Cognizant's Q1 profit up 23%

Revenue up by 20%; company sticks to full year revenue guidance

Cognizant Technology Solutions, the Nasdaq-listed information technology (IT) services company, had better than expected earnings in its financial year’s first quarter, ended March. It has retained its earlier forecast for annual revenue growth.

The US-headquartered company competes with most of the tier-I Indian IT services providers. It reported 23 per cent year-on-year growth in net profit to $348.9 million. Revenue, backed by strong deal flow across regions, especially in Europe, grew 20 per cent year-on-year to $2.42 billion.

Compared with the earlier quarter, net profit grew about eight per cent and revenue three per cent, better than its Indian peers, Tata Consultancy Services (TCS) and Infosys. Only HCL Technologies had higher sequential revenue growth in March quarter at three per cent (in dollar term). While it was two per cent for TCS, Infosys reported a 0.4 per cent decline in dollar revenue. Cognizant posted strong growth in Europe, a region accounting for a little over 19 per cent of its revenue. Sequentially, revenue from Europe grew 10 per cent, the strongest in two years. Within Europe, the UK saw 13 per cent sequential growth, hitting $1 bn for the first time.

North America, which accounts for close to 76 per cent of revenue, grew only one per cent. Among the business verticals, manufacturing, retail and logistics grew the most, at 4.4 per cent, followed by financial services at three per cent sequentially.

The operating margin, at 19 per cent, was well within the comfort zone of Cognizant. Against the perception that the company might revise its annual revenue forecast upward, it did not.

“We remain confident in the overall demand environment and in our ability to deliver our previously stated revenue guidance (forecast) of at least $10.3 bn for 2014, up at least 16.5 per cent over 2013,” said Gordon Coburn, president of Cognizant. For the second quarter (April-June) of 2014, the company expects revenue to be between $2.5 bn and $2.53 bn, a sequential increase of 3.3–4.5 per cent.

“Our continued focus on operational excellence and our strong ramp-up in hiring during the quarter positions us to effectively service the healthy demand environment that we anticipate this year,” added Karen McLoughlin, chief financial officer.

During the quarter, the company added 7,200 people on a net (after taking attrition into account) basis, which took its overall headcount to 178,600. Attrition, at 14.1 per cent, was one of the lowest in the sector.