While Cognizant exceeded its growth projections for the quarter ending September 2011, the market’s apprehension stems from its guidance for the current quarter and its cautious tone. The IT index is experiencing a nearly 1.7 percent decline, making it the most significant loser in the market.
Cognizant achieved a noteworthy 7.8 percent sequential quarter revenue growth, surpassing its Indian IT counterparts. Unlike Indian companies grappling with currency fluctuations, Cognizant, which books its revenues in dollars, remained unaffected by such concerns. The company’s robust performance can be attributed to its heightened dependence on the North American market, from which it derives 78 percent of its revenue. In contrast, TCS, Wipro, and Infosys receive 53 percent, 51 percent, and 65 percent of their revenues from this region, respectively. Notably, Cognizant has weathered the European market slowdown more resiliently.
Another contributing factor to Cognizant’s success is its substantial revenue, nearly two-thirds, generated from the Banking and Financial Services Industry (BFSI) and Healthcare sectors. In comparison, Wipro and TCS attribute 40 percent and 50 percent of their revenues to these segments, respectively. Cognizant’s Healthcare and BFSI segments exhibited impressive growth rates of 11 percent and 7 percent, respectively.
However, the sequential guidance of only 2.8 percent for the December quarter, attributed to seasonal factors, has subdued the positive momentum following the strong results. Cognizant expressed concerns about macroeconomic issues leading to constraints and reduced discretionary spending.
Contrary to the statements of most Indian IT companies, which assert no observed slowdown but a cautious approach, Cognizant’s statement raises questions about the growth prospects of Indian IT companies in the second half of the year. This is particularly pertinent for Infosys, which had anticipated accelerated growth during this period.
In contrast to TCS, Cognizant does not foresee more than one or two significant deals occurring over the next two quarters. TCS, in its conference call, indicated actively pursuing and expecting closure on some substantial deals soon.
Given its U.S. base and listing in that country, many observers view Cognizant’s statements as more reliable than those of Indian companies. Unsurprisingly, IT stocks experienced a decline following Cognizant’s results announcement.
