These days the Indian software world is divided into two distinct halves. One side of the cross-section has TCS, Cognizant and HCL where all the bouquets are headed and the other has Infosys and Wipro where only brickbats make their way in.
Among all, Cognizant is the most uniquely positioned. It is the only non-Indian IT firm that is busy disrupting the Indian software pecking order. First it downed Wipro in its sorrows and then it went past Infosys before the Bangalore major could take cognisance of what?s ahead.
Cognizant, which was founded in 1994 as a captive unit of Dun & Bradstreet in India, recorded a net income of $251.9 million for the June quarter up from $208 million during the year-ago period. It is enjoying an uninterrupted climb. The Nasdaq-listed Cognizant is headquartered in the US but the major chunk of its work force is in India, and that?s a win-win situation like no other.
Historically, Cognizant has frequently ploughed some amount of profit back into business. Hence the profitability is usually lower than some of the top tier Indian firms. But this has given them the rewards, by heightening its domain expertise while also keeping employees happy. Overall there is a feeling that tech pros in Cognizant are a happier lot thanks to its more multi-cultural approach, though it could be a matter of perception.
But there?s no doubting its performances. Every time Cognizant announces its results, there is a sense of deja vu among the Indian IT firms. They know what?s in store. Cognizant?s rise is a given and it will be difficult for even TCS to keep its lead in next the few years, if the former keeps growing at 20%.
Let?s look at the company?s merits.
Cognizant is a strong player in BFSI and its consulting strengths are growing. Now, almost all top tier Indian IT firms are good at BFSI but not to a dominating extent. JP Morgan Chase, UBS AG and Rabo Bank are some of its marquee banking clients. It enjoys a great relationship with American clients, which is more than half the battle won.
Cognizant works with lower margins, boosting volumes.
In the June quarter it won a $330 million deal with the US unit of Dutch insurance firm ING. Cognizant is especially strong in the BFSI vertical in the US, and revival in technology spending in the financial sector definitely helped the firm in the April-June period. Cognizant?s revenue from financial services clients grew 6% sequentially, while Infosys saw a sequential decline in the vertical. Cognizant raised its full year profit forecast on an increase in customer accounts. Its rosy outlook was in direct contrast to the tepid outlook of Infosys and Wipro. It expects its adjusted operating margin to remain in the 19-20% range for the year.
The dual advantage of being an American IT vendor and then being able to cruise on Indian cost arbitrage is deadly. It wins 80% of its revenues from the Americas. Though some say that over dependence on the continent could back fire at some stage, right now it?s a massive benefit. They haven?t invested enough in Europe and the rest of the world. This could come back to haunt them later. But for now, the going is great.
The Cognizant CEO, the 44 year old Francisco D?Souza, is a dynamic operator. When he took over the firm it had revenues of under $1.5 billion, now it?s inching close to $7 billion. He has built Cognizant into this global company which believes in being truly multi-cultural. D?Souza is directing the ship towards analytics, cloud and new technology services.