 "Cognizant")
Cognizant Technology Solutions, has cut its full-year revenue forecast (it follows a January-December financial year) for the second straight quarter, emphasising the challenges impacting the information technology sector.
The US-based company has cut its full-year revenue growth estimate to $13.47 billion from $13.6 billion projected earlier. This represents a growth rate of 8.45-9.5 per cent, one of the lowest ever for the company.
The management, during a conference call with analysts said that guidance was cut due to softness in discretionary spends in the banking finance services and healthcare, and a negative revenue impact of $40 million due to weakening of pound sterling due to Brexit.
At the start of the year, it had estimated a 10-14 per cent rate, which it reduced after the first quarter to 10-13 per cent.
The latest target is lower than Nasscom’s growth estimate of 10-12 per cent. Cognizant's growth last year was 21 per cent.
"While our revised guidance reflects the impact of near-term macro economic headwinds,our longer-term outlook and underlying business fundamentals remain strong. We continue to see an expanding market opportunity and are well positioned to capitalise on the digital transformations taking place among enterprises around the world,” said Francisco D'Souza, the global chief executive officer. For the second quarter-ended June 30, it reported net income of $252.4 million, a drop of 40 per cent from $420.1 mn in the corresponding quarter of the previous year.
Profits were impacted due to higher taxes, caused by a one-time remittance of $2.8 billion of cash from India, on account of repurchase of shares.
Revenue for the quarter met the company estimate at $3.37 billion, up 9.2 per cent from the same quarter of last year.
Cognizant revising its forecast hints at the softer growth the sector is seeing. Earlier in the month, Infosys lowered its forecast of growth for the year; Tata Consultancy Services spoke of the Brexit development and visa issues as a challenge.
Cognizant incurred an incremental income tax expense of $237.5 million during 2016, of which $190 mn was recognised in the quarter ended June, owing to a transaction in May, said the company. Another $23.7 mn will be recognised in each of the quarters ending September and December. In May, its principal operating subsidiary in India repurchased shares from its shareholders, which are non-Indian entities, resulting in a one-time remittance of $2.8 bn of cash from India.
"This increased our cash in the US by $1 bn, net of taxes, and in other international markets by $1.6 bn," said Karen McLoughlin, global finance head.
For its third quarter, ending September, the company has given a revenue forecast of $3.43-3.47 bn.
In terms of business verticals, BFS grew 5.1 per cent sequentially and 8.1 per cent year-on-year. However the management said that over the next two quarter they will see softness in this vertical due to macro economic uncertainties. Healthcare grew 4.9 per cent Q-o-Q and 6.9 per cent Y-o-Y, retail, manufacturing and logistics grew 4.4 per cent Q-o-Q and 14.2 per cent Y-o-Y.
North America grew 5.1 per cent sequentially and Europe grew 4.1 per cent. Cognizant’s Horizon 2 service lines -- Cognizant Business Consulting, Infrastructure Services and Business Process Services-- have reached critical mass at a combined $3 billon run rate and continue to grow faster than company average, said the management.
With a total cash balance of $4.5 billion, the management said that its merger and acquisition activity will see a spurt. So far Cognizant has acquired six firms in the digital and new technology space and invested about $200 million on it. The management said that while the ramp up rates of M&A will go up in the digital space, they are also open to do an acquisition similar to TriZetto, that it did two years back.
“We have developed a number of platform-based solutions across our industry practices. Since our TriZetto acquisition, we have signed several large platform-based deals with a combined TCV approaching $2billion. We are pursuing a number of additional similar opportunities in the market,’’ said D'Souza.
