Cognizant outpaces Wipro again, grows 7.8%

Cognizant outpaces Wipro again, grows 7.8%

Bangalore: Cognizant Technology Solutions Corp., the US-based computer services firm that does most of its work out of India, beat its own forecast and topped close rival Wipro Ltd’s revenue in the three months ended September for the second consecutive quarter, on the back of business growth in the US and Europe.

Revenue grew 7.8% from the June quarter and 31.6% year-on-year to $1.6 billion (around 7,888 crore today), said the company. Cognizant, which follows a January-December fiscal year, had forecast a 5.7% increase in revenue on a sequential basis to $1.57 billion in its third quarter.

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For the July-September period, which is Wipro’s second quarter, the Bangalore-based company’s information technology (IT) services business earned revenue of $1.472 billion. That marked an increase of 4.6% sequentially and 18% year-on-year.

The numbers and the companies’ guidance for the three months ending December clearly indicated that once the fiscal years are completed, Cognizant can cement its place as India’s third largest IT services vendor, overtaking Wipro.

Clearly their engine is working very well, and their client relationship model is standing them in good stead and enabling them to take market share away, even from some of the bigger MNCs (multinational companies)," said Vikas Jain, a partner at technology consulting firm, the Everest Group.

In its fourth quarter, Cognizant expects revenue to be at least $1.66 billion, with total 2011 revenue at $6.11 billion, up by 33% compared with 2010. Wipro has forecast a 2-4% revenue increase in the three months to December to $1.5-1.53 billion.

Cognizant’s net income was $227 million in the quarter gone by. Its GAAP (generally accepted accounting principles) operating margin was at 18.3%, and non-GAAP operating margin, excluding a stock-based compensation expense of $24.5 million, was 19.8%. Cognizant has a stated strategy of managing its margins in the 19-20% range, preferring to reinvest anything in excess for growth.

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Wipro’s operating margin for the period was 20%, a drop from 22%. The company, which also has business interests in consumer care products such as soaps, office furniture and lighting, doesn’t separately provide net income for the IT business, which makes up 75% of its total revenue. Wipro’s overall net income for the September quarter was $265 million on a revenue of $1.85 billion.

Francisco D’Souza, president and chief executive officer of Cognizant, said on an investors’ conference call from the US that clients were looking for “agility on both the revenue and cost side".

The quarterly results demonstrate Cognizant’s ability to meet client needs, he said, pointing to the company’s “intimate client relationships, consulting abilities and domain knowledge" as key strengths.

Everest Group’s Jain said that while Cognizant was clued into some of the new offerings around analytics, data and mobility, which are driving growth, it would also increasingly have to step back and do transformational engagements at the highest level to go beyond merely riding the offshore momentum.

Infosys Ltd, India’s second largest computer services firm, “is still a little ahead in this regard", Jain said.

“As for Wipro, they still have some margin levers to play with, and that is the right way to go," he added.

Chief financial officer Gordon Coburn said that during the quarter, banking and financial services registered 7% growth sequentially at 41% of revenue, healthcare 11% at 26% of revenue and manufacturing and logstics 5% at 20% of revenue.

The US, which accounts for 78% of revenue, grew 8.3% sequentially, and Europe, at 18%, grew 5%.

Attrition came down to 13% in the quarter on an annualized basis from above 15% last quarter, and net employee addition stood at 12,000, including 4,000 from the acquisition of CoreLogic Global Services Pvt. Ltd, he added.

“We are winning the war for talent; 70% of students in Indian campuses choose us over other offers. In the US, we are into our second year of campus recruitment and we have expanded to additional campuses," he said.

Cognizant is still some distance behind Infosys, though growing much faster. Infosys’ revenue grew 4.5% sequentially and 16.7% year-on-year to $1.746 billion in the September quarter.

Infosys expects revenue for the year ending March 2012 to be between $7.08 billion and $7.2 billion, an increase of 17-19% over the previous year.]