In race with Infy,Cognizant inching ahead

Cognizant said it expects to grow its revenue to a minimum of $1.79 billion during the April-June quarter.

Written by Fe Bureau | Bangalore/chennai | Published: May 8, 2012 2:29:50 am

Software services major Cognizant,which has already overtaken revenues of its nearest rival Wipro,is now gearing up to outperform Infosys,the country’s second largest technology firm. Revenues of both companies are neck and neck for the quarter ended March 2012,and numbers indicate that Cognizant may surpass Infosys by the end of the June quarter.

On Monday,while announcing its earnings,Cognizant said it expects to grow its revenue to a minimum of $1.79 billion during the April-June quarter,while Infosys has stated that its revenues will be under that figure,guiding in a range of $1.77 billion- $1.79 billion. Cognizant’s chances of outpacing the IT bellwether are strengthened by the fact that in the last few quarters,Infosys has consistently failed to meet the top end of its revenue estimates.

“Given the recent value trajectory of Infosys,we feel Cognizant is well set to take over Infosys in the June quarter. Cognizant is better placed compared with Infosys in the current environment. In the last one-and-a-half years,the marketshare gain of Cognizant is way better than Infy,” said Sanjeev Hota,assistant vice-president,IT research,Sharekhan.

For the January-March period,Cognizant posted revenue of $1.71 billion,up 24.8% from $1.37 billion recorded during the same period last year. Sequentially,it was up 2.9%. During this stretch,Infosys recorded revenue of $1.77 billion,down 1.9% quarter-on-quarter. Further disappointment for Infosys investors came when it projected FY13 revenue growth rates at below industry levels. Against Nasscom’s 11-14% growth rates,Infosys had forecast 8-10% for itself.

However,market forces have caught up with Cognizant too,with slowdown in IT spend forcing it to cut its full year growth projection to 20% from 23%. While announcing the quarterly results,the company lowered its full-year revenue guidance to $7.34 billion,from its previous forecast of $7.53 billion.

“Due to a slower than anticipated acceleration in demand as we entered the second quarter,we are adopting a more conservative stance for the remainder of the year and revising our guidance to at least 20% revenue growth for 2012,” said Francisco D’Souza,CEO,Cognizant.

The IT firm’s net income during the March quarter rose to $243.7 million from $208.3 million,a year ago.

“Similar to last year,we slightly exceeded our target operating margin during the first quarter — which positions us well to absorb our annual salary increases that will impact us during the second quarter,while maintaining operating margins within our target range for the year,” said Karen McLoughlin,chief financial officer the company.

“In addition,we repurchased $43 million of shares under our share repurchase programme during the quarter and expanded the programme to $1 billion,reflecting confidence in our growth opportunities,our commitment to drive shareholder value,and our ability to generate strong cash flows.”

The board of directors has authorised the expansion of its existing share repurchase programme by $400 million,bringing the total authorisation under the current repurchase program meto $1 billion. To date,$423 million of shares have been repurchased under this programme.

Cognizant’s bull run is being driven primarily by its strong performance in the BFSI and healthcare verticals. In the near-to-medium-term,the firm is “very well” placed to take on bigger rivals like Infosys,however,as Hota from Sharekhan noted,it has to be seen whether it can manage this momentum in the long term.

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