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HCL Technologies Ltd overtook Cognizant Technology Solutions Corp on Thursday to become the fourth-most valuable India-centric information technology (IT) services company as the Noida-based company’s market capitalization surpassed Cognizant, underlining the challenges faced by the Nasdaq-listed company under chief executive Brian Humphries.

Teaneck, New Jersey-based Cognizant appointed Humphries as the successor to Francisco D’Souza on 6 February 2019, and over the last thirty months the former Vodafone executive has struggled to steer Cognizant, as both growth and profitability have lagged behind its homegrown peers, consequently impacting the company’s market cap.

On Wednesday, Cognizant shares closed at $73.56 on Nasdaq, giving the company, which has more than two-thirds of its nearly 300,000 employees based out of India, a market cap of $38.84 billion. On Thursday morning, HCL Technologies shares were trading at 1,061 at 9:41 AM on the Bombay Stock Exchange, translating into a market cap of $39 billion.

Cognizant shareholders have not got much return under Humphries’ watch as shares have delivered 2% returns between 6 February 2019 and 4 August 2021. This despite the company spending $2.1 billion last year and $2.7 billion in 2019 on share repurchase and dividends.

Cognizant, which follows a January-December financial year, ended with $16.65 billion in revenue last year, as for the first time full-year revenue declined 0.76% compared to $16.78 billion at the end of December 2019. Its operating margin fell 190 basis points from 14.6% to 12.7%.

To be sure, Cognizant reported the fastest full-year revenue growth in 14 of the last 22 years since it went public in 1998, according to an analysis by Mint.

Noida-headquartered HCL Technologies reported a 2.4% growth in the year ended 31 March 2021, on the back of a 15% growth in 2020. The company managed to improve its operating margin by 180 basis points from 19.6% to 21.4%.

A strong performance, stable leadership team, and an acquisition-led approach have all helped HCL shares more than double during this period, returning 105% over the last thirty months.

In contrast, Humphries has struggled to build a senior leadership team, as the company continues to see an exodus of leaders. Muthu Kumaran, a Senior Vice President and Global Delivery Head, Cognizant Digital Business, put in his papers last month, according to two executives familiar with the development. This departure comes after Malcolm Frank, an Executive Vice President and President of Cognizant Digital Business leaving the company in June.

In the April-June quarter, Cognizant’s attrition shot to 31%, implying that almost every third employee at the company quit the company in the last twelve months.

Both Cognizant and HCL Technologies expect a double-digit revenue growth in the current year.

Tata Consultancy Services Ltd, the largest IT services company leads the pack with a market cap of $164 billion, followed by Infosys Ltd and Wipro Ltd, which have a market cap of $96 billion and $ $46.5 billion, respectively.

ABOUT THE AUTHOR
Varun Sood
Varun Sood is a business journalist writing on corporate affairs for the last fifteen years. He also writes a weekly newsletter, TWICH+ on the largest technology services companies. He is based in Bangalore. Varun's first book, Azim Premji: The Man Beyond the Billions, was brought out by HarperCollins in October 2020.
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Updated: 05 Aug 2021, 10:45 AM IST
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