Cognizant ups 2017 guidance on stronger growth for digital business

Continues its cost reduction measures including headcount alignment

Cognizant Technology Solutions increased its lower end of guidance to grow between 9.5 to 10 per cent to $14.78 to $14.84 billion in 2017, as it sees more clients taking its digital offerings and packaged solutions across verticals.

The US-based Cognizant, which follows the model of Indian outsources of having a large talent pool in offshore locations such as India, saw third-quarter profits grow by11.5 per cent to $ 495 million and revenue by 9 per cent to $3.77 billion due to better business across verticals and faster growth from Europe.

Cognizant follows the January to December financial year. In the three months to September last year, it showed profits of $444 million on revenues of $3.45 billion.

The company is confident that its end-to-end (consulting and technology) offerings will give an edge in the healthcare service offerings despite the legislation and other changes. Cognizant earns little less than a third of its revenue from the healthcare business.

"Change plays to our strength, as the healthcare market changes and evolves. We have a very strong end-to-end portfolio service offerings, whether that is consulting, whether that is operating or the technology. As these changes come to healthcare, we are very well positioned," Francisco D'Souza, chief executive officer, told analysts in an earnings call.

Last quarter, it guided revenue to grow $14.70 billion for the full year at the lower end.

"We have been aggressively building high-end digital skills in data science, design thinking, cybersecurity, IoT, AI and automation. Strong Digital skills alone are not enough, so we combine these skills with our industry expertise to speak the language and understand the core processes and technologies of every industry we specialise," said D'Souza.

While North America continues to be the largest market for Cognizant with more than 76 per cent share of revenue; the company witnessed faster growth in Europe (at 16.7 per cent) during the third quarter. The company saw a significant growth in Communications, media and technology vertical in Q3.

Cognizant raises its guidance on the back of cost efficiencies and faster digital transformation at a time when its Indian peer Infosys revised the growth forecast for 200 basis points citing uncertainties in the global market.

Indian IT services firms such as TCS, Infosys, Wipro have largely remained cautious on the growth prospects due to uncertainties in the largest market of US and decline in the traditional software maintenance business.

What apparently gives Cognizant confidence is its continuous efforts to align costs including a reduction in headcount and focus on creating digital technology capabilities to boost growth faster.

"In Q3 we continued to take actions that would improve our cost structures and operating margin that will allow us to continue to invest in the business for growth, these actions resulted in a nearly $19 mn of charges related to realignment programme, primarily due to severance costs incurred in the quarter.