Cognizant widens its gap with Infosys

IT services company Cognizant on Wednesday delivered higher-than-expected numbers for its third quarter ended September 30, reaffirming the belief that outsourcing demand for IT services still remained strong despite the weakness in some of the global markets.

The Nasdaq-listed company reported a 22 per cent increase in its net profit at $276.9 million compared with the corresponding quarter in the previous year.

The revenues at $1,892 million went up 18.2 per cent year-on-year. Sequentially, the net profit went up 10 per cent and revenues 5.4 per cent, the best sequential growth compared with the numbers of the Indian IT services companies.

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Cognizant also widened its revenue gap with Infosys further by overtaking the company for the second quarter in a row. In the period under review, Infosys had reported revenues of $1797 million, $95 million less than what Cognizant reported during the same period.

The revenue gap between both the companies stood at $43 million in the previous quarter.

"The results reaffirm the acceptance of our value proposition that helps clients address the dual mandate of driving efficiency and effectiveness in their core business," said Francisco D'Souza, CEO, Cognizant.

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In terms of guidance, the company said it was expecting its revenues in the October-December (fourth) quarter of 2012 to be at least $1,940 million, a sequential increase of 2.53 per cent.

It also reiterated that the company is comfortably placed to meet its full year guidance of $7340 million. "Our consulting-led approach, intimate client relationships, deep domain knowledge and robust execution give us the confidence to deliver revenue growth of at least 20 per cent in 2012," D'Souza added.

Cognizant follows January to December accounting year. Industry body Nasscom has given a guidance of 11-14 per cent growth for the Indian IT services industry in FY13.

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Som Mittal, president of Nasscom on Friday said that Nasscom would decide if it is required to revise the guidance after assessing Cognizant's Q3 numbers.

Cognizant's growth in the quarter was broad-based with North America which accounted 79.5 per cent of its total revenues growing 4.9 per cent sequentially and 20.3 per cent year-on-year.

The company also reported strong growth in Europe and the rest of the world. Most of the major verticals delivered strong growth for the company expect healthcare which saw a marginal decline (of 0.2 per cent) on sequential basis.

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Financial services which accounted 41.7 per cent of the company's total revenues grew seven per cent sequentially and 20.2 per cent on year-on-year basis. The company's operating margin at 18.8 per cent was stable.

"Despite the recent appreciation of the Indian Rupee, we remain confident in our ability to maintain our non-GAAP operating margin within our stated 19-20 per cent range. Our extensive India Rupee hedge programme, which now totals about $3.7 billion, helps mitigate the impact of such volatility on our operating margins," said Karen McLoughlin, CFO of Cognizant.

Cognizant also said that pricing was stable on sequential basis. At the end of the third quarter, Cognizant's cash and cash equivalents stood at $2.6 billion, an increase of $300 million over the previous quarter.

During the quarter, Cognizant added 5,100 people on net basis which took its headcount to 150,400. The attrition however went up marginally by about 90 basis points in the quarter to stand at 13 per cent.