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Technology
India
Cognizant CY2011E revenue guidance reflects strong demand momentum. CTSH
reported 7.7% qoq US$ revenue growth for the Dec 2010 quarter, highest among the
Tier-Is. This caps off a strong CY2010 for the company, when it posted 40% yoy
revenue growth. From an industry perspective, CTSH’s Dec quarter revenue
performance as well its ‘at least’ 26% yoy revenue growth guidance for CY2011E are
reflective of the underlying strong demand momentum and set the platform for what
we believe could be a blockbuster year for Tier-I Indian IT (CTSH, TCS and Infosys).
The question of size and growth
CTSH delivered another strong quarter of revenue growth, reporting 7.7% qoq growth in US$
revenues. We note that this is the strongest sequential revenue growth reported in the December
quarter since CY2006; in fact, Cognizant’s Jun 2010 and Sep 2010 qoq growth numbers were
also the strongest in four years – to put things in perspective, CTSH revenues in Dec 2010 are 3.1X
Dec 2006.
Question then is – is the size-defying growth rate being reported by Cognizant (and TCS and
Infosys) for the past 2-3 quarters just a reflection of strong demand tailwinds, just pent-up
demand catch-up, just some one-off M&A (or other) opportunities, or something else? We believe
it is all of these and most importantly, larger revenue base of these companies is aiding their cause
in the strong large deal renewal cycle across large clients. Bottom-line – underlying demand
environment is strong and size is not a constraint to growth rates. We reiterate our positive stance
on Tier-I names. Seemingly rich valuations have robust earnings growth support, in our view.
CTSH result highlights – several positive indicators on demand
CTSH reported revenues of US$1.31 bn for the Dec 2010 quarter, a growth rate of 7.7% qoq
and 45% yoy. The company ended CY2010 with revenues of US$4.6 bn, up 40% yoy.
CTSH has guided for a revenue growth of at least 4% qoq for the Mar 2011 quarter and 26%
yoy for CY2011E – we find both conservative.
Increasingly broad-based growth. Cognizant reported strong growth across verticals and
geographies – Healthcare (26%) revenues grew the strongest at 12% qoq, while Europe posted
a strong 7.1% constant currency sequential revenue growth.
Signs of discretionary spend pick-up were visible in the 8% sequential growth in application
development (AD) revenues. CTSH does not provide a more granular service-line data, but we
believe discretionary spends form a bulk of the AD segment.
Positive commentary on pricing. CTSH indicated positive response from clients on the pricing
front and believes better pricing should start reflecting in results over the coming quarters.
Strong hiring momentum sustained with CTSH adding a net ~8,400 people during the quarter
to take its total headcount to 104,000 at end-Dec 2010. The company also indicated a record
number of promotions – part attrition-driven, but also reflective of the confidence on demand.
CTSH indicated positive signs on CY2011E budgets from clients
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Technology
India
Cognizant CY2011E revenue guidance reflects strong demand momentum. CTSH
reported 7.7% qoq US$ revenue growth for the Dec 2010 quarter, highest among the
Tier-Is. This caps off a strong CY2010 for the company, when it posted 40% yoy
revenue growth. From an industry perspective, CTSH’s Dec quarter revenue
performance as well its ‘at least’ 26% yoy revenue growth guidance for CY2011E are
reflective of the underlying strong demand momentum and set the platform for what
we believe could be a blockbuster year for Tier-I Indian IT (CTSH, TCS and Infosys).
The question of size and growth
CTSH delivered another strong quarter of revenue growth, reporting 7.7% qoq growth in US$
revenues. We note that this is the strongest sequential revenue growth reported in the December
quarter since CY2006; in fact, Cognizant’s Jun 2010 and Sep 2010 qoq growth numbers were
also the strongest in four years – to put things in perspective, CTSH revenues in Dec 2010 are 3.1X
Dec 2006.
Question then is – is the size-defying growth rate being reported by Cognizant (and TCS and
Infosys) for the past 2-3 quarters just a reflection of strong demand tailwinds, just pent-up
demand catch-up, just some one-off M&A (or other) opportunities, or something else? We believe
it is all of these and most importantly, larger revenue base of these companies is aiding their cause
in the strong large deal renewal cycle across large clients. Bottom-line – underlying demand
environment is strong and size is not a constraint to growth rates. We reiterate our positive stance
on Tier-I names. Seemingly rich valuations have robust earnings growth support, in our view.
CTSH result highlights – several positive indicators on demand
CTSH reported revenues of US$1.31 bn for the Dec 2010 quarter, a growth rate of 7.7% qoq
and 45% yoy. The company ended CY2010 with revenues of US$4.6 bn, up 40% yoy.
CTSH has guided for a revenue growth of at least 4% qoq for the Mar 2011 quarter and 26%
yoy for CY2011E – we find both conservative.
Increasingly broad-based growth. Cognizant reported strong growth across verticals and
geographies – Healthcare (26%) revenues grew the strongest at 12% qoq, while Europe posted
a strong 7.1% constant currency sequential revenue growth.
Signs of discretionary spend pick-up were visible in the 8% sequential growth in application
development (AD) revenues. CTSH does not provide a more granular service-line data, but we
believe discretionary spends form a bulk of the AD segment.
Positive commentary on pricing. CTSH indicated positive response from clients on the pricing
front and believes better pricing should start reflecting in results over the coming quarters.
Strong hiring momentum sustained with CTSH adding a net ~8,400 people during the quarter
to take its total headcount to 104,000 at end-Dec 2010. The company also indicated a record
number of promotions – part attrition-driven, but also reflective of the confidence on demand.
CTSH indicated positive signs on CY2011E budgets from clients
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