ET INTELLIGENCE GROUP: The 7th Pay Commission recommendations may dent profit growth of PSUs who have limited ability to pass on their increased employee cost to customers. Employee cost constituted on an average 60% of the total gross profit (revenue minus raw material) in FY16 for the sample. This together with the wage increase would impact profitability. These include BHEL BPCL and IOC Regulated return entities such NTPC and Power Grid Corporation (PGCIL) will have no effect as wage increase is a pass-through. The impact will be more pronounced for companies such as BHEL, SAIL, BEML where employee cost as a proportion of gross profit is more than 80%.

Source: Economic Times July 06, 2016 01:00 UTC