Nasdaq-listed IT major Cognizant targets 6.5-8% growth in Q1 FY25

The Nasdaq-listed firm reported a revenue growth of 6.7 per cent for the fourth quarter

Nasdaq-listed IT major Cognizant said it expected to grow between 6.5-8 per cent in constant currency in its first quarter of FY25, buoyed by an uptick in discretionary spending among clients and a better outlook in its healthcare and financial services businesses. This will translate into a revenue growth of $5-5.1 billion for the period between January and March.

 

Unlike other Indian IT services companies, the US-based IT giant follows a January to December calendar year. For the full year, the IT services company expects to grow between 3.5-6 per cent in constant currency, with revenue of $20.3-20.8 billion.

 

“The large deal momentum is continuing, and small deals continue as discretionary spending comes back,” chief executive Ravi Kumar said in a press conference after the results. “While the uncertainty is still there, the new government in the US wants to have less regulation. So, some of the dollars will get unlocked and financial services will be the biggest beneficiary,” he told Business Standard.

 

For the fourth quarter, the company reported a revenue growth of 6.7 per cent in constant currency, at the high end of its guidance. On a reported basis, revenue was $5.1 billion. Net income was up 2.1 per cent at $558 million compared with $546 million a year earlier. On a sequential basis, net income was down 4.1 per cent.

 

“The volume or the texture of growth will be slightly different for 2025, where you will see both the short-end work as well as the volumes which are being added by the large contracts of large deals,” chief financial officer Jatin Dalal told analysts.

 

Bookings in the fourth quarter increased 11 per cent year-on-year (Y-o-Y). On a trailing twelve-month basis, bookings increased 3 per cent Y-o-Y to $27.1 billion, which represented a book-to-bill of approximately 1.4x. During the quarter, Cognizant signed ten large deals, which are deals with a total contract value of $100 million or greater.

 

In terms of growth drivers, North America, the company’s largest market, grew 8.4 per cent Y-o-Y, while Europe was up 1.3 per cent. In terms of verticals, health sciences grew 10.4 per cent, financial services rose 2.8 per cent and communications, media and technology 0.4 per cent. The firm's products and resources segment grew 11.3 per cent. Operating margin was down to 14.8 per cent from 15.2 per cent a year earlier.

 

“Margins declined by 40 basis points, primarily reflecting the impact of Belcan and increased compensation costs. This was partially offset by savings from next-gen, high utilisation, and a favourable currency exchange rate,” Dalal added.

 

Cognizant’s attrition rose to 15.9 per cent for the fourth quarter from 14.6 per cent sequentially, in line with most other IT services companies. While Dalal attributed it to a favourable demand environment, many believe that with the onset of GenAI in projects, revenue growth and headcount will not move in sync as a lot of work gets automated. The company headcount dropped by 3,300 to 336,800 at the end of 2024.