Cognizant reported a soft September quarter (Q3CY23) with revenue growing to $4,897 million, within its guidance range, but lower than Street's estimates of $4,909 million. The Nasdaq-listed firm has narrowed its Calendar 2023 revenue growth guidance to $19.3-19.4 billion, a decline of 0.7% to flat, both as reported and in constant currency. This was on the back of the uncertainty in discretionary spending and a seasonally soft fourth quarter.
Meanwhile, the information technology (IT) and outsourcing firm's bookings remained solid, jumping 16.5% year-on-year, with the trailing twelve month backlog healthy at 1.4 times book-to-bill.
"Cognizant reported strong TTM TCV of $26.9 billion with book to bill of 1.4 times. However, the duration of the deal has increased by 50% compared to the prior period," Nuvama noted.
'In line with larger Indian peers'
The brokerage said that Cognizant's soft quarter and trimming of 2023 outlook reflects uncertainty in client discretionary spending. Its results were similar to large India IT services companies where deal wins continued to be very strong while revenue growth remained soft, it said.
However, it believes the lower revenue growth is temporary in nature, as the deal mix shifts from short tenure to long tenure.
"We believe strong
deal wins would lead to higher growth in the medium to long term. All in all, we maintain our positive stance on the Indian IT services sector. We see a sustainable strong demand environment in the form of transformational and/or cost-takeout deals driving revenue growth over the next two–three years," Nuvama said.
Nirmal Bang Institutional Equities remains ‘Underweight’ on the Indian IT Services sector, especially the Tier-2 players. It continues to believe that the worst on the macro front is ahead and not behind, even as it is surprised by the resilience of the US economy.
"Unlike the consensus view that there will be a sharp recovery in revenue in FY25 implicitly backed by a ‘no landing’ view, we believe growth will disappoint. We also believe consensus view on margin expansion in FY25 is optimistic," the brokerage stated.
Cognizant Sept qtr numbers
Cognizant's profit declined 16.5% to $525 million for the September quarter from $629 million in the same period last year.
The Nasdaq-listed company's revenue rose marginally by 0.8% year-on-year to $4.9 billion. In constant currency terms, the revenue declined 0.2%.
The revenue for the fourth quarter is expected to be in the range of $4.69-$4.82 billion, a decline of 4% to 1.2% in constant currency, due to furloughs and lower number of working days in the December quarter.
"We have narrowed our full-year revenue guidance range, which now reflects recent discretionary spending pressure and its impact to our near-term revenue expectations. We have also updated our adjusted operating margin guidance to approximately 14.7%, which is the high-end of our prior range, reflecting our continuing focus on enhancing operational discipline,” said Jan Siegmund, the company's Chief Financial Officer.
TCS shares have delivered just 3% returns since the beginning of this year, compared to a 7.59% gain in the Nifty IT index. TCS' peers such as Infosys shares and Wipro shares lagged behind with losses of 8.89% and 2.51%, respectively, so far in 2023.
First Published: Nov 3, 2023 1:55 PM IST
