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Business News/ Market / Mark-to-market/  Cognizant has bounced back smartly after mid-2014 lull
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Cognizant has bounced back smartly after mid-2014 lull

Cognizant Technology Solutions Corp.'s December quarter results and guidance for 2015 will please investors in Indian information technology stocks

Cognizant’s guidance for 2015 as well as the management’s commentary reflects a fairly positive view of demand in the new year. Photo: MintPremium
Cognizant’s guidance for 2015 as well as the management’s commentary reflects a fairly positive view of demand in the new year. Photo: Mint

Cognizant Technology Solutions Corp.’s December quarter results and guidance for 2015 will please investors in Indian information technology (IT) stocks. Its revenues grew by 4.2% sequentially in constant currency, after adjusting for the impact of the TriZetto Corp acquisition. One of the company’s main competitors, Tata Consultancy Services Ltd (TCS), had reported a 2.5% growth in revenues for the December quarter.

What’s more, Cognizant’s guidance for 2015 as well as the management’s commentary reflect a fairly positive view of demand in the new year. The company said it expects revenues to grow by 19% to $12.2 billion; although like-to-like growth is likely to be around 14.5%, after adjusting for the TriZetto acquisition and the impact of cross currency movements.

In 2014, the company grew revenues by 15.1% in dollar terms. Considering that the company may have built in some level of conservatism in its guidance, it’s likely that growth this year will be similar. This is no mean achievement for a company of a size of over $10 billion.

About six months ago, the company had lowered its 2014 guidance, citing weakness owing to leadership changes at some of its clients and longer-than-expected sales cycles for certain large deals. Back then, it had seemed that maintaining growth rates on a large revenue base will be a challenge. But Cognizant has come back smartly in the past two quarters—it said in a call with analysts that the above-mentioned weakness in some clients is behind them. The 4.2% revenue growth in the December quarter will now help the company start the new year on a strong base. The company’s chief executive officer, Francisco D’Souza told analysts, “We finished 2014 on a strong note and are encouraged by the strength of the demand environment and how well positioned we are to capture the market opportunity."

While investors are likely to respond to Cognizant’s results and commentary by buying other Indian stocks as well, the overall trend in the December quarter results should serve as a caution. While cumulative growth was fairly decent among top-tier companies, the trend wasn’t uniform.

HCL Technologies Ltd led with impressive growth of 6.2% in constant currency; but TCS disappointed with volume growth of merely 0.4%.

It doesn’t make sense, then, to assume that Cognizant’s growth represents growth for the entire industry. It’s possible that some companies are garnering market share at the expense of others.

The writer doesn’t own shares in the above-mentioned companies.

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Published: 04 Feb 2015, 09:24 PM IST
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