Cognizant Technology Solutions, a global IT firm, reported better-than-expected earnings in the March quarter. Revenue increased by 2.4 per cent in constant currency terms in Q1CY21, owing to better results in its healthcare vertical. The company’s financial year is based on the calendar year.
Revenue of $4.4 billion was just slightly higher than the previous quarter’s $4.2 billion. Net profit increased to $505 million from $367 million in the previous quarter and $316 million in December.
Cognizant Revenue Growth Guidance For CY21
Cognizant raised its revenue growth outlook for CY21 in its March quarter results. Revenue for the full year 2021 is now expected to be in the range of $17.8 billion to $18.1 billion.
In constant currency terms, this equates to a 5.5-7.5 per cent expansion, which is higher than the 4-7 per cent range it predicted last quarter. Organic sales growth guidance is now 2.5-4 per cent in constant currency, up from 1-4 per cent previously.
Cognizant is poised to lose market share, according to analysts, because this figure is slightly smaller than the main IT Indian providers, who are targeting double-digit revenue growth in the fiscal year 2022.
The Management’s Caution On Business Forgone Due To Talent Issues
Another point worth mentioning is management’s apprehension about the company loss due to talent issues. Despite clear signs of a digital talent shortage, analysts at Nirmal Bang Securities Ltd believe that Cognizant’s high attrition is a company-specific problem.
“We think some of the company’s HR practices in 2020 (when there was significant involuntary attrition in certain quarters), has likely triggered the current exodus,” it said in a note on 6 May
Voluntary attrition increased dramatically in Q1CY21, from 10% in Q3CY2020 to 18% in Q1CY21. To address this, the organisation plans to recruit 28,000 freshmen in 2021, up from 17,000 in 2019. Subcontracting has also become a bigger priority for the business.
Lower margin guidance
Despite the steady decrease in resignations, management expects more sequential rises in attrition in Q2CY21, provided the two-month notice period in India. Only in H2CY21 would there be a steady recovery in attrition, according to management.
Meanwhile, the corporation anticipates an adjusted operating margin of 15.2 per cent to 15.7 per cent in 2021. It’s worth noting that this is smaller than the 16.2 per cent margin guidance given previously.
Lower margin guidance, according to analysts, reflects the company’s investments in attracting talent.