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Cognizant will sprint in 2015, but the IT industry may not

Does the 19 per cent revenue guidance for Cognizant in 2015 also foretell a better year for the whole Indian IT industry? It would be difficult to extrapolate just now.

twitter-logo Goutam Das        Last Updated: February 5, 2015  | 09:39 IST
Cognizant will sprint in 2015, but the industry may not
Photo for representation purposes only. (Source: Reuters)

Goutam Das, Senior Associate Editor, Business Today
Goutam Das, Senior Associate Editor, Business Today
India's second largest IT services exporter Cognizant reported a stellar December quarter. The company grew its revenues 6.2 per cent over the September quarter to $2.74 billion, beating all its top tier rivals. India's largest IT services firm TCS reported flat growth in the quarter while Infosys and Wipro grew 0.8 per cent and 1.3 per cent, respectively.

But more spectacular is the company's guidance for 2015 - Cognizant, listed on the Nasdaq, follows the Jan-Dec calendar. It expects to grow 19 per cent this year, better than the 16 per cent it managed in 2014. The growth forecast thrashes the perception that Cognizant is slowing down.

Does the 19 per cent revenue guidance also foretell a better year for the whole Indian IT industry? It would be difficult to extrapolate just now. While the demand environment remains strong and Cognizant reported a strong order pipeline, the company's aggressive inorganic expansion has a chunky role to play in its numbers. The company completed the integration of its $2.8-billion acquisition of healthcare IT company TriZetto in the December quarter. The acquisition, announced in September 2014, created an entity with more than $3 billion in combined healthcare segment revenues. Excluding TriZetto, the company would have grown 3.1 per cent in the December quarter. And TriZetto is now likely to add around $700 million to Cognizant's revenues in 2015.  

The second reason why there might be a divergence between Cognizant's growth and the rest of the industry is the geographical mix. Cognizant's exposure to North America, a geography whose economy is looking up, is far higher than many companies. In the three months to December, nearly 78 per cent of its revenues were generated in this geography. In comparison, North America is 62 per cent of Infosys' revenue mix. Companies with a higher exposure to Europe, where discretionary IT budgets are under pressure, may not gallop at Cognizant's pace.

A clear view might emerge later this month when Nasscom announces the industry's review.

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