Cognizant Tech pips its competitors in incremental revenues

Cognizant Technology Solutions has added more incremental revenues in the 12 months ended March 2009, than its outsourcing rivals TCS, Infosys or Wipro, at a time when the US, the industry’s biggest technology market, is going through a recession.

Cognizant started 15 years ago nd was a mere $400 million company when Infosys crossed the billion-dollar mark. Even at the end of March 2009, it was $1.8 billion smaller than Infosys in terms of revenue. With TCS, the difference is a significant $3.15 billion and with Wipro, it is $1.45 billion.

However, going by incremental revenue, another key measure of performance, Cognizant has organically outgrown its larger peers — TCS, Infosys and Wipro — for the first time.

During the April to March period for 2008-09, the incremental revenue of Cognizant at $558 million, is the highest in the IT services revenue pecking order, followed by Wipro ($ 536.1 million), Infosys ($ 487 million) and TCS ($ 310.3 million). These numbers are stripped off the revenues from acquisitions in order to provide an apple-to-apple comparison.

Cognizant’s net profit for the first quarter ended March 2009 stood at $745.9 million, 16% higher than its revenues for the same period in the previous year. Last year the company’s revenues stood at $643.1 million.

The company beat its own guidance of $735 million and the consensus estimate of analysts, which was $735.5 million. The Nasdaq-listed company has also reconfirmed its full year revenue guidance of at least 10%. Cognizant’s net income had grown by 11.05% from $101.87 million last year to $113.13 this year. Its operating margin for the quarter was 18.5%.

While Cognizant has outgrown the Indian IT companies in percentage terms for many years now, this will be the first time the company is outgrowing its larger peers in terms of incremental dollar revenues. Analysts say Cognizant’s higher investment in sales & marketing and its revenues from the healthcare space are helping the Nasdaq-listed company even in these tough times.

“Higher proportion of revenues from healthcare and lower cross currency headwinds would be the reason for strong dollar growth. Healthcare as a sector hasn’t been hit by the recession,” said R Srivathsan, an analyst with Spark Capital.

KPMG’s IT advisory director Akhilesh Tuteja said, “It’s a booster if a company starts its year with good incremental revenues. But, it makes more sense to be euphoric about annual figures than quarterly figures.”

A recent report by CLSA said Cognizant looked much more robust than its Indian peers, it has tailwinds in the healthcare space and with utilisation still low, it will be able to defend margins for some more time.

For the year 2008-09, Cognizant grew revenues by 32%, surging ahead Nasscom’s estimate of 16-17% for the industry. It has guided to grow by at least 10% for 2009-10.