06 May , 2021 By : Kanchan Joshi
MUMBAI : The March quarter earnings of global IT company Cognizant Technology Solutions were better than anticipated. In Q1CY21, revenue in constant currency terms grew 2.4%, aided by the improved performance of its healthcare vertical. The company follows calendar year as financial year. Revenue at $4.4 billion, was only marginally better than $4.2 billion seen in the previous quarter. Net profit at $505 million rose from $367 million compared with the year ago period and from $316 million in December.
Following its March quarter earnings, Cognizant revised it revenue growth guidance for CY21 upward. It now foresees full year 2021 revenue to be around $17.8 billion-$18.1 billion. This represents 5.5-7.5% growth in constant currency terms and is higher than the 4-7% range it guided last quarter. In constant currency terms, organic revenue growth guidance stands at 2.5-4% from 1-4% guided earlier. Since this number is significantly lower than key IT Indian providers, who are targeting double-digit revenue growth in fiscal year 2022, Cognizant is poised to lose market share, analysts said.
Another point to be noted was the management's caution on business forgone due to talent issues. Analysts at Nirmal Bang Securities Ltd are of the view that even though there are visible signs of digital talent crunch, high attrition in Cognizant is a company specific issue. "We think some of 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.
The company saw a steep rise in voluntary attrition in Q1CY21 to 18% from 10% in Q3CY2020. To tackle this, the company would hire 28,000 freshers in 2021 compared with 17,000 hired in 2019. The company has also significantly increased its thrust on subcontracting.
In a post earnings conference call, the management said resignations increased through Q1CY21, which peaked in March and gradually slowed in April and May. In spite of the gradual decline in resignations, the management anticipates further sequential increases in attrition during Q2CY21, given two months’ notice period in India. A gradual recovery in attrition will be visible in H2CY21 only, the management added.
Meanwhile, the company expects 2021 adjusted operating margin to be in the range of 15.2% to 15.7%. It should be noted that this is lower than 16.2% margin guidance shared earlier. Analysts say, lower margin guidance indicates the company's investments in retaining talent.
0 Comment