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UBS Investment Research
Indian IT Services
R ead-through from Cognizant 2Q results
Cognizant (CTSH) results more in line with TCS, HCL Tech
CTSH reported 2Q revenue growth of 8.3% QoQ, beating UBS/consensus estimate
of 6.4/6.1% QoQ. GAAP EPS was $0.67 vs. UBSe/consensus of $0.67/0.66. CTSH
results are more in line with numbers reported by TCS and HCL Tech, suggesting
that the weakness seen in Infosys and Wipro are company specific.
Sector read through –strong demand outlook, market share realignment
CTSH remains upbeat on demand outlook despite the ongoing economic
uncertainty, as reflected in the 5.7% QoQ revenue growth guidance, which is in
line with 2Q guidance provided by the company. 2Q is seasonally the strongest for
CTSH, but the management expects 3Q could remain strong due to market share
gains and strong deal flow.
Vendor differentiation emerging by market share gains
Earlier this year, we highlighted the view that lower-margin vendors like CTSH are
gaining market share, and there is likely to be divergent trends in growth rates
amongst Indian IT vendors depending on market share gains (refer our report
“2011: a year of tough competition” dated 8 Mar 2011). We believe that early
signs of this trend are already visible, and competition is likely to intensify further.
Maintain cautious view on sector
We remain cautious on the sector on expectations of a likely slowdown in demand
versus current estimates by end 2011/early 2012. We also view increasing
competition as being non conducive for pricing tailwinds, as seen in the weak
pricing trends for the larger Indian vendors in 1Q FY12.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Indian IT Services
R ead-through from Cognizant 2Q results
Cognizant (CTSH) results more in line with TCS, HCL Tech
CTSH reported 2Q revenue growth of 8.3% QoQ, beating UBS/consensus estimate
of 6.4/6.1% QoQ. GAAP EPS was $0.67 vs. UBSe/consensus of $0.67/0.66. CTSH
results are more in line with numbers reported by TCS and HCL Tech, suggesting
that the weakness seen in Infosys and Wipro are company specific.
Sector read through –strong demand outlook, market share realignment
CTSH remains upbeat on demand outlook despite the ongoing economic
uncertainty, as reflected in the 5.7% QoQ revenue growth guidance, which is in
line with 2Q guidance provided by the company. 2Q is seasonally the strongest for
CTSH, but the management expects 3Q could remain strong due to market share
gains and strong deal flow.
Vendor differentiation emerging by market share gains
Earlier this year, we highlighted the view that lower-margin vendors like CTSH are
gaining market share, and there is likely to be divergent trends in growth rates
amongst Indian IT vendors depending on market share gains (refer our report
“2011: a year of tough competition” dated 8 Mar 2011). We believe that early
signs of this trend are already visible, and competition is likely to intensify further.
Maintain cautious view on sector
We remain cautious on the sector on expectations of a likely slowdown in demand
versus current estimates by end 2011/early 2012. We also view increasing
competition as being non conducive for pricing tailwinds, as seen in the weak
pricing trends for the larger Indian vendors in 1Q FY12.
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