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Cognizant, covered by our US analyst Tien-Tsin Huang, reported 1Q11 revenues
of $1,371MM (vs. guidance of ‘at least’ $1,360MM) implying Q/Q revenue
growth of 4.6%. Though revenue growth and CY11 guidance are in line with
consensus, Tien-Tsin expects Cognizant to report ahead of consensus. Cognizant
is set to become the third-largest IT offshore company after TCS and Infosys
by Jun-11. Also, Cognizant has emerged larger than Infosys in the US
(behind only TCS) while drawing level with Infosys in BFSI (again only
behind TCS), to cite two milestones in its journey of industry-leading growth.
CTSH guided for 2Q CY11 revenues of ‘at least $1.45B’. Strong Jun-11 quarter
guidance of 5.8% Q/Q growth points to a better Jun-11 quarter for Indian IT.
• Growth across verticals, geographies and service lines: Manufacturing, retail
and logistics reported strong 12.7% Q/Q revenue growth driven by (a) largescale
transformation and system integration projects for manufacturing clients,
and (b) core retail systems and multi-channel eCommerce integration project for
retail clients. BFSI registered 2.8% Q/Q growth despite tapering off of M&A
integration projects. Healthcare grew 2.9% Q/Q as consulting and BPO revenues
witnessed meaningful traction. Geographically, North America revenues grew
5.7% Q/Q, while Europe growth was muted at 1.5% Q/Q (0.4% in constant
currency terms) primarily due to weakness in the UK, which witnessed revenue
decline of 3.5%, while Continental Europe grew at an impressive 11.7% Q/Q.
Net headcount (technical) increased by 7,200 people to 104,900, reaffirming
management’s positive future outlook. In terms of service lines, enterprise
applications reported 14% sequential growth, while application development
and application management business witnessed Q/Q revenue growth of 5.4%
and 3.8%, respectively.
• CY11 guidance of 29% revenue growth seems conservative: J.P. Morgan
believes CY11 revenue guidance of $5.93B, implying about 4.6% CQGR in 3Q
CY11 and 4Q CY11, is conservative. Management guided for ‘at least $1.45B’
revenue in 2Q CY11, implying 5.7% Q/Q revenue growth.
• Cognizant reported 15% quarterly annualized attrition in 1Q CY11, down from
16% in 4Q CY10 and 22% in 3Q FY11. Noticeably, all large-cap Indian IT
companies have seen a decline in quarterly annualized attrition, reinforcing
our view that supply-side pressures have slightly eased. Pricing increase of
above 2% was another positive, in our view.
• Implications for Indian IT: Positive outlook unchanged, but upside to our
FY12 revenue estimates unlikely: Cognizant guided to at least 5.8% Q/Q
growth in the Jun-11 quarter, which points to improved growth for Indian IT
services industry over the Mar-11 quarter. However, we see limited possibility
of re-evaluating the FY12 revenue growth prospects of Indian IT companies
(particularly large caps). Our current FY12 revenue growth estimates of
23%/28% (US$) for Infosys/TCS remain intact and we see them as protected on
the downside, but achieving 30%+ revenue growth in FY12 would be tough, in
our view. We expect top-tier IT stocks to return more than 10% in FY12, while
TCS and Wipro have the potential to return even 20% during the year. TCS and
Wipro, both OW, are our top picks in the sector. We stay N on Infosys
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cognizant, covered by our US analyst Tien-Tsin Huang, reported 1Q11 revenues
of $1,371MM (vs. guidance of ‘at least’ $1,360MM) implying Q/Q revenue
growth of 4.6%. Though revenue growth and CY11 guidance are in line with
consensus, Tien-Tsin expects Cognizant to report ahead of consensus. Cognizant
is set to become the third-largest IT offshore company after TCS and Infosys
by Jun-11. Also, Cognizant has emerged larger than Infosys in the US
(behind only TCS) while drawing level with Infosys in BFSI (again only
behind TCS), to cite two milestones in its journey of industry-leading growth.
CTSH guided for 2Q CY11 revenues of ‘at least $1.45B’. Strong Jun-11 quarter
guidance of 5.8% Q/Q growth points to a better Jun-11 quarter for Indian IT.
• Growth across verticals, geographies and service lines: Manufacturing, retail
and logistics reported strong 12.7% Q/Q revenue growth driven by (a) largescale
transformation and system integration projects for manufacturing clients,
and (b) core retail systems and multi-channel eCommerce integration project for
retail clients. BFSI registered 2.8% Q/Q growth despite tapering off of M&A
integration projects. Healthcare grew 2.9% Q/Q as consulting and BPO revenues
witnessed meaningful traction. Geographically, North America revenues grew
5.7% Q/Q, while Europe growth was muted at 1.5% Q/Q (0.4% in constant
currency terms) primarily due to weakness in the UK, which witnessed revenue
decline of 3.5%, while Continental Europe grew at an impressive 11.7% Q/Q.
Net headcount (technical) increased by 7,200 people to 104,900, reaffirming
management’s positive future outlook. In terms of service lines, enterprise
applications reported 14% sequential growth, while application development
and application management business witnessed Q/Q revenue growth of 5.4%
and 3.8%, respectively.
• CY11 guidance of 29% revenue growth seems conservative: J.P. Morgan
believes CY11 revenue guidance of $5.93B, implying about 4.6% CQGR in 3Q
CY11 and 4Q CY11, is conservative. Management guided for ‘at least $1.45B’
revenue in 2Q CY11, implying 5.7% Q/Q revenue growth.
• Cognizant reported 15% quarterly annualized attrition in 1Q CY11, down from
16% in 4Q CY10 and 22% in 3Q FY11. Noticeably, all large-cap Indian IT
companies have seen a decline in quarterly annualized attrition, reinforcing
our view that supply-side pressures have slightly eased. Pricing increase of
above 2% was another positive, in our view.
• Implications for Indian IT: Positive outlook unchanged, but upside to our
FY12 revenue estimates unlikely: Cognizant guided to at least 5.8% Q/Q
growth in the Jun-11 quarter, which points to improved growth for Indian IT
services industry over the Mar-11 quarter. However, we see limited possibility
of re-evaluating the FY12 revenue growth prospects of Indian IT companies
(particularly large caps). Our current FY12 revenue growth estimates of
23%/28% (US$) for Infosys/TCS remain intact and we see them as protected on
the downside, but achieving 30%+ revenue growth in FY12 would be tough, in
our view. We expect top-tier IT stocks to return more than 10% in FY12, while
TCS and Wipro have the potential to return even 20% during the year. TCS and
Wipro, both OW, are our top picks in the sector. We stay N on Infosys
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