Top View: Will Cognizant see a rebound in growth in Q2?

Thomas George

US-based Cognizant(CTSH) came out with a muted Q1CY16 earning reports last week.

Despite the fact that its overall revenue grew by 10 pc, the report card reflects unusually weak quarterly performance, with 0.9 pc drop in its QoQ revenue, mainly due to decline in its major verticals such as financial services and healthcare services segments. Now that could be completely a CTSH and its client specific issue; as its Indian peers TCS and Infosys showed growth in this segment. The healthcare revenue decline was attributed to M&A activities in the sector.

Geography wise, the Rest of Europe and Rest of World were its star performers in terms of its growth with 18.8 pc and 24.9 pc respectively. But, North America still contributes 78 pc of revenue and any softness in this geography has a huge bearing on CTSH performance.

Companies consulting revenue growth was the worst in last few years due to low discretionary spending in the above mentioned verticals and seasonal softness in its TriZetto business.

CTSH increased its total employee count to around 233,000 with addition of another 11,300 personnel on net basis during the quarter. The company witnessed an annualized attrition at 14.5 pc, while its offshore utilization (including trainees) declined 100bps to 75 pc.

However, management expects revenue acceleration in Q2 and has given QoQ revenue growth guidance in the range of 4.3-6.2 pc. It has also revised its CY16 revenue guidance to $13.65–14.00bn, implying YoY growth of 10.0-12.8 pc.

The fact that more and more digital and IoT led projects moving ahead from front-end/pilot project status to stronger pipeline creation- will certainly aid in its coming quarters' performances. Reviving its healthcare revenue and gaining traction in its top verticals, will push its revenue acceleration.