Cognizant revenue grows 10.3% to $3.91 billion in March quarter
Cognizant net profit declines to $520 million in the first quarter on account of a higher provision made for taxes
Bengaluru: Cognizant Technology Solutions Corp managed to grow its March quarter revenue faster than analyst expectations, helped by higher spend from clients across all its industry segments, even as the Nasdaq-listed company raised its lower end of growth outlook by 40 basis points in 2018.
Significantly, Cognizant now generates more than $15 billion in full-year revenue, based on trailing four quarter basis. Cognizant has managed to grow its revenue from $10 billion to $15 billion in almost the same time as its larger rival, Tata Consultancy Services Ltd (TCS), underlining the firm’s ability to scale up business.
On Monday, Cognizant said it expects full-year revenue to be between $16.05 billion and $16.3 billion, translating into a growth of 8.4% and 10% or adding new business of between $1.24 billion and $1.49 billion. In February, the management had said the company will grow between 8% and 10%.
Cognizant’s reaffirmation of at-best 10% growth along with India’s largest information technology (IT) services firm TCS maintaining that it expects to clock-in a double-digit growth in 2018-19 suggests that the two companies are outliers even as the rest of the other smaller firms, including Infosys Ltd and Wipro Ltd, are struggling to pivot their business models. However, Cognizant is the only company that has managed to improve upon its operating margin in the past two years even as the Indian IT firms’ higher profitability has seen erosion during this time.
Cognizant, which is based in the US but has most of its employees in India, said revenue in the three months ended 31 March increased 10.3% from a year earlier, and improved 2.2% from the preceding December quarter, to $3.91 billion.
Net profit improved to $520 million in the first quarter, as against a loss of $18 million in the fourth quarter, but was lower than $557 million in the year-ago period, on account of higher provision made for taxes. In the October-December period too, Cognizant made a large one-time provision under repatriation tax, on account of the US government making a change in the tax policy, leading the company to report its first quarterly loss in its 24-year history.
Analysts polled by Bloomberg had expected Cognizant to report a revenue of $3.9 billion and profit of $620.46 million.
The Teaneck, New Jersey-based company expects revenue in the June quarter to be between $4 billion and $4.04 billion, a sequential increase of 2.3% and 3.3%.
“We’ve got off to a solid start,” Cognizant chief executive officer Francisco D’Souza told analysts in a post-earnings call. “We’ve developed the strong and scalable foundation on which to extend our leadership as the builder of the digital economy. And we expect our forward momentum to deliver a strong 2018”
Three of company’s four industry segments, including healthcare, products and resources and communications, media and telecommunications saw a double-digit year-on-year growth. However, Cognizant’s largest revenue segment, financial services, managed only a 6.2% growth from the year-ago period.
At least one analyst believes both Cognizant and TCS will continue reporting higher growth than other Indian IT firms.
“Both Cognizant and TCS are the only companies which are reporting double-digit growth and have more broad-based growth (across) industry segments and geographies,” said a Mumbai-based analyst at a foreign brokerage, on the condition of anonymity. “This broad-based growth is offsetting softness in banking clients and going by the commentary, both companies should continue reporting better revenue growth.”
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