Bangalore: Cognizant Technology Solutions Corp. posted a 16% rise in December quarter profit and forecast revenue growth at 17% for 2013, confirming expectations of a potential recovery in India’s $70 billion (around Rs.3.7 trillion) software exports sector.
But the recovery will be off to a slow start, the software services firm indicated, forecasting sequential revenue growth at slower than 3% to $2 billion for its first quarter ending March.
For the December quarter, Cognizant’s net profit rose to $278.8 million, or 92 cents a share, from $240.1 million a year earlier, on a 17.1% rise in revenue to $1.95 billion, in line with its own guidance of $1.94 billion.
Cognizant’s results maintain expectations of positive growth in 2013 after Indian rivals such as Tata Consultancy Services Ltd (TCS), Infosys Ltd and HCL Technologies Ltd reported better-than-expected results last month.
“We’re optimistic, but we’re not getting ahead of ourselves,” said Rajeev Mehta, group chief executive of industries and markets at Cognizant. “We’re seeing the positive trends starting to play out.”
The hope comes as top outsourcing customers in the US such as Citigroup Inc. and JP Morgan Chase and Co. continue to cut costs by offshoring information technology (IT) projects. In a January report, technology researcher Gartner Inc. said it expects worldwide IT spending for 2013 to jump 4.2% to $3.7 trillion.
“As we look to 2013, it is clear that secular industry shifts, new technology architectures, virtual business models and changing demographics are forcing clients to re-examine how they operate,” Cognizant chief executive Francisco D’Souza said in a statement on Thursday announcing the results.
All eyes will now be on the forecast to be provided by Nasscom industry lobby for the fiscal year ending 31 March 2014.
Cognizant, which follows a January-December reporting year, also reported its first $1 billion annual profit. Its revenue growth of 20% to $7.35 billion for 2012 was its slowest in three years, but still ahead of Nasscom’s prediction of 11-14% growth for the fiscal year ending 31 March 2013.
Cognizant’s biggest rivals TCS, Infosys and HCL Tech revived hopes for a recovery in client spending in the software sector, which has been hampered by the economic slowdown in the US and the debt crisis in Europe, the biggest markets for Indian IT companies.
“I think North America will be good; we are seeing stability in Europe. In 2012, we saw a little bit of slowness. But we’re ready to move ahead with not only outsourcing business, but also new development work,” Mehta said. “I think we’re going to be cautious, but we’re optimistic that we’re starting to see some of the spend starting to come in in Europe.”
Citigroup said it had factored in the caution.
“An in-line 4Q12 (fourth quarter) is a good result given the headwinds the sector faced in the quarter,” Citigroup said in a note. “Full-year guidance is good, but 1Q13 (first quarter) implies a slow start to the year—all of this is within the purview of our expectations and supportive of our thesis that CTSH (Cognizant) is executing well in a tough environment and successfully pitching/selling services to a broad spectrum of IT buyers.”
Cognizant’s 17% revenue growth forecast to $8.6 billion for 2013—the key metric the market was awaiting—was in line with what analysts had expected.
The world’s biggest consulting and IT firm, Accenture Plc, has forecast a net revenue growth of 5-8% for its fiscal year ending in August.
Cognizant is the only consulting and IT services company to give both full-year and quarterly forecasts, apart from Accenture. While TCS and HCL Tech do not provide any guidance, Wipro Ltd gives quarterly guidance and Infosys only full-year guidance.
Cognizant also reported incremental revenue of $1.23 billion for 2012—the only company other than TCS to do so. The figure is more than double than what Infosys, Wipro and HCL Tech posted. Incremental revenue, a measure of market share growth, has evolved as the new benchmark for the Indian IT sector, with profit margin—the keenly tracked metric until now—eroding as firms push aggressively to gain a bigger share of their clients’ outsourcing budgets.
Nasdaq-listed Cognizant, which now employs around 156,700 people, traces its origins to Chennai and has most of its workers in India. Over the past 13 quarters, Cognizant has expanded revenue faster than TCS, Infosys and Wipro by an average margin of 3.4%, according to brokerage firm Jefferies and Co. Inc., disrupting the pecking order of India-based software services providers.
Cognizant’s shares, which have risen about 19% over the past six months, were up 1.14% at $77.14 in early trading on the Nasdaq on Thursday.