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Cognizant cuts growth forecast

Cognizant reported a 15.19 % drop in net income for the quarter ended March

Our Special Correspondent   |   Mumbai   |   Published 03.05.19, 07:53 PM

US-based Cognizant, which has a significant number of its employees in India, on Friday slashed its full-year revenue outlook, following disappointing numbers in the first quarter and the possibility of a slower growth in the financial services and healthcare verticals.

The development had its impact on the domestic bourses with the shares of IT companies falling up to 3.7 per cent. Tata Consultancy Services (TCS) was the worst hit as its shares ended lower by 3.7 per cent to Rs 2132.50, while the Wipro and Infosys counters dropped around one per cent. Tech Mahindra was lower by 2.16 per cent.

Cognizant, which is listed on the Nasdaq, reported a 15.19 per cent drop in net income for the quarter ended March. Net income came in at $441 million compared with $520 million in the corresponding period of the previous year.

The poor performance saw the firm revising its full-year 2019 revenue growth outlook to 3.6-5.1 per cent in constant currency terms, significantly less than 7-9 per cent projected just months ago. The company follows January-December calendar.

“Our revised full-year outlook reflects the first-quarter underperformance and expectations of slower growth in financial services and healthcare for the remainder of 2019,” said Karen McLoughlin, chief financial officer of Cognizant.

Brian Humphries, chief executive officer of the company, said the growth and performance in the quarter left room for improvement.

Humphries, who took over the mantle from Francisco D’Souza on April 1, admitted the company was not yet delivering in keeping with the market opportunity.

“While I am encouraged by our client centricity, our employees’ winning spirit and our innovation, we are not yet delivering against the market opportunity. We are committed to strengthening our execution to invest in growth and drive shareholder value,” he said in a statement.

During the quarter, revenues rose to $4.11 billion, a growth of 5.1 per cent (6.8 per cent in constant currency) from the year-ago period, while the adjusted operating margin was at 16 per cent against 17.7 per cent in the same period of the previous year.

The lower profits were also on account of a provision of $117 million made by the company following a Supreme Court order in February this year.

Kotak Institutional Equities described the company’s first quarter scorecard as “disappointing on all counts”.

“Cognizant Technology Solutions’ poor performance surprised us. Weak revenue growth and guidance cut reflect execution challenges at the company rather than industry wide growth slowdown,” it said.

The top three IT services players in the country have already declared their results. TCS — which has seen a marked turnaround in the BFSI vertical — has indicated that the segment will continue to do well for the company. Infosys has projected revenues to rise between 7.5 per cent and 9.5 per cent this fiscal.


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