Cognizant Q2 net dips 40%, slashes FY16 revenue guidance

US-based Cognizant has posted a 40 per cent decline in net profit to USD 252.4 million (around Rs 1,600 crore) for June quarter on higher provisioning for taxes and cut its annual revenue guidance, highlighting broader macroeconomic challenges being faced by global IT industry.
The IT services major, which competes with the likes of TCS and Infosys, saw revenues rising 9.2 per cent to USD 3.36 billion in the said quarter, just meeting its forecast of USD 3.34-3.40 billion topline for the second quarter.
For the entire year, Cognizant lowered its revenue outlook to USD 13.47-13.60 billion, translating to a growth of 8.4-9.5 per cent.

This is well below industry body Nasscom's estimate of 10-12 per cent growth and much lower than Cognizant's 2015 topline growth of 21 per cent.
At the start of the year, Cognizant had guided for a growth rate of 9.9-14.3 per cent, which it reduced post first quarter to 9.9-12.7 per cent. It follows January-December as its fiscal year.
Explaining the decline in profit, Cognizant CEO Francisco D'Souza said the company's principal operating subsidiary in India repurchased shares from its shareholders, which are non-Indian Cognizant entities in May this year.

"This resulted in a one-time remittance of USD 2.8 billion of cash from India. (About) USD 1.2 billion, or USD 1 billion net of taxes, was transferred to the US with the other USD 1.6 billion remaining overseas," he added.

As a result of this transaction, Cognizant will incur an incremental 2016 income tax expense of USD 237.5 million. Of this, USD 190 million was recognised in June quarter, while USD 23.7 million will be recognised in each of the quarters ending September and December, 2016.
"While our revised guidance reflects the impact of near-term macroeconomic headwinds, our longer term outlook and underlying business fundamentals remain strong.We continue to see an expanding market opportunity ahead," D'Souza said.
He added the second quarter performance represented broad-based revenue growth across service lines, geographies and industries, including healthcare and financial services.
For July-September quarter, it expects revenue to be in between USD 3.43 billion and USD 3.47 billion.

June quarter has been a mixed bag for Cognizant's Indian counterparts. While TCS delivered 3.7 per cent sequential revenue growth, Infosys and Wipro came out with less than expected quarterly results.
Financial services grew 8.1 per cent in June quarter from
the year-ago period, while healthcare and manufacturing/ retail/logistics revenues were up 6.9 per cent and 14.2 per cent, respectively.
"There was strong second quarter revenue growth with addition of incremental quarterly revenue of nearly USD 170 million... The medium to long-term outlook for our business remains as strong as ever. Our pipeline is healthy. We continue to make investments in skills and capabilities," Cognizant President Gordon Coburn said.

Cognizant, which has a majority of its employees in India, added 11,300 people, taking its total headcount to over 2.44 lakh at the end of June 30. Its annualised attrition stood at 17.1 per cent during the quarter.
It added seven strategic customers in the quarter.
In terms of geography, North America grew 8.3 per cent and accounted for 78 per cent of the business. Europe (16.2 per cent) and Rest of World (RoW) (5.9 per cent) grew 8.9 per cent and 25 per cent, respectively.
"Growth in Europe was driven primarily by the ramp of work with recent wins particularly in markets such as Germany and the Nordics. Growth in RoW was driven primarily by strength in key markets such as Singapore, India and Australia," Cognizant CEO (IT Services) Rajeev Mehta said.