Question-and-Answer Session
Operator
(Operator Instructions) We will take our first question from Bryan Keane with Credit Suisse.
Bryan Keane - Credit Suisse
At an exchange rate of Rs.47 to the dollar, how do we think about long-term operating margins of the business? Obviously you guys are saying that these margins are sustainable. But I guess what is the sustainable level when you think about all the hiring and training that will probably be done here in the near future?
David Mackey
Bryan, this is Dave. I think as we look forward to where our operating margins could go, obviously currency is a pretty significant factor in terms of where those margins will be. As we have said in the past, right now with our cost structure at a little bit over 50% rupee denominated, we have got about a 40 basis point movement in our operating margins for every 1% that the currency fluctuates. So, in terms of where that can be next year, obviously we don't know and certainly are not in the business of prognosticating the exchange rate changes. But that gives you at least some sense in terms of the magnitude of the impact.
As you also mentioned, we are looking at a number of factors as we move through the fourth quarter and into 2010 that will have a negative effect on our margins and as we have been pretty consistent in saying over the last year we certainly expected a lot of these headwinds to come back on the cost side of our business when the demand environment started to improve.
So, things like wage increases, utilization levels, and as you mentioned before, the currency, these will all create headwinds. In terms of the magnitude, we will have to wait and see exactly what that means.
Bryan Keane - Credit Suisse
Okay, what are you guys thinking about wage increases? There has been buzz that wages are going up. Can you talk about that and then also pricing in the environment today?
Keshav Murugesh
Yes, I will talk about the wage side. Obviously at this stage we expect that we are not going to have a repeat of what we saw in 2009 and we will expect to see some kind of wage inflation. Having said that, our increment cycle for offshore kicks in effective at 1st of April so we do have some time to do some planning and see how the market actually shapes up before that. Additionally, I would like to point out that from a Syntel perspective, we have always handed out our compensations around a fixed plus variable kind of a component. So our employees are used to receiving a variable component based on the overall performance metrics of the company. The overall wage inflation will depend on a number of things including, how the market shapes up as well as the plans that we create an actual performance against those plans. But I think it is still early days to talk about specific numbers and we will wait to complete our planning exercise and also see how the environment shapes up.
- To read the full transcript on Seeking Alpha, click here »
