Growth will naturally slow as we gain size: R Chandrasekaran

Written by P P Thimmaya | Bangalore | Updated: Aug 8 2014, 06:14am hrs
On Wednesday, Cognizant stunned the IT industry by cutting its revenue growth guidance for the year to 14% against the earlier projection of 16.5%. The IT services major has, however, made it clear that client-specific issues had led to this situation, and it was not a reflection on the sector. Expressing disappointment over the lowered guidance, R Chandrasekaran, executive vice-chairman, Cognizant India, told PP Thimmaya that the outlook remains positive given the healthy deal pipeline. Excerpts

How do you view your second quarter results

We are quite pleased with our performance as revenues grew 3.9% sequentially to $2.52 billion, exactly in the middle of the guidance range. Second, we hit the $10-billion revenue run rate milestone, the fastest for any IT services company. Last, we added 8,800 people this quarter, a healthy indicator of our business. Overall, we are very pleased.

Is the outlook positive despite the lower revenue guidance

We reduced our full-year revenue growth guidance to at least 14% mainly because we saw general weakness in certain client situations and where demand wasn't what we originally anticipated. Also, some of the large transformational deals took far more time for closure than anticipated and some of the ramp-ups have been pushed to subsequent quarters. Having said that, we have been awarded three large contracts, totalling $3.5 billion, which shows the opportunity that is ahead of us.

Our pipeline remains very strong and the investments that we have been making in our businesses in terms of broad-basing our capabilities, building technology and domain specialisation is helping us win many end-to-end contracts.

Could Cognizant have anticipated these client-specific

issues

We have guided for at least 14% growth. We feel disappointed to have reduced the growth guidance, but it is healthy by any standard. Today, our base is also increasing as we are talking about a $10-billion revenue run rate, so growth percentage will naturally come down unlike in the past when we were smaller in size.

How is your deal pipeline

Our pipeline is very healthy. More and more customers are feeling comfortable in giving large end-to-end deals, which is a combination of many services. For example, in case of the $2.7-billion deal with Health Net, which is already our customer, it expanded into much larger scope. In many other large deals, some of it are completely new while, in case of others, the scope has expanded.

Continental Europe posted modest growth for Cognizant while there was a sequential decline in the UK during the quarter. Reasons

Continental Europe has been very good for us mainly because of the conscious investments we have made over several years and organic growth in multiple countries. We have also done targeted acquisition in Germany and, through them, we have been able to win several large deals. We remain bullish on the demand outlook in Europe.

The UK is also very healthy as last quarter we announced a billion-dollar revenue run rate for that country. The client-specific issues we are talking about, one of them was in the UK.

How is the social, mobility, analytics and cloud (SMAC) strategy playing out for Cognizant

SMAC is clearly a differentiator for Cognizant and we are probably ahead of the competition. It is helping us win different engagements in assisting the customers run differently. It is helping the customers to leverage digital technology. For Cognizant, it is getting us a lot of mindshare and there is a lot more traction for it in the marketplace.