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Cognizant on Wednesday posted a modest revenue growth for its fourth financial quarter of 2013, though it was enough to meet its full-year growth forecast of 20.3 per cent.
The company also gave a conservative revenue growth guidance for 2014 at a time when the industry was expecting it to be better in the wake of a rebound in the demand environment, and especially the better-than-expected show by some of its large Indian peers.
The US-headquartered company, which follows the same offshore delivery model like Indian information technology services companies, posted 16.3 per cent growth in its net profit in the quarter ended December 31 at $324 million compared with the corresponding period last year. Revenues during the quarter went up 20.9 per cent to $2.35 billion, on a year-on-year basis.
However, sequentially (when compared with the trailing quarter), the net profit grew 1.5 per cent, while revenues went up 2.2 per cent — lower than some of its Indian competitors like Tata Consultancy Services (TCS), HCL Technologies and even Tech Mahindra. For example, during the same period, TCS’ revenues went up three per cent sequentially (excluding Indian business 3.8 per cent), while net profit increased by 14.7 per cent.
“The fourth quarter is seasonally a weak one for Cognizant; so that could be one reason. However, it is not a big disappointment compared to the street number; it is a slight miss. In that way, expectation was not extremely high for this particular quarter,” said a market analyst.
For the full year (2013), the net profit for the company at $1.23 billion increased 17.4 per cent while revenues went up 20.4 per cent to $8.843 billion, slightly ahead of its guidance of 20.3 per cent in revenue growth for the full year.
The surprise element in Cognizant’s numbers was its guidance for 2014. For the year, the company has given a revenue growth guidance of 16.5 per cent. “We were expecting slightly better guidance in revenue growth given the commentary from all the Indian IT companies that the market is improving and discretionary spend is coming back. I think probably they are on the conservative side by not giving an aggressive guidance,” said a Mumbai-based equity analyst.
“So the feeling is that this (uptick) will be translated in the calendar 14-15 with a lag. However, the guidance does not capture the actual deal wins which may happen through the year, on the ground,” the person added.
In the past year also, Cognizant had maintained a cautious approach in its guidance. For example, at the beginning of 2013, it gave a revenue guidance of 17 per cent which it revised upwards twice through the year to settle for 20.3 per cent. If the company meets the guidance for 2014, it would cross $10 billion in revenues in the year.
“We anticipate that the healthy demand environment we witnessed in 2013 will continue into 2014. Thanks to our continued investments in service line capabilities, industry expertise, new technologies, new delivery platforms, and expanded geographical reach, we are well positioned to capture it,” R Chandrasekaran, Executive Vice-Chairman, Cognizant India, said.
Gordon Coburn, President of Cognizant said the company's growth in 2013 was broad-based across its industries, geographies and service lines.
“This strong growth was fueled by our clients’ on-going drive to ‘run better’ for more efficient and productive operations and to ‘run different’ to create the capabilities and business models they need for future success,” said Coburn.
“We anticipate that the healthy demand environment we witnessed in 2013 will continue into 2014. Thanks to our continued investments in service line capabilities, industry expertise, new technologies, new delivery platforms, and expanded geographical reach, we are well positioned to capture it”.
Meanwhile, the company has declared a two-for-one stock split on its Class A common stock in the form of a 100 per cent stock dividend.
