Cognizant Q1 net up 15%, sees slowest revenue growth in 14 yrs

US-based IT services major Cognizant today posted a 15.2 per cent jump in net profit for March quarter at USD 441.2 million from USD 382.9 million a year ago, driven by growth in verticals like manufacturing. However, with a 10 per cent rise in topline, this is the slowest quarterly revenue growth for Cognizant in 14 years as its clients in financial and healthcare services held back on spending.

Company’s revenues stood at USD 3.2 billion in the said quarter from USD 2.91 billion in the year-ago period.

While this was within Cognizant’s own revenue guidance of USD 3.18-3.24 billion, but the performance pales in comparison to its Indian rivals TCS and Infosys.

On sequential basis, revenues dipped 0.9 per cent for Cognizant, which follows January-December as fiscal year.

Revenues from financial services, which accounted for over 40 per cent of Cognizant’s topline, declined 1.7 per cent, while that from healthcare was lower by 4 per cent compared to the previous quarter.

Cognizant has also lowered the upper limit of its revenue forecast for the fiscal 2016 to be in the range of USD 13.65-14.0 billion from its earlier estimate of USD 13.65-14.2 billion.

“Based on first quarter results and our visibility on deals ramping up throughout the year, we have tightened our 2016 revenue guidance range to USD 13.65-14 billion, representing approximately 10-13 per cent growth year-over-year,” Cognizant CFO Karen McLoughlin said.

For the April-June 2016 quarter, it expects its revenue to be between USD 3.34 billion to USD 3.40 billion, representing incremental revenue in the range of USD 140-200 million or 4.4-6.3 per cent sequentially.

“We expect broad-based momentum across service lines, geographies and industries as we move into Q2 and the rest of the year and expect the ramp up of several deals,” she added.

McLoughlin added that fundamentals of the business remain strong and the company is seeing positive returns on strategic investment in disruptive technology and new digital business models.

Cognizant Chief Executive Officer Francisco D’Souza said the first quarter results were, overall, in line with its expectations and guidance.

“We anticipate a return to positive sequential growth in our financial services practice for the balance of this year.

Going forward this year, we expect a return to positive sequential growth in our healthcare segment as the pressure from industry consolidation is expected to be partially offset by anticipated project ramp-ups and a strong pipeline,” he added.

To support this expected growth, Cognizant significantly accelerated hiring during the first quarter and increased its global headcount by 11,300 employees, he said.

The company ended the quarter with about 2.33 lakh employees globally. A majority of its employees are based in India.