Cognizant eyes 21% revenue growth in 2015

Net grows 12% to $397 million

Nasdaq-listed information technology (IT) services company Cognizant is expecting a much better revenue growth in 2015, compared to the previous year, on the back of steady client acquisitions and greater acceptance of its digital suite of offerings. For the year ending December 2015, the US-headquartered company, which banks heavily on its offshore delivery capabilities in India, has raised its annual revenue growth guidance by 90 basis points to 21 per cent. This is for the third time during 2015-16 that it has raised guidance. In 2014, Cognizant posted a revenue growth of 16.1 per cent.

The bullish outlook by Cognizant comes on the back of a better-than-expected third quarter. In the quarter ended September 30, 2015, the company posted an 11.7 per cent growth in its net profit at $397.2 million, compared to the year-ago period. The revenues at $3.19 billion grew 23.5 per cent compared to the year-ago quarter, backed by strong growth by the key healthcare vertical, and North America, which accounts for 79 per cent of its overall revenues.

Cognizant’s revenue growth during the quarter was ahead of analysts’ estimates, though it was seen lagging in net growth. According to Bloomberg, the firm was estimated to report revenues of $3.16 billion with a net profit of $457.7 million.  

Sequentially, Cognizant’s net profit was nearly flat while the revenues went up 3.3 per cent. Cognizant’s quarter-on-quarter (q-o-q) revenue growth was better than Tata Consultancy Services’ three per cent and Wipro’s 2.1 per cent (for IT services business). However, Infosys has clearly stolen the thunder in the September quarter with a sequential dollar-term revenue growth of six per cent.

Operating margin during the quarter at 19.4 per cent, however, saw an 80-basis point decline over the previous quarter, though it was well within its target range, because of wage hikes.

“We experienced another quarter of strong performance, building on our solid momentum in the first half of the year with continued broad-based demand across key industries and geographies we serve,” said chief executive Francisco D’Souza.

For the quarter ended December  2015, Cognizant said it was expecting its revenues to be $3.23 billion, a q-o-q growth of 1.25 per cent. Interestingly, most of the Indian IT services firms are expecting to see subdued growth in the December quarter, on the expectations of extended client furloughs.

For the quarter under review, Cognizant reported a strong sequential growth of 4.8 per cent and 4.7 per cent in manufacturing/retail/logistics segment and healthcare segment, respectively. Financial services, which accounts for around 40 per cent of its revenues, grew 2.7 per cent on a q-o-q basis.

In terms of geography, the growth was driven by a healthy 3.6 per cent expansion in North America, while Europe grew 1.4 per cent.

“Cognizant recorded another quarter of strong cash generation, resulting in an increase of almost $500 million in cash and short term investments,” said chief financial officer Karen McLoughlin.

“During the quarter, we repaid the $100 million balance of our revolving credit facility and repurchased $156 million of shares under our existing stock repurchase programme. Year-to-date, we have repurchased 5.3 million shares for $334 million, reflecting the confidence in our business, commitment to drive shareholder value and ability to generate strong cash flows.”

According to Gordon Coburn, president, Cognizant, the third quarter results and increased guidance for the full year “clearly demonstrate that clients are turning to Cognizant to help them transition into digital enterprises while optimising their traditional investments in technology and business processes”.