Nasdaq-listed Cognizant lifts revenue guidance on strong client spending

Strong Q3 revenue growth and client investments in digital modernisation drive optimism

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Nasdaq-listed Cognizant on Wednesday raised it guidance for the financial year to 6-6.3 per cent in constant currency, up from 4-6 per cent it projected three months ago, as it anticipates clients to spend more to modernize their digital infrastructure by artificial intelligence.

 

While the demand environment remains the same, Cognizant is banking on all its business verticals to fire in unison backed by its strong large-deal pipeline.

 

Cognizant, which follows the January-December calendar year, reported a 7.4 per cent rise in revenue to $5.4 billion for its third quarter. On a constant currency basis, the growth was 6.5 per cent. Both the numbers were significantly higher than its Indian rivals, signalling that the company is on track for a turnaround after years of underperformance.

 

Net profit, however, more than halved to $274 million, from $582 million, in the same period last year, as the company created a $613 million provision for income tax.

 

“This is a quarter where all segments and all geographies have grown and that too organically,” said Ravi Kumar, chief executive officer (CEO). Cognizant.

 

North America, which contributes three-fourth of the firm’s total revenue, was up 7.8 per cent while Europe was up 4.6 per cent in constant currency. Health sciences and financial services, two of the largest business verticals, were up 5.1 per cent and 5.4 per cent, respectively.

 

Winning large deals, worth $100 million and above, has been a key priority for Kumar in this uncertain macroeconomic environment.

 

During the third quarter, Cognizant won six large deals, bringing its year-to-date total to 16 with 40 per cent growth in large deal total contract value (TCV).

 

Operating margins jumped 140 basis points to 16 per cent during the quarter. “Strong execution and cost discipline drove 70 basis points of year-over-year adjusted operating margin expansion, robust cash flow and year-to-date adjusted EPS growth of 11 per cent," said chief financial officer Jatin Dalal. For the full year, margin is expected to go up by 40 basis points to 15.7 per cent.

 

Attrition dropped to 14.5 per cent from 15.2 per cent sequentially. It added 6,000 employees in the third quarter, with the headcount at 349,800. The company is looking to hire 20,000 freshers this year, up from 9,000 last year.