 "Healthy environment for services enabled to raise full year guidance: R Chandrasekaran")
Nasdaq-listed IT services company Cognizant not only grew faster year-on-year vis-a-vis its top Indian1 peers, but also surpassed its own guidance. In an interview with T E Narasimhan, chief executive, technology and operations, R Chandrasekaran, says a healthy demand environment for company's services gave the confidence to raise its full year guidance
What was the trigger for changing the guidance from 17 pc to 19 pc for the fiscal?
We continue to be consistent in our strategy of re-investment in the business to drive topline growth, which helped maintain stable operating margins and deliver industry-leading revenue growth. A healthy demand environment for our services gave us the confidence to raise guidance for the full year. The improved demand comes from a combination of macro trends and our own competitive positioning. We have seen a strong pick-up in discretionary spending in line with what we see in a normal budget-and-spend cycle. As SMAC (social, mobile, analytics, and cloud) technologies represent the next secular shift in computing, we continue to build out our SMAC capabilities and have had some great client wins.
We will continue to focus on the North American market while expanding our geographic footprint to Europe, Asia Pacific, West Asia and Latin America. North America is the largest IT market because organisations there are traditionally aggressive adopters of technology and generally have mature global sourcing programs. Having said that, we do continue to invest aggressively and grow in the other geographies such as Europe, Asia and the Middle East. In the June-ended quarter, North America grew 6 per cent sequentially and 17 per cent year-over-year, while Europe grew 11 per cent sequentially and 37 per cent year-over-year. Our growth in Rest of the World, which includes India, continued to remain strong, growing 7 per cent sequentially and 25 per cent year-on-year, as our investments in key markets, such as Singapore, India, and the Middle East are continuing to drive accelerated growth.
Your capex plans for the current fiscal and does it include acquisitions?
In 2013, we expect our capex to be around $400 million. We spent approximately $50.3 million on capex during the June-ended quarter. However, our acquisition strategy remains unchanged. We will continue to look at small tuck-under acquisitions-with the target company revenue being under $200 million-focused on strategic benefits in terms of industry expertise, geographical expansion, and service line capabilities. As we get larger, our definition of 'tuck-under' will naturally expand.
How much inorganic growth will be from the new acquisitions in the calendar 2013?
Our revised revenue guidance of around $8.74 billion for calendar 2013 includes $ 90 million of expected revenue from the acquisition of SourceNet Solutions, an accounts payable service provider located in College Station, TX, and from the acquisition of Medicall and six C1 group companies in Germany.
Net employee addition has been the lowest in the last two years. In Q2 it was 1,600 in comparison with 6,000 in Q1 and 6,300 in Q4......
We had hired heavily in the past few quarters in preparation to meet the growing demand. Our plan was clearly to take up utilisation, which is what we did during the June-ended quarter. We shall continue to hire to meet the continued healthy demand, which is manifest in the company taking up the full year revenue growth guidance to at least 19 per cent from at least 17 per cent last quarter.
What kind of impact the proposed reforms by the US government, including visa, will have on Cognizant and Indian IT industry?
As expected, a comprehensive immigration reform bill was passed by the Senate in late June. Our view of the bill remains unchanged-the bill includes some very good things for the American economy, our customers, and our industry, but also includes several clauses which, if enacted, would be detrimental to our clients and US competitiveness.
Now that the Senate has passed its bill, the immigration debate shifts to the House of Representatives. The House leadership has clearly stated that it does not intend to consider the Senate's bill. Rather, it will follow a different approach and develop its own legislation through a step-by-step approach.
On the client side, we are seeing no change in client buying behavior as a result of the immigration debate. We are discussing the issue with clients and stakeholders - though such requests have been few and far between.
What was the trigger for changing the guidance from 17 pc to 19 pc for the fiscal?
We continue to be consistent in our strategy of re-investment in the business to drive topline growth, which helped maintain stable operating margins and deliver industry-leading revenue growth. A healthy demand environment for our services gave us the confidence to raise guidance for the full year. The improved demand comes from a combination of macro trends and our own competitive positioning. We have seen a strong pick-up in discretionary spending in line with what we see in a normal budget-and-spend cycle. As SMAC (social, mobile, analytics, and cloud) technologies represent the next secular shift in computing, we continue to build out our SMAC capabilities and have had some great client wins.
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North America accounted for 78 pc of Cognizant's overall revenue. Is it a good idea to depend on a single market?
We will continue to focus on the North American market while expanding our geographic footprint to Europe, Asia Pacific, West Asia and Latin America. North America is the largest IT market because organisations there are traditionally aggressive adopters of technology and generally have mature global sourcing programs. Having said that, we do continue to invest aggressively and grow in the other geographies such as Europe, Asia and the Middle East. In the June-ended quarter, North America grew 6 per cent sequentially and 17 per cent year-over-year, while Europe grew 11 per cent sequentially and 37 per cent year-over-year. Our growth in Rest of the World, which includes India, continued to remain strong, growing 7 per cent sequentially and 25 per cent year-on-year, as our investments in key markets, such as Singapore, India, and the Middle East are continuing to drive accelerated growth.
Your capex plans for the current fiscal and does it include acquisitions?
In 2013, we expect our capex to be around $400 million. We spent approximately $50.3 million on capex during the June-ended quarter. However, our acquisition strategy remains unchanged. We will continue to look at small tuck-under acquisitions-with the target company revenue being under $200 million-focused on strategic benefits in terms of industry expertise, geographical expansion, and service line capabilities. As we get larger, our definition of 'tuck-under' will naturally expand.
How much inorganic growth will be from the new acquisitions in the calendar 2013?
Our revised revenue guidance of around $8.74 billion for calendar 2013 includes $ 90 million of expected revenue from the acquisition of SourceNet Solutions, an accounts payable service provider located in College Station, TX, and from the acquisition of Medicall and six C1 group companies in Germany.
Net employee addition has been the lowest in the last two years. In Q2 it was 1,600 in comparison with 6,000 in Q1 and 6,300 in Q4......
We had hired heavily in the past few quarters in preparation to meet the growing demand. Our plan was clearly to take up utilisation, which is what we did during the June-ended quarter. We shall continue to hire to meet the continued healthy demand, which is manifest in the company taking up the full year revenue growth guidance to at least 19 per cent from at least 17 per cent last quarter.
What kind of impact the proposed reforms by the US government, including visa, will have on Cognizant and Indian IT industry?
As expected, a comprehensive immigration reform bill was passed by the Senate in late June. Our view of the bill remains unchanged-the bill includes some very good things for the American economy, our customers, and our industry, but also includes several clauses which, if enacted, would be detrimental to our clients and US competitiveness.
Now that the Senate has passed its bill, the immigration debate shifts to the House of Representatives. The House leadership has clearly stated that it does not intend to consider the Senate's bill. Rather, it will follow a different approach and develop its own legislation through a step-by-step approach.
On the client side, we are seeing no change in client buying behavior as a result of the immigration debate. We are discussing the issue with clients and stakeholders - though such requests have been few and far between.