)
In a quarter which proved soft for most of the Indian Information technology (IT) services companies, Nasdaq-listed Cognizant delivered a healthy set of numbers, apart from raising its full-year revenue forecast, giving a healthy demand outlook.
In the quarter ended March 31, the US-based company, which fiercely competes with most tier-I Indian IT service providers and has huge delivery presence in India, posted 9.7 per cent growth in net profit for the quarter to $382.9 million when compared with the corresponding period last year. It beat its own revenue expectation, posting $2,911 milion, higher by 20.2 per cent over the same quarter the previous year, backed by strong performance across key verticals, especially the health care segment and in key regions.
On a sequential quarter (compared with the trailing quarter) basis, the company’s net profit grew 5.5 per cent and revenues went up 6.2 per cent.
The health care vertical, now a little over 30 per cent of overall revenue, posted a healthy year-on-year growth of 42.7 per cent and sequential growth of 13.8 per cent. The financial services segment (40 per cent of revenue) grew 13.4 per cent on an annualised basis and 3.6 per cent sequentially.
“Our strong revenue performance was driven primarily by organic growth of our core businesses...our strategy and offerings are resonating with clients,” said Karen McLoughlin, chief financial officer.
North America accounted for 78.7 per cent of overall revenue, up 24.8 per cent over a year and 7.4 per cent over the earlier quarter. Within Europe, Britain grew 2.7 per cent and 2.3 per cent on these two parameters, respectively.
“The investments we have made in digital, automation, utility-based delivery models, consulting and industry-specific expertise are clearly paying off. Given how fast the landscape is changing, clients typically don’t have the skill-sets to manage this transformation in-house and are turning to Cognizant to help them re-do their core business and organizational models,” said Francisco D’Souza, chief executive officer (CEO).
The company also raised its full year revenue expectation by 30 basis points, saying it was expecting at least $12.24 billion. For the second quarter ending on June 30, it is expecting revenue to be at least $3.01 billion, sequential growth of 3.4 per cent.
Its strong shown revenue forecast is seen as a solace for companies in the sector, whose growth rates had declined in the March quarter. Among the Indian firms, Wipro, the only company giving quarterly growth expectations, had said it was expecting June quarter revenue to be flat or grow only one per cent.
“Cognizant stands out in its ability to gain share in a slow market,” said Peter Bendor-Samuel, founder and CEO of management consulting firm Everest Group. “What differentiates Cognizant is its customer-centric business. As the industry matures and clients’ expectations rise, they become more demanding and the industrialised India-centric business model is coming under increasing attack. Cognizant willingness to sustain a lower gross margin and reinvest the surplus into its customers is allowing it to differentiate from its competitors by deepening its customer intimacy at a time when its competitors are cutting cost and loosing theirs,” he added.
According to advisory services firm HfS Research, Cognizant’s focus on few sectors such as financial services, health care and digital, and its ability to mine customer accounts faster, especially for digital and business transformation, were primary drivers of its good performance in the last quarter.
“Cognizant has been making significant investments (better than its peers) over the past decade in hiring management graduates from premier business schools and putting them in account management and customer facing roles. This investment is paying off,” said Pareekh Jain, Research director, HfS Research.
During the quarter, Cognizant improved its operating margin by 40 basis points to 19.8 per cent over the previous one. It added 6,200 people on a net basis, taking global headcount to 217,700.
