Cognizant to focus on increasing presence in smaller Indian cities

International IT services company says it will lay off 3,500 employees and redistribute physical workplaces

Cognizant, the Nasdaq-listed Cognizant IT services company, has said India’s smaller cities will be "very important" for its business as it redistributes work and trims headcount.

The company announced early Thursday it will lay off 3,500 employees as it expects revenue to decline in 2023 due to customers cutting discretionary spend and key markets slowing down. The saved costs will be used to improve employee utilisation.

Cognizant, which follows the January-December financial calendar, beat analyst expectations in the first quarter of 2023. Net profit grew to $580 million, a three per cent increase on a year-on-year (YoY) basis. The company reported revenue from operations at $4.81 billion, a decline of 0.3 per cent YoY. In constant currency, revenue grew 1.5 per cent against its own guidance of $4.71-$4.76 billion. On a sequential basis, profit increased by 11.2 per cent.

The company will "rationalise" some of its workforce in corporate functions, mainly non-billable employees, said Ravi Kumar S, Cognizant’s chief executive officer, in a press meeting after announcing the results.

As part of a programme called NextGen, Cognizant will reduce its annual real estate costs by approximately $100 million compared to 2022 by 2025.

“We have to redistribute our physical workplaces. I personally believe we are going to enter a hybrid era of distributed life and work. Especially in India, our presence in smaller cities will be very important. A large number of our associates have moved to tier-2 cities and they will probably remain in tier-2 cities for a foreseeable future,” said Kumar.

Cognizant has workplaces in tier-2 cities like Coimbatore, Kochi and Mangalore. Kumar said: “The structural shift in our real estate costs will help eliminate 80,000 seats and 11 million square feet in large cities in India. This shift will also enable us to invest in collaboration spaces in smaller cities while creating structural savings for the future that we can invest in our people and growth opportunities.”

The company will modernise its existing workspaces in smaller Indian cities and expand to new real estate spaces.

“We don’t have a big exposure to small regional banks, but the banking vertical is soft and discretionary spend is soft,” Kumar said. He added that digital transformation deals have started to slow down because of economic slowdown, but there is an increasing trend towards cost take out and vendor consolidation deals.