Europe is the main playground now

Cognizant has shifted focus from the US to Europe and is confident of earning $90 million this calendar from the C1 and MediCall acquisitions made last year, R Chandrasekaran, group CEO, tech & ops, told Beryl Menezes. Excerpts from an interview:

Last calendar, consulting and technology services represented 51.1% of your revenues and grew 20.4%, while outsourcing services represented  48.9% of revenues and grew 19.6%. How does it look going forward?
While outsourcing will continue to be our mainstream, helping to drive industry-leading revenues, we expect consulting to grow at a much faster pace. Consulting has not only been a differentiator for Cognizant, but we also see it growing faster than the company’s overall projected 17% US dollar revenue growth guidance for 2013. We are investing heavily in this area, hiring experts as well as fresh MBA graduates.

At 17%, your guidance is considerably lower than the 20% you guided last year. You were expected to beat TCS this quarter...
We are very happy with our guidance projection and still believe this will be above industry growth for the year. However, more than beating any company, we are more interested in being number one in our customer’s mind, which I think we have achieved in terms of industry-leading customer satisfaction index.

Your peers saw an uptick in discretionary spend in the quarter...
We expect discretionary spends to increase due to run-the-business spends by companies in US and Europe increasing as part of cost-control measures. The new client focus is on transformation, addressing new demographics and technologies, and trying to keep up with increasing regulatory pressures. These discretionary spends will come from across geographies, but especially Europe.

European business rose 19% in Q4 after three consecutive quarters of slow growth. What’s your outlook on Europe?
While US (North America) has traditionally been our main source of revenue, growth has slowed from this market in recent times. We are instead now betting big on Europe, which we see growing faster than US for the next year. This confidence comes on the back of more transformational and long-term deals expected, as well as significant revenues from our recent acquisition in Europe.

How much has the C 1 acquisition contributed to your revenues?
While the Germany-based C 1 deal is expected to close by the end of Q1 2013 and contribute $75 million to revenues, acquisition of MediCall, a US-headquartered medical management services firm with operations in the Philippines which closed mid-Q4, is expected to contribute $15-16 million in 2013. Together, these acquisitions are expected to add $90 million to Cognizant’s revenues for the year.

Cognizant is also heavily investing in emerging markets....
Yes, in the last few years, we have been steadily increasing our investments in APAC and in 2012, we saw 40% revenue contribution from this region. We expect to maintain similar growth in 2013.

What is your outlook on the Indian IT sector this year?
We expect the demand outlook for Cognizant and its peers to be stable in FY14, with stable pricing. Growth is expected to be led by large, long-term transformational deals. Cognizant has consistently clocked the largest number of $100 million clients – with 16 such clients in 2012.