Cognizant’s Q2CY12 revenue at USD1.80bn, up 4.9% QoQ, was marginally ahead of Street estimate and 30bps higher than company’s guidance of 4.6% QoQ growth. For Q3CY12, it guided for revenue of USD1.88bn (up 4.4% QoQ) and has maintained its annual revenue guidance of USD7.34bn, implying growth of 4.5% for Q4CY12, which we believe is achievable. The quarter saw robust growth in financial services (FS; 6.1%) and manufacturing/retail/logistics (MRL; 7.1%). Within FS, traction improved in banking led by cost optimisation projects while outlook for pharmaceuticals within healthcare remains muted. Management expects growth in balance quarters to be driven by ramp up of clients won in past few quarters.
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North America bounces back; traction in ROW continues
Cognizant posted 5.5% sequential growth in North America (2.5% in previous quarter), in line with the company’s outlook, as it had mentioned growth will bounce back in Q2CY12. Momentum continued in ROW as it posted robust sequential growth of 16.3% (7.2% in Q1). Europe was a laggard as it declined 0.4% QoQ. Despite the uncertainty in Europe, the pipeline continues to remain strong driven by shift from discretionary spend to offshoring.
FS and MRL fuel growth
FS (41% of revenue) posted strong traction as it registered 6.1% QoQ growth (driven by cost optimisation and market share gains), which is better than its peers. However, management remains cautiously optimistic on the vertical’s growth. MRL continued the strong traction seen in Q1CY12 (5.0% QoQ growth) as it posted sequential growth of 7.1%. Healthcare reported lower than company growth of 3.6% QoQ and due to weakness in pharmaceutical segment this trend is likely to continue balance quarters of CY12 as well.
Outlook: Positive signals for BFSI and MRL; advantage Infy and TCS
Cognizant’s Q2CY12 numbers and maintenance of its annual guidance reaffirms the fact that even in an uncertain environment traction continues for the company. Its pipeline continues to be robust, which will drive growth here on. The robust FS and MRL performance augurs well for peers like TCS and Infosys as these verticals contribute 43%/27% and 34% /39% to TCS’ and Infosys’ revenues, respectively, while weakness in healthcare could impact players like Wipro and HCLT as the vertical contributes ~10% to their revenues.
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