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Cognizant Results: Implications for Indian IT
Cognizant (CTSH US, Not Rated) will report Sep-11 qtr (3Q11) results
and give updated guidance for 2011 on 2nd Nov, pre US market open.
For 3Q11: 8.8%QQ revenue growth is possible (c.f. 5.7% guidance).
This is likely to be at the top end of peers in the IT off-shoring space, inline
with Cognizant’s historical sector-leading performance.
For 4Q11 (Dec-11): We expect revenue growth guidance of ~4.5%QQ.
For full year 2011: We expect revenue growth guidance to be increased
to ~34%YY growth from at least 32%YY currently.
While the results will once again re-inforce Cognizant’s sector-leading
position, the street will look for cues on 2012 trajectory.
We remain cautious on the IT services space for now.
Cognizant: Set to become the 2nd largest Indian IT vendor?
Cognizant employs over 118,000 professionals, making it the 3rd largest offshore
IT services vendor after TCS and Infosys. While we do not cover the stock, readthrough
from its results is important for peer stocks, and we expect the upcoming
report on 2nd November to be a strong one though it is unlikely to give clarity on
the key question that matters; how will 2012 demand shape-up?
In Mar-09 quarter, Infosys’ quarterly revenues were 50% higher than Cognizant
and that gap will likely be reduced to just 8% in the Sep-11 quarter. Cognizant’s
revenue now trails Infosys by just 2 quarters and assuming Infosys and Cognizant
continue at their recent growth rates, Cognizant will most likely overtake Infosys on
quarterly revenues by the end of 2012. Interestingly, the quarterly revenue gap
between Infosys and Cognizant in Sep-11 will likely reach the one seen back in
Dec-02 quarter, almost 9 years back.
We believe that Infosys realises the Cognizant threat and the need to be higher in
the revenue league tables and the latest re-organisation seeks to meet that end. In
our recent meetings, Infosys has also articulated an aggressive go to market
strategy to win a higher share of their client wallet. To this end, Infosys is now
empowering Business Unit Heads to have a greater say in pricing/terms &
conditions of most deals. This will likely improve response time et al but execution
on this strategy needs to be watched.
ratio of market capitalisation has tracked revenue ratio and
Cognizant has accordingly closed the relative market cap gap with Infosys. At
current revenue growth trajectory, this trend will likely continue in the near term.
How good can Cognizant’s 3Q be?
Taking a cue from reported numbers of Tier-1 Indian techs, we believe an 8.8%QQ
revenue growth in 3Q11 is possible, or revenues of US$1,616m c.f. guidance of
US$1,570m. This would be comfortably at the top end of comparable peers in the
offshore outsourcing space albeit boosted a bit by the Core Logic acquisition. In
comparison, Infosys reported US$ revenue growth of 4.5% and our expectation
from the remaining Tier-1 techs varies from 3.5-6.5%. This would imply a US$46m
revenue increment over what Cognizant has guided for the June quarter. In recent
quarters, Cognizant has reported a beat varying from US$10-90m (Fig 4) c.f. its
financial targets as articulated in its guidance. September could be somewhere near
the middle end of the range and a beat on guidance in-line with last year is likely.
Expect CTSH to remain non-committal on 2012 prospects
Cognizant’s current consensus 2011 revenue expectation stands just above 32%
with the upper end of expectation at 33.5%YY revenue growth. We expect 2011
reality to be somewhere in the mid-30s, higher than the higher end of current
range. We believe that Cognizant will likely re-set its 2011 growth outlook to 34%,
above current consensus expectations. Cognizant’s updated 2011 guidance could
assume a 4.5%QQ growth for Dec-11 quarter.
While a strong 3Q report from Cognizant could keep the IT pack strong in the nearterm,
we see the up-coming results as a mere hiatus leading to the uncertainty of
the 2012 budgeting season. We expect Cognizant to be non-committal on noncommittal
on 2012 IT spending prospects as yet with clarity on this front likely only
by mid- Dec’11 at the earliest.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cognizant Results: Implications for Indian IT
Cognizant (CTSH US, Not Rated) will report Sep-11 qtr (3Q11) results
and give updated guidance for 2011 on 2nd Nov, pre US market open.
For 3Q11: 8.8%QQ revenue growth is possible (c.f. 5.7% guidance).
This is likely to be at the top end of peers in the IT off-shoring space, inline
with Cognizant’s historical sector-leading performance.
For 4Q11 (Dec-11): We expect revenue growth guidance of ~4.5%QQ.
For full year 2011: We expect revenue growth guidance to be increased
to ~34%YY growth from at least 32%YY currently.
While the results will once again re-inforce Cognizant’s sector-leading
position, the street will look for cues on 2012 trajectory.
We remain cautious on the IT services space for now.
Cognizant: Set to become the 2nd largest Indian IT vendor?
Cognizant employs over 118,000 professionals, making it the 3rd largest offshore
IT services vendor after TCS and Infosys. While we do not cover the stock, readthrough
from its results is important for peer stocks, and we expect the upcoming
report on 2nd November to be a strong one though it is unlikely to give clarity on
the key question that matters; how will 2012 demand shape-up?
In Mar-09 quarter, Infosys’ quarterly revenues were 50% higher than Cognizant
and that gap will likely be reduced to just 8% in the Sep-11 quarter. Cognizant’s
revenue now trails Infosys by just 2 quarters and assuming Infosys and Cognizant
continue at their recent growth rates, Cognizant will most likely overtake Infosys on
quarterly revenues by the end of 2012. Interestingly, the quarterly revenue gap
between Infosys and Cognizant in Sep-11 will likely reach the one seen back in
Dec-02 quarter, almost 9 years back.
We believe that Infosys realises the Cognizant threat and the need to be higher in
the revenue league tables and the latest re-organisation seeks to meet that end. In
our recent meetings, Infosys has also articulated an aggressive go to market
strategy to win a higher share of their client wallet. To this end, Infosys is now
empowering Business Unit Heads to have a greater say in pricing/terms &
conditions of most deals. This will likely improve response time et al but execution
on this strategy needs to be watched.
ratio of market capitalisation has tracked revenue ratio and
Cognizant has accordingly closed the relative market cap gap with Infosys. At
current revenue growth trajectory, this trend will likely continue in the near term.
How good can Cognizant’s 3Q be?
Taking a cue from reported numbers of Tier-1 Indian techs, we believe an 8.8%QQ
revenue growth in 3Q11 is possible, or revenues of US$1,616m c.f. guidance of
US$1,570m. This would be comfortably at the top end of comparable peers in the
offshore outsourcing space albeit boosted a bit by the Core Logic acquisition. In
comparison, Infosys reported US$ revenue growth of 4.5% and our expectation
from the remaining Tier-1 techs varies from 3.5-6.5%. This would imply a US$46m
revenue increment over what Cognizant has guided for the June quarter. In recent
quarters, Cognizant has reported a beat varying from US$10-90m (Fig 4) c.f. its
financial targets as articulated in its guidance. September could be somewhere near
the middle end of the range and a beat on guidance in-line with last year is likely.
Expect CTSH to remain non-committal on 2012 prospects
Cognizant’s current consensus 2011 revenue expectation stands just above 32%
with the upper end of expectation at 33.5%YY revenue growth. We expect 2011
reality to be somewhere in the mid-30s, higher than the higher end of current
range. We believe that Cognizant will likely re-set its 2011 growth outlook to 34%,
above current consensus expectations. Cognizant’s updated 2011 guidance could
assume a 4.5%QQ growth for Dec-11 quarter.
While a strong 3Q report from Cognizant could keep the IT pack strong in the nearterm,
we see the up-coming results as a mere hiatus leading to the uncertainty of
the 2012 budgeting season. We expect Cognizant to be non-committal on noncommittal
on 2012 IT spending prospects as yet with clarity on this front likely only
by mid- Dec’11 at the earliest.
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