With fresh investments into newer geographies, technologies and delivery models, the New Jersey-headquartered Cognizant Technology Solutions is confident of maintaining its revenue growth in the coming quarters. R Chandrasekaran, group chief executive (technology and operations), Cognizant, tells Debojyoti Ghosh that the company sees strong momentum in its new platforms and services leading to non-linear revenue growth.
For the September quarter, Cognizant’s revenue grew 5.4% sequentially. What is fuelling the growth, given the current environment?
There are few factors that is contributing to this growth. One is the resilience of our business. If you look at, in the most recent quarter, our financial business has turnaround that clearly indicate the resilience of our business and the strategy that we have been adopting. The current economic environment has put a lot of pressure on customers to cut cost and run their day-to-day business. However, it is also not just about saving cost, companies are looking at innovation and business transformation in the current market. There is a lot of effort on the social, mobile and analytic side and leveraging on new technology. Customers are demanding more to leverage these new technologies and introduce products and services. This is driving demand for our business to improve the operational efficiencies. It is also driving offshore and digital demand and opening up opportunities for us. We see this momentum to continue. We have invested a lot on transformational services, managing large-scale programme and in newer geographies.
Could you elaborate on the company?s investment areas?
We are investing in technologies like social, mobile, cloud and analytic. Also into newer delivery models like platform-based and not just headcount-based models. It helped us to bring non-linear revenue. We have developed a lot of platforms like clinical data management, and others which helped us take newer delivery models and transaction-service based revenue. We continue to explore newer geographies. We are now investing in North America and other emerging geographies. Geography wise, during the quarter ended September, North America contributed 80% to the overall revenue, while Europe was 16%. APAC was about 4%. New geographies, technologies and delivery models are the areas that we are investing currently.
For Cognizant, consulting, BPO and IT infrastructure services have been growing faster than company average. What is driving this space? Are you exploring any new areas?
We took a very different strategy for BPO offerings. Our acquisition in this space has helped us to create a solid platform and now we are leveraging it. Our core BPO offerings are continuing to show strong growth both with existing and new clients. As a result of new cloud technologies and associated delivery models, the infrastructure services market has undergone a significant evolution. Recently we announced plans to expand our data center footprint in North America and Europe, and deploy an enterprise-grade cloud infrastructure. Consulting is a big business and backbone of our offering because we are able to capture market share in application outsourcing and other related services. Consulting is very complimentary to our core business.
Consulting, BPO and IT infrastructure services, on a combined basis, are growing faster than company average. In the September-ended quarter, they comprised nearly 20% of our total revenue. Our pipeline remains strong.
In September quarter, Cognizant clocked revenues of $1.79 billion. However your profit was lower than Indian rivals. Are you concerned about the profitability?
We are consciously keeping our operating margin between 19-20%. Staying invested in business is very important. It is not that our business is less profitable than competitors, but we invest anything in excess of 20% back in the business so that we can grow faster. We have differentiated through our financial and operating models. So far, the reinvestment strategy for long-term growth has worked consistently and delivered results. We plan to continue with this strategy. It is one of the important element in our business.
Traditionally, the healthcare vertical has been strong for Cognizant. But during the September quarter it dipped 0.2% sequentially. What went wrong?
There are some specific events that has dragged the growth of healthcare business. Customers in this space are having trouble themselves and the segment has lot of challenges. Specifically some of our own healthcare customers are in the midst of uncertain activity in terms of discretionary spend.
However, these are all short-term phenomenon. There were also a lot of uncertainty about the Obama care and now that the election is over, hopefully some of the areas will get a lot more clarity going forward that would trigger growth in this space. In the short-term there were some challenges, but in the long-term we are very optimistic.
Cognizant had a net addition of 5,100 people during the quarter. Is it mostly in India? How are you planning to ramp up the US operation?
The net addition during the quarter was global. It would be similar to our onsite-offshore ratio, which is typically 75-80% offshore and 20-25% onsite. The 25% of gross addition during the quarter was fresh graduates from colleges. They are all 2012 graduates. We have been able to attract good talent into the organisation both at the entry level and lateral. We continue to expand our US college recruitment. This year, we visited 17 campuses in the US. We started a programme to hire from US campuses few years ago. The traction has been good and gradually we are increasing it. However in terms of numbers it is still miniscule compared to what we do in India. Overall, we ended the quarter with approximately 150,400 employees globally.
How do you think Obama’s second-term as the US president will impact India’s relationship with the US in the outsourcing space?
I’m certain that things would definitely improve. Obama winning a second term is good in terms of continuity. One of the election platforms, which both the parties talked about, is economy. I’m sure there will be lot of focus from Obama this time to improve the local economy, which is good for the growth. Once US start focusing on improving their own performance it will create lot of opportunities. And the initiative to drive growth will depend on technology. That will create lot of demand for our services.