ETtechDespite macroeconomic headwinds in the United States, IT services provider Cognizant Technology Solutions will look to maintain its growth rate in the financial services vertical - which accounts for a little under one-third of its total revenue - amid a digital pivot geared towards bagging orders with higher margins, Rajesh Nambiar, its India chairman and managing director, told ET.
Cognizant’s second quarter revenue, at $4.9 billion, was its largest ever in a quarter, Nambiar said after its earnings call on Thursday.
It has, however, forecast lower revenue for the ongoing financial year amid macroeconomic headwinds in the US market.
The company said revenue growth would come in at 8.5-9.5% in constant currency to about $19.7-$19.9 billion for the full year, from the 9-11% guidance in the previous quarter. This is Cognizant's second consecutive cut to its revenue guidance in FY22 from the $20-20.5 billion forecast at the end of the fourth quarter of FY21.
The company follows a January-December fiscal year.
Cognizant's watchful stance on the global economy is mirrored in the concerns of technology leaders such as Google parent Alphabet and Meta (formerly Facebook), which have said they would slow hiring and double focus on expense management.
Nambiar said no company will be immune to broader macroeconomic trends but as of now the company is "not seeing anything significant in the market to be worried about."
Financial services grew the slowest in Q2, coming in at 5.1% in constant currency even though it made up over 31% of its $4.9 billion revenue.
Over the last five quarters, financial services revenue has been flatlining at around $1.5 billion, even as other verticals such as health sciences, products and resources, and communications, media and technology have been on an uptrend, according to an investor presentation by Cognizant.
Nambiar said operating margins at 15.5%, up 30 basis points from the year-ago period, made the company stand out. “We feel very good about our margins, it is one of the best performances of margin across anybody in terms of margin growth."
Cognizant chief executive Brian Humphries said Cognizant was watching the effects of the economic headwinds, and the likely impact on client earnings.
“We are carefully monitoring the potential impact of a worsening economy in our pipeline. To date, we've not seen any significant slowdown for IT services demand. That said, as we serve some of the largest clients in the world, we are aware that should they see slowing earnings growth, nonessential projects or those with longer RoI [return on investment] may be paused," Humphries said on the call.
For the June quarter, Cognizant's India peers TCS and Infosys fared better in terms of revenue growth. Cognizant has cut its guidance even as its Indian peers maintained their forecasts, except Infosys which raised it on a strong demand pipeline.
Cognizant has seen a spate of leadership exits recently.
Ursula Morgenstern, President, Global Growth Markets stepped down in June.
The company also terminated Executive Vice-President and President of Americas, Gregory Hyttenrauch, on behavioural grounds.
Nambiar though remained unfazed. "We have a very steady leadership across the board," he said. "You do have an interim leader at this point in time for our US market. This is not about having multiple leaders at all. We have very steady growth in the US market and 75% of our revenues come from the North American market."
Attrition continues to be an industry-wide pain point, Nambiar said.
For Q2, Cognizant's voluntary annualized attrition stood at 31%.
Over the past five quarters, Cognizant's attrition has hovered around 30%.
According to a Kotak Institutional Equities, Cognizant's high involuntary attrition numbers are surprising. "We understand that the labour market is tight; however, other IT companies have managed a decline in annualized attrition on sequential basis. We are surprised with the rather high involuntary attrition of 5%, especially against the backdrop of a talent crunch. Attrition rate is high onsite as well. Interventions are necessary; else it can impact growth as well as margins in the future,” it said.
Cognizant’s attrition is the highest compared to peers TCS (19.7%), Infosys (28.4%), HCL Technologies (23.8%) and Wipro (23.3%).
Nambiar said their metrics for measuring attrition differ and hence it would not be apt to compare their attrition numbers to other companies.
Humphries qualified its financial performance as “balanced financial results," in a scenario marked by “elevated attrition” and “significant wage inflation.”
“While I'm pleased that we drove both year over year and sequential margin expansion, Isuspect that our focus on fulfillment optimization and pricing marginally impacted top-line performance and hurt bookings momentum. Second-quarter bookings declined 3% year over year, below our assumptions entering the quarter,” Humphries said during the earnings call.
The sale of Samlink, a Finnish IT services provider it acquired in January 2019, has impacted the financial services segment revenue, Cognizant said in the earnings statement.
Cognizant’s second quarter revenue, at $4.9 billion, was its largest ever in a quarter, Nambiar said after its earnings call on Thursday.
The Teaneck, New Jersey-based company’s net profit rose 12.7% in its fiscal second quarter, while revenue was up 9.5% in constant currency terms.
It has, however, forecast lower revenue for the ongoing financial year amid macroeconomic headwinds in the US market.
The company said revenue growth would come in at 8.5-9.5% in constant currency to about $19.7-$19.9 billion for the full year, from the 9-11% guidance in the previous quarter. This is Cognizant's second consecutive cut to its revenue guidance in FY22 from the $20-20.5 billion forecast at the end of the fourth quarter of FY21.
The company follows a January-December fiscal year.
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Cognizant's watchful stance on the global economy is mirrored in the concerns of technology leaders such as Google parent Alphabet and Meta (formerly Facebook), which have said they would slow hiring and double focus on expense management.
Nambiar said no company will be immune to broader macroeconomic trends but as of now the company is "not seeing anything significant in the market to be worried about."
Financial services grew the slowest in Q2, coming in at 5.1% in constant currency even though it made up over 31% of its $4.9 billion revenue.
Over the last five quarters, financial services revenue has been flatlining at around $1.5 billion, even as other verticals such as health sciences, products and resources, and communications, media and technology have been on an uptrend, according to an investor presentation by Cognizant.
Nambiar said operating margins at 15.5%, up 30 basis points from the year-ago period, made the company stand out. “We feel very good about our margins, it is one of the best performances of margin across anybody in terms of margin growth."
Cognizant chief executive Brian Humphries said Cognizant was watching the effects of the economic headwinds, and the likely impact on client earnings.
“We are carefully monitoring the potential impact of a worsening economy in our pipeline. To date, we've not seen any significant slowdown for IT services demand. That said, as we serve some of the largest clients in the world, we are aware that should they see slowing earnings growth, nonessential projects or those with longer RoI [return on investment] may be paused," Humphries said on the call.
For the June quarter, Cognizant's India peers TCS and Infosys fared better in terms of revenue growth. Cognizant has cut its guidance even as its Indian peers maintained their forecasts, except Infosys which raised it on a strong demand pipeline.
Cognizant has seen a spate of leadership exits recently.
Ursula Morgenstern, President, Global Growth Markets stepped down in June.
The company also terminated Executive Vice-President and President of Americas, Gregory Hyttenrauch, on behavioural grounds.
Nambiar though remained unfazed. "We have a very steady leadership across the board," he said. "You do have an interim leader at this point in time for our US market. This is not about having multiple leaders at all. We have very steady growth in the US market and 75% of our revenues come from the North American market."
Attrition continues to be an industry-wide pain point, Nambiar said.
For Q2, Cognizant's voluntary annualized attrition stood at 31%.
Over the past five quarters, Cognizant's attrition has hovered around 30%.
According to a Kotak Institutional Equities, Cognizant's high involuntary attrition numbers are surprising. "We understand that the labour market is tight; however, other IT companies have managed a decline in annualized attrition on sequential basis. We are surprised with the rather high involuntary attrition of 5%, especially against the backdrop of a talent crunch. Attrition rate is high onsite as well. Interventions are necessary; else it can impact growth as well as margins in the future,” it said.
Cognizant’s attrition is the highest compared to peers TCS (19.7%), Infosys (28.4%), HCL Technologies (23.8%) and Wipro (23.3%).
Nambiar said their metrics for measuring attrition differ and hence it would not be apt to compare their attrition numbers to other companies.
Humphries qualified its financial performance as “balanced financial results," in a scenario marked by “elevated attrition” and “significant wage inflation.”
“While I'm pleased that we drove both year over year and sequential margin expansion, Isuspect that our focus on fulfillment optimization and pricing marginally impacted top-line performance and hurt bookings momentum. Second-quarter bookings declined 3% year over year, below our assumptions entering the quarter,” Humphries said during the earnings call.
The sale of Samlink, a Finnish IT services provider it acquired in January 2019, has impacted the financial services segment revenue, Cognizant said in the earnings statement.
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