How Cognizant BEAT Infosys

Cognizant, which was founded some 13 years after Infosys, replaced the latter as the number-two player among offshore-centric information technology services companies at the end of the January-March quarter.

Not only did Cognizant beat Infosys in terms of revenues on a full year basis, it exceeded the Bengaluru-based company in most of the operating parameters as well.

During the last four quarters, the Nasdaq-listed company reported $7.655 billion in revenue, $255 million more than that of Infosys during this period.

Cognizant follows a January-December financial year.

The sequential (quarter on quarter) increase of revenues at 3.7 per cent, as reported by Cognizant, was the best when compared with the top four Indian IT services companies.

It improved the operating margins by about 20 basis points (bps) at 19.9 per cent, whereas the Indian peers reported margin decline during the quarter.

On a net basis, the company added 6,000 people on its rolls, the second highest addition by any offshore-centric IT services company after TCS.

“By establishing themselves as a second largest offshore-centric IT services company, Cognizant will always get a greater profile from the analysts and shareholders.

“They will always get greater endorsement and the expectations will also go up,” said Kumar Parakala, partner and head of IT Advisory for KPMG in Europe, Middle East, Africa and India region.

In the quarter ended March 31, Cognizant reported a 17 per cent growth in its net profit at $284 million, compared with the corresponding quarter last year.

The revenues at $2.02 billion ($2,020 million) grew 18.1 per cent on a year-on-year basis, backed by strong growth of key verticals, including financial services, manufacturing, retail and logistics.

On a sequential quarter basis (when compared with the previous quarter), the net profit grew two per cent and revenues 3.7 per cent.

“Our performance during the first quarter was strong, and we are encouraged by the healthy demand for our broad range of services,” said Francisco D’Souza,

CEO of Cognizant.

“Our long-term re-investment in our business and the strength and depth of our client relationships give us the confidence to deliver continued industry-leading revenue growth,” said Gordon Coburn, president of the US-headquartered company.

Financial services segment, the main bread earner for the company, with a revenue share of 42 per cent saw a 4.9 per cent rise on sequential quarter basis and 23.1 per cent on a y-o-y basis.

The company reported a steady growth in North America, which accounts for 78 per cent of its overall revenues.

However, Europe, especially the countries other than the UK, grew the fastest for the company at 9.7 per cent sequentially and 27.3 on y-o-y basis, though on a smaller base.

The company has reaffirmed full-year guidance of 17 per cent, higher than Nasscom’s estimation of 12-14 per cent for the Indian IT services sector and higher than Infosys’ guidance of 6-10 per cent.

“Cognizant’s performance is reflective of the potential that still exists for IT companies in a relatively slower market and it proves that if the IT companies are willing to differentiate itself, they can do extremely,” added Parakala of KPMG.

Stock repurchase and COO Cognizant said its board of directors has approved an expansion of its stock repurchase programme by $500 million at $1.5 billion.

It has also extended the term of the programme to December 31, 2014.

So far, the company has repurchased $940 million of its shares under this programme.

The repurchases will be funded using the company’s cash on hand and cash generated from operations.

The programme might be extended, suspended or discontinued any time, it said in a statement.

Cognizant also elevated Sridhar Thiruvengadam to the post of chief operating officer, who till recently served the company as executive vice-president.