Europe a long-term bet, paying rich dividends

Written by P P Thimmaya | Updated: May 10 2014, 11:02am hrs
Reporting a 2.8% jump in the March quarter revenue, IT services company Cognizant says there are strong signs of revival in demand. Cognizant is a Nasdaq-listed IT services company with a fairly strong presence in India. In an interview with PP Thimmaya, Cognizant India executive vice-chairman R Chandrasekaran said the marketplace is seeing a secular shift and they are well placed to capitalise on new opportunities. Excerpts:

How do you view Cognizants first-quarter performance

It was a solid quarter. This quarter was different as we saw discretionary spending significantly coming our way. Normally, it happens in second and third quarters, and this is a good sign. We are happy with the portfolio of our businesses, both in terms of verticals and services. It has given a nice balance to our business. In terms of geography, we have always maintained that Europe is a long-term bet and it is paying rich dividends. The US operations gave us a flat quarter, but it was more than compensated in Europe. We are very strong in the healthcare segment, but there is some softness as the industry is adjusting to the Obamacare Act. The softness in healthcare has been more than compensated by the growth in retail, manufacturing, financial services and communication. We feel good about the portfolio of our businesses.

How do you see the demand environment in 2014

We see a healthy demand as customers will be driven by a dual mandate. On one hand, they would need to be more efficient in bringing down the cost of IT operations, and on other hand, they would face secular challenges to meet transformational changes. We are addressing this dual mandate and there is a secular demand. For example, in the financial services segment, there is a lot of regulatory compliance they need to adopt, and this is opening up a lot of demand for us to meet. Most customers are looking at digital transformation, which is a newer ways of doing business, and this is opening up demand. There are new opportunities.

The US market, which accounts for 75% of Cognizants revenue, grew a mere 1% in the quarter and it was at similar level in the preceding period. Reasons

It is just a one-quarter performance as the March quarter is usually soft. There were certain client specific incidents like leadership changes which pushed out decision making. The bad weather in the US also delayed some critical decisions in terms of large contracts. In the healthcare segment, there is some sort of delay in the kick off of the new Obamacare Act. However, we are confident the business will bounce back in the US given the contracts we have won, which will start ramping up in the subsequent quarters. The overall momentum still remains strong.

Cognizant made a strong headcount addition in the quarter. Will this trend continue

We had a net headcount addition of 7,200 in the first quarter, which is probably the highest in last two-and-half-years. This is a reflection of a strong demand we see for our business. Given the current momentum, we will continue to hire for rest of the year.

Attrition level at Cognizant has come down in this quarter. What are the reasons

We pay for performance. Last year, we gave maximum number of promotions. There are strong incentives for those who perform. People understand, at Cognizant performance pays. As we complete 20 years of our existence, we have started a lot of employee-engagement programmes to retain the employees. We have beefed up our talent management in terms of training and leadership development initiatives. Our employees are quite upbeat and ready to face the challenges.

In terms of acquiring talent for newer technologies, we have been doing that through acquisitions. For example, when we started our analytics business, we acquired marketRx and it brought in new skills. Organically, also we are building some of the new skills.