Corporate India seems to be on a belt tightening binge. Voluntary retirement scheme (VRS), the dirty word of yester-years has become part of the daily business vocabulary. In fact, companies offering VRS are being viewed in favourable light, as managements are seen taking initiatives to cut back costs and consequently, improve productivity and profitability.
Reliance Industries (RIL) features in the list of companies offering voluntary severance packages to rightsize the workforce. The VRS package is part of the restructuring process at the textile complex in Naroda, Gujarat. The package has been accepted by approximately 4,600 employees and total outlay on the scheme is estimated at Rs 900 m.
Gains through VRS
No. of employees
Cost / employee
VRS cost / employee
Staff cost savings*
Savings / EBITDA
VRS cost / PAT
Savings / PAT
Employees, staff cost, EBITDA for FY01
The share of textiles division in total revenues has been continuously declining over the past few years. The division contributed only 1% to the turnover in FY01, as compared to 5.1% in FY97. The restructuring at the textiles division, representing 1% of turnover, results in rightsizing manpower strength by 30.5%. The textiles division, it seems, besides contributing only marginally to the topline was a drag on post-tax profits, as it was employing more than 30% of the workforce.
Productivity led gains
Revenues / employee
PAT / employee
Staff cost / employee (Rs)
Although the VRS is the first drastic step towards rightsizing the enterprise the head count in the company has been steadily declining since FY99. Consequently, employee productivity numbers have increased impressively over the years. One can expect much improved productivity levels in the current fiscal. It can be seen that the revenue / employee has grown at a much faster pace compared to profits / employee. This indicates that costs have been increasing at a faster clip compared to revenues and consequently putting pressure on net profit margins.
To beat the rising other operating expenses organisations and RIL will have to increase the productivity of employees to prevent profits and more importantly margins from eroding.
RIL: Matching global standards
Revenue / employee
PAT / employee
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