Cog­nizant rev­enue rises 22.6pc in 2Q

The Pak Banker - - COMPANIES/BOSS -

Cog­nizant Tech­nol­ogy So­lu­tions Corp., the US com­pany that has most of its em­ploy­ees in In­dia, topped an­a­lysts' quar­terly rev­enue es­ti­mates and raised its an­nual sales forecast for the sec­ond time in 2015, out­per­form­ing its In­dian ri­vals.

The Tea­neck, New Jersey-based com­pany said rev­enue in the three months ended 30 June rose 22.6% from a year ear­lier and 6% from the pre­ced­ing March quar­ter to $3.09 bil­lion, ex­ceed­ing its ear­lier forecast of grow­ing at 3.4%. Cog­nizant re­ported a 6.2% sequential growth in rev­enue dur­ing the Jan­uary-March pe­riod.

Cog­nizant now ex­pects full-year rev­enue to grow 20.1% to $12.33 bil­lion, com­pared with its ear­lier forecast of $12.24 bil­lion. It ex­pects $3.14 bil­lion in rev­enue for the third quar­ter ended 30 Septem­ber. Its per­for­mance was lifted largely on ac­count of higher spend­ing by clients among large com­mer­cial banks in North Amer­ica. An­a­lysts polled by Bloomberg ex­pected Cog­nizant to re­port June quar­ter rev­enue of $3.03 bil­lion. Net in­come rose to $420.1 mil­lion in the quar­ter ended 30 June from $371.9 mil­lion in the year-ago pe­riod. Cog­nizant fol­lows the cal­en­dar year as its fis­cal year, un­like some lo­cal in­for­ma­tion tech­nol­ogy firms, which fol­low an April-March fis­cal year.

"This was a tremen­dous quar­ter," chief ex­ec­u­tive of­fi­cer Fran­cisco D'Souza said in a con­fer­ence call with an­a­lysts af­ter the com­pany re­ported its re­sults. "Our sec­ond quar­ter sequential rev­enue in­crease in dol­lar terms was the strong­est in our history. We're see­ing ro­bust de­mand for our ser­vices, across geogra­phies."

At the core of Cog­nizant's strong per­for­mance was a 7.7% growth in the fi­nan­cial ser­vices space, driven largely by higher tech­nol­ogy spend­ing from large com­mer­cial banks and clients in the in­sur­ance sec­tor. The US, which ac­counts for 78.6% of Cog­nizant's rev­enue, grew at 5.8%. Europe ex-UK, which ac­counts for about 6.6% of rev­enue, grew at 7.3%.

"Strong ex­e­cu­tion and the ap­proach Cog­nizant has taken for in­te­grat­ing its con­sult­ing prac­tice along with it­self helps at a time when most com­pa­nies are look­ing for im­prov­ing the way they have done busi­ness. This en­ables (Cog­nizant) to have a more pro-ac­tive ap­proach in open­ing new busi­ness streams when en­gag­ing with clients and at the same gen­er­ate more busi­ness from ex­ist­ing clients," said a Sin­ga­pore-based an­a­lyst at a for­eign bro­ker­age. Cog­nizant's ap­proach of hav­ing an in­te­grated con­sult­ing prac­tice is un­like the model fol­lowed by In­dian IT ma­jors, which have a sep­a­rate con­sult­ing prac­tice.

Over the past 24 quar­ters un­til the end of 31 March, Cog­nizant's sequential rev­enue growth in con­stant cur­rency terms has grown faster than its In­dian ri­vals, in­clud­ing Tata Con­sul­tancy Ser­vices Ltd (TCS), In­fosys Ltd and Wipro Ltd, by an av­er­age mar­gin of 2.6%, es­ti­mates Jason Kupfer­berg, an an­a­lyst at bro­ker­age Jef­feries.

Cog­nizant's per­for­mance dur­ing the quar­ter was again ahead of the 3.5% sequential growth in rev­enues re­ported by larger ri­val TCS and 4.5% growth re­ported by In­fosys. Wipro dur­ing the pe­riod saw its rev­enue grow­ing 1.1% while HCL Tech­nolo­gies Ltd grew 3.2% dur­ing the April-June pe­riod.

This, de­spite Cog­nizant's $2.7 bil­lion seven-year agree­ment with health in­surer Health Net Inc.-which would have re­sulted in the IT firm earn­ing $100 mil­lion in the sec­ond half of this fis­cal and $200 mil­lion in 2016-get­ting can­celled af­ter Health Net was bought by ri­val Cen­tene Corp. For this rea­son, the healthcare seg­ment, which brings in close to a third of Cog­nizant's busi­ness, logged 2.1% growth over the pre­ced­ing quar­ter com­pared with a sequential growth of 13.8% in the Jan­uaryMarch pe­riod.

Some an­a­lysts, in­clud­ing James Fried­man of Susque­hanna In­ter­na­tional Group, said that Cog­nizant's fo­cus on of­fer­ing so­lu­tions to fewer in­dus­tries and geogra­phies helps it ex­e­cute bet­ter than its ri­vals. Cog­nizant gen­er­ates about 70% of its rev­enue from bank­ing and fi­nan­cial and healthcare sec­tors and gen­er­ates 95% of its busi­ness from the US and Europe.

For some of the In­dian IT firms, client-spe­cific chal­lenges hurt growth dur­ing the April-June pe­riod. Mum­bai-based TCS con­tin­ues to strug­gle to turn around Dili­genta, its UK-based pen­sion and in­sur­ance out­sourc­ing arm, while un­der­per­for­mance in emerg­ing coun­tries, in­clud­ing Ja­pan, shaved off $20 mil­lion from the com­pany's rev­enue. Wipro con­tin­ues to re­port dis­mal num­bers as client spend­ing in the energy seg­ment-which brings close to 17% of its rev­enue-re­mains weak.

One wrin­kle in a good set of num­bers was that Cog­nizant's at­tri­tion rate dur­ing the pe­riod rose to 19% as against 16.9% in the year-ago pe­riod.

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