Cognizant likely to lag Infosys in FY17 on revenue growth

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Updated: May 10, 2016 4:43:48 PM

IT services provider Cognizant Technology Solutions Corp reported its slowest quarterly revenue growth in 14 years as its clients in the financial and healthcare services held back on spending.

IT companies IT services provider Cognizant Technology Solutions Corp reported its slowest quarterly revenue growth in 14 years as its clients in the financial and healthcare services held back on spending. (Picture for representation only)

Indian IT bellwether Infosys is set to outpace Cognizant in terms of revenue growth in FY17. Cognizant on Friday reported a 0.9 per cent quarter on quarter fall in revenue growth for the quarter ended March 2016, which was also lower than the growth reported by all Tier-1 Indian companies for the quarter. TCS, Infosys, Wipro, HCL Technologies reported 1.5 per cent, 1.6 per cent, 2.4 per cent, 1.3 per cent QoQ revenue growth in dollar terms.

IT services provider Cognizant Technology Solutions Corp reported its slowest quarterly revenue growth in 14 years as its clients in the financial and healthcare services held back on spending. For the financial year ended March 2016, Vishal Sikka-led Infosys reported 14.13 per cent year-on-year rise in net profit at Rs 53,983 crore. On the other hand, Francisco D’Souza-led Cognizant has lowered its revenue forecast for the 2015-16 to be in the range of $13.65-14 billion from its earlier estimate of $13.65-14.2 billion, representing approximately 10-13 per cent growth year-over-year.

Infosys sees revenues growth of 11.5-13.5 per cent in constant currency terms and 11.8-13.8 per cent growth in dollar terms in 2016-17.

The confidence of Infosys among investors are visible in its share price movement also. American Depository Receipt (ADR) of Infosys has surged nearly 19 per cent in the past one year on the NYSE till May 9. On the other hand, Cognizant shares fell 2 per cent on the NASDAQ during the same period. Infosys shares also trade on domestic stock exchanges.

G Chokkalingam, founder, Equinomics Research and Advisory said, “New leader at Infosys and weak performance of Cognizant in the past couple of quarter enthused investors confidence in Infosys.”

According to Japanese brokerage house Nomura, Cognizant cut its FY revenue growth guide to 10-13 per cent (from 10-14 per cent) on a soft start to the year. However, the company guided a strong second quarter and continued momentum in second half as healthcare returns to growth driven by life sciences, deal wins and pipeline are strong, and despite FY caution on BFSI, it is still expected to grow sequentially. While Cognizant is likely to lag Infosys on growth in 2015-16E, a stronger exit plus contribution from Healthcare M&A integration/BPaaS deals should see it outperform again in FY17F.

Nomura sees 11 per cent and 15 per cent revenue growth in 2015-16 and 2016-17 and a 14 per cent FY15-17F EPS CAGR.

On the revenue growth, Chokkalingam said, “It is quite possible that Infosys will beat Cognizant in 2016-17 also in terms of revenue growth.”

According to Nirmal Bang Institutional Equities, If Infosys delivers 13.8 per cent dollar revenue growth which it guided for FY17 (at the upper end), it will be for the first time in many years that the company will be outperforming Cognizant in terms of revenue growth.

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