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Cognizant sounds alarm, lowers its revenue guidance on 'slow demand'

Posts 17 per cent growth in net profit but revises full-year guidance

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Information technology services company Solutions on Monday met its revenue guidance given for the quarter ended March 30 and projected its April-June revenues to cross those of Infosys, something long anticipated in industry circles.

But, more significant was the company’s full-year revenue guidance, revised downwards due to "slower than anticipated acceleration in demand", something and Wipro had earlier hinted at. It indicates that all is not well with the IT outsourcing services industry, as clients restrict spending.

The Nasdaq-listed company said in calendar year 2012, it was expecting its revenues to be $7.34 billion (Rs 39,562.6 crore), 20 per cent growth over 2011. At the end of December 2011, the company had projected its full-year revenues to grow at least 23 per cent y-o-y to close at $7.53 billion (Rs 40,586.7 crore). That means the revised guidance is based on the company’s understanding of the macro environment during the last three months. “Due to a slower than anticipated acceleration in demand as we entered the second quarter, we are adopting a more conservative stance for the remainder of the year and revising our guidance to at least 20 per cent revenue growth for 2012,” said CEO Francisco D’Souza.

THE INFY COMPARISON
  • Revenues in quarter ended March

    Cognizant
    $1.71 billion (Rs 9,216.9 crore)

    Infosys
    $ 1.77 billion (Rs 9,540.3 crore)
  • Revenue guidance for quarter ending June

    Cognizant
    $1.79 billion (Rs 9,648.1 crore)

    Infosys
    $ 1.77-1.789 billion (Rs 9,540.3-9,642.71 crore)

For the quarter ended March 31, Cognizant reported 17 per cent growth in at $243.7 million (Rs 1,313.54 crore) when compared with the corresponding quarter a year ago. The company’s revenues at $1.71 billion (Rs 9,216.9 crore) in the quarter grew 24.8 per cent over the same quarter a year ago. Its operating margins at 18.6 per cent in the quarter were on expected lines.

However on a sequential quarterly basis (when compared with the trailing quarter), the net profit grew marginally by 1.5 per cent and revenues went up by 2.9 per cent. “We are expecting the first half of the year to be a little bit slow in terms of demand and things should start looking up in the second half. Even industry body Nasscom in its guidance had factored those aspects. Now, it seems that Cognizant is also seeing a similar trend in the market,” said Amneet Singh, country head of Everest Group.

As was widely expected, at the end of the January-March quarter, Cognizant narrowed its revenue gap with Infosys by a margin of $60 million (Rs 323.4 crore). However, in terms of revenue guidance for the quarter ending June, Cognizant projected its revenues to be about $1.79 billion (Rs 9,648.1 crore), over $10 million (Rs 53.9 crore) higher than Infosys’ revenue guidance of $1.77-1.789 billion (Rs 9,540.3-9,642.71 crore).

Unless Infosys goes for an acquisition in the next two quarters, Cognizant’s revenues at the current rate of growth are expected to surpass its revenues at the end of 2012.

Infosys, which follows the financial year, has given a revenue guidance of $7.55-7.69 billion (Rs 40,694.5-41,449.1 crore) for FY13. For the calendar year ending December 31, 2012, Cognizant has given a revenue outlook of $7.34 billion (Rs 39,562.6 crore), a growth of 20 per cent over 2011. “We continue to believe we have the right portfolio of services to sustain our industry-leading growth and also meet the changing demands in the market as clients continue to grapple with their dual mandates of cost containment and innovation/business transformation,” added D’Souza.

During the quarter, Cognizant added 2,800 employees (net) to its total headcount, which stood at 140,500 as on March 31, 2012. The company added 20 clients in the quarter, which took its number of active customers to 805.

A highlight of Cognizant’s performance in the first quarter was that all its verticals and geographies grew by double digits on a y-o-y basis. The financial services vertical, which accounted for close to 41 per cent of revenues, grew about 22 per cent y-o-y and 2.2 per cent sequentially.

North America, which accounted for 79.5 per cent of overall business, grew 27 per cent over the same quarter in the previous year and 2.5 per cent sequentially.

Meanwhile, the company said its board of directors had authorised the expansion of its existing share repurchase programme by $400 million (Rs 2,156 crore), bringing the total authorisation under the current programme to $1 billion (Rs 5,390 crore). To date, $423 million (Rs 2,279.97 crore) worth of shares have been repurchased under the programme.

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