscal 2007. Large, medium and small sized Indian IT companies have recorded a robust growth of around 42.4%, 42.7% and 41% respectively in FY07. The industry reported average growth of 27.8% in FY07. The medium sized and small sized companies reported higher incremental growth compared to large companies during the same period.

D&B Research
Source: CMIE Prowess Database

Small enterprises report higher growth in net profit

The profit after tax (PAT) of the IT companies has registered strong growth, especially small sized IT companies. Small sized companies registered a growth rate of 68.6% in FY07 and 88.7% in FY06.

D&B Research
Source: CMIE Prowess Database

Salary hike pinches the small and medium firms

The small and medium firms reported hike personnel expense ratio, while large firms reported a marginal dip. The personnel expense ratio is calculate as personnel cost as percentage of net sales. The personnel expense ratio for the small and medium firms went up by 110 and 190 basis points respectively in the last two years. On the other hand, the large firms reported marginal dip of 30 basis points. This reflects efforts put in by the small and medium enterprises to retain talent in face of competition from the large players.

D&B Research Source: CMIE Prowess Database	D&B Research Source: CMIE Prowess Database

For large firms personnel expenses constituted a significant portion of the overall costs that accounted for 45.8% of the net sales in FY07 (46.1% in FY05), largely driven by wage inflation, basically driven by competition from MNCs in India, scarcity of abundant skilled resources, etc. Another important cost component is travel and communication which is increasing mainly due to rise in VISA cost, growing onsite remuneration etc.

For medium sized firms the contribution of personnel cost as a percentage of net sales was lower than large sized firms. Wage cost has increased from around 34.9% in FY05 to 36% in FY07. However, travel and communication expenses have declined from 7.8% to 6.2% in the same period.

Personnel expenses of small sized companies has gone up from 24% in FY05 to 25.9% in FY07 largely due to growing competition from medium sized & large sized companies. However, travel & communication expenses as a percentage of net sales have been declining from 5.9% to 4.4% in the same period. This can be attributed to the small, concentrated customers that these firms cater to whereby the client servicing costs are lower. A significant cost component was by way of other expenses that accounted for more than 67% of net sales.

D&B Research Source: CMIE Prowess Databas

Small firms enjoy lower margins but have shown impressive improvement in NPM

The small sized companies have shown drastic improvement in operational efficiencies which is evident from jump in net profit margin (NMP). NMP for the small sized companies increased from 9.3% in FY05 to 15.3% in FY07. Similarly, mid sized companies NPM has increased from 13.2% to 15.8% in the same period, while NPM remained flat for large sized companies.

D&B Research
Source: CMIE Prowess Databas

Medium size companies catching up large peers in terms of RONW

Though large companies still generates better returns on money invested but small and medium sized companies fast catching up. Compared on the parameter of return on net-worth (RONW), large companies reported higher RONW of 37.6% beating small and medium sized companies with a wide margin. However interestingly the small and medium sized companies have shown rise in RONW over the last two years, while for large companies RONW declined by 220 basis points.

D&B Research
Source: CMIE Prowess Databas