 "Rajeev Mehta")
Cognizant on Friday reported one of its weakest financial quarters. In an interview with Bibhu Ranjan Mishra, the US-headquartered company's Chief Executive Officer for IT Services Rajeev Mehta says growth should pick up from here on. Edited excerpts:
What went wrong?
We had mentioned in the last earnings conference that there would be a little bit of softness in Q1 (the March quarter), especially in the banking segment, involving large institutions. There was also some softness in the budget in the beginning of the year, which delayed the start of some discretionary projects. In addition, a lot of mergers and acquisitions (M&As) are actually going on in the health care space, which means the softness in that sector would continue until the M&As are over. Once those are complete, I see a big pick-up with new opportunities during their integration and I think Cognizant is very well-positioned to continue to leverage that.
So you are expecting a rebound in the second (June) quarter?
For the June quarter, we are guiding an incremental revenue growth of somewhere between $140 mn and $200 mn. That would be one of the strongest incremental revenue growths in a quarter. In addition, we have hired more than 11,000 professionals in Q1 in anticipation of very strong growth in Q2 and the second half of the year.
Is there a fear of not being able to see the same kind of growth in Q3 and Q4 as well? You have actually reduced the top-end of your revenue guidance for the full year.
We have given a guidance of 10-13 per cent for the whole year. That does not include the around one per cent hit we would take because of currency fluctuations. We are expecting to see extremely strong growth in the second half of the year. But if you put things in perspective, when you start the year with a slow Q1, the math just does not get better. But we are expecting a good Q2. The softness that we had seen in banking space seems to be subsiding. We are seeing a strong pipeline of deals in the health care sector but it's hard to predict when they are going to get closed. It is also hard to predict when the M&A activity is going to subside.
So, somewhere in the second half of the year, we are going to see revision in your revenue guidance upwards?
Yes. Some of the very large deals are very hard to predict when they will be closed. We have given a range of 10-13 per cent, and we feel comfortable at the range. And as deals materialise, we will continue to look at the guidance.
But the 13% growth (revenue guidance for 2016) is no way comparable with the 21% you delivered last year?
You have to remember that we did a large acquisition last year, as well. Trizetto was a very large acquisition. But I think, the long-term nature of the business is definitely on the right trajectory. I also think you will also have to look at it in terms of incremental dollar revenue (growth) as well, not just in terms of percentage of growth. In incremental dollar terms, Q2 would be one of our strongest quarters.
In single quarter, you added over 11,200 employees on net basis. What is the kind of hiring you are looking at for the full year?
We don't give a hiring outlook, but we hired over 11,000 associates in Q1. We do feel very good about the growth in the business. In addition to that, we have a lot of associates already in the company. I think what we hired now, that should be good for now and we have to make sure that these associates get ready (for projects) in Q3 and Q4. Then, we would continue to hire for ahead.
When are you going to announce a salary hike for employees and what could be the range?
We are still evaluating internally but it (the quantum of hike) would be competitive. We end up doing it around June every year and we will actually do that announcement in this quarter.
