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<\/p>\nSlowing growth and execution challenges for Cognizant (CTSH) may well allow Infosys to overtake the former after a decade.<\/p>\n
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Cognizant had marched ahead of Infosys in terms of revenue in the first quarter of financial year 2012-13.<\/p>\n
The Nasdaq-listed IT services firm’s performance in Q3 and the guidance for Q4 and full-year 2022 suggest that it could take time for Cognizant to see the expected improvement in performance from its decision to restructure.<\/p>\n
Cognizant follows a January-December financial year.<\/p>\n
“CTSH has enjoyed a comfortable lead over Infosys in revenues.<\/p>\n
“That lead is narrowing, with the gap in revenues between the two companies down to just 6.6 per cent.<\/p>\n
“Infosys’ quarterly revenue run-rate of $4.555 billion is just $300 million away from CTSH’s revenues.<\/p>\n
“Infosys’ headcount at 345,000 employees is just 4,000 shy of CTSH.<\/p>\n
“We would not be surprised if Infosys reclaims revenue leadership over CTSH in the coming quarters,” said a report by Kawaljeet Saluja and Sathishkumar S of Kotak Institutional Equities.<\/p>\n
This comes in the backdrop of falling revenue targets.<\/p>\n
Cognizant indicated that revenue could decline by 0.2-1.2 per cent in Q4 (growth of 2-3 per cent in constant currency).<\/p>\n
This also means that its full-year guidance has also been pared.<\/p>\n
The company now expects its FY22 guidance to be 7 per cent in constant currency from the earlier 8.5-9.5 per cent.<\/p>\n
In Q3, Cognizant reported a revenue of $4.9 billion, which was a growth of 5.6 per cent in constant currency terms.<\/p>\n
This was lower than expected and did not meet the lower end of the company’s own Q3 guidance.<\/p>\n
Cognizant had guided for a revenue of $4.98-$5.03 billion.<\/p>\n
Moreover, bookings declined 2 per cent year-over-year and represented an in-period book-to-bill of approximately 1x.<\/p>\n
This resulted in trailing 12-month bookings of $23.1 billion.<\/p>\n
The company also saw growth taper in some of its verticals, including BFSI and healthcare.<\/p>\n
The Kotak report stated: “Financial services is a large vertical for all companies.<\/p>\n
“CTSH has been losing share to competitors in large banking accounts.<\/p>\n
“The anaemic growth does indicate continuing loss of share.<\/p>\n
“The healthcare vertical’s growth has also slowed to 5.5 per cent, while peers continue to grow at a higher rate, indicating a relative loss of wallet share.”<\/p>\n
The firm cited headwinds from currency, lower North America billable headcount, which they expect to take several quarters to improve, and softer-than-expected bookings growth for this performance.<\/p>\n
The larger issue, however, appears to be attrition.<\/p>\n
Till a few quarters ago, attrition at its offshore centres had impacted operations, this time the management said onshore attrition and the uncertain economic condition impacted performance.<\/p>\n
“Revenue and bookings were below our expectations as company specific fulfillment challenges were compounded by the impact of an uncertain macroeconomic backdrop,” said Brian Humphries, its chief executive officer.<\/p>\n
“We are confident the steps we are taking will return the company to accelerated growth over the medium to long term.”<\/p>\n
During the earnings call, Humphries said while a non-certain macroeconomic backdrop impacted bookings and revenue, “the primary driver of the revenue shortfall relates to a reduction in US onshore billable resources in recent quarters, following a period of elevated attrition, a reduction in visa travel and a Covid-induced shift in the near and offshore delivery centres”.<\/p>\n