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Cognizant posts 13% jump in profits

The US-based firm, which has major presence in India, has reported a net profit of $420.1 million in the second quarter of 2015 as against $371.9 million in the same period a year ago.

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Buoyed by strong growth in healthcare and financial services business, IT services firm Cognizant today posted a 12.9% jump in net profit for the June quarter and revised its forecast for revenues to grow "at least 20.1%" in the ongoing fiscal.

The US-based firm, which has major presence in India, has reported a net profit of $420.1 million in the second quarter of 2015 as against $371.9 million in the same period a year ago.

Revenues for the April-June 2015 quarter rose by 22.6% to $3.09 billion as against $2.52 billion in the year-ago period, beating its own estimate of revenues to be "at least $3.01 billion".

The revenue was up over 6% from $2.91 in the January-March quarter.

"Our second quarter sequential revenue increase in dollar terms was the strongest in our history. We're seeing robust demand for our services, a trend that has continued to accelerate from the first quarter," Cognizant CEO Francisco D'Souza said in a conference call.

He added that there is robust underlying demand across the geographies and industries that it serves.

"Clients are recalibrating their spending, moving dollars from lights-on maintenance and operations projects to new digital initiatives. We are in a strong position to capture the enormous opportunities that are emerging from the transition to digital business," he said.

Cognizant follows January-December as its fiscal year.

"Growth drivers are wins in digital, executing digital transformations and innovation-at-scale; driving new levels of operational efficiency for clients; and strategic investments paying off," Cognizant CFO Karen McLoughlin said.

Cognizant has also raised its revenue guidance for 2015 to $12.33 billion, up around 20.1% compared to 2014 (from $12.24 billion or 19.3% growth).
For the July-September quarter, Cognizant expects its revenue to be at least $3.14 billion.

"Our strong performance has allowed us to raise our full year revenue and EPS guidance for the second time this year, despite the impact to our full year revenues from the announcement that Health Net would be acquired by Centene Corporation," McLoughlin said.

Last month, Cognizant had anticipated a USD 100 million hit to its incremental revenue in July-December of 2015 stating that it expected its $2.7 billion contract with Health Net may not be implemented if the latter is acquired by Centene Corporation.

Financial services grew 18.1% (accounting for 40.5% of revenues), while healthcare was up 39% (29.1% of revenues) and manufacturing/retail/logistics grew 12.4% year-on-year (18.7% of revenue). 

North America contributed 78.6% of the revenue, followed by Europe 16.3% and Rest of the World 5.2%.

"We continue to optimise our existing services and aggressively invest in new services to enable clients to drive higher levels of operational efficiency. These new solutions, being developed and deployed across all of our major business units, are fundamentally changing business models," Cognizant President Gordon Coburn said.

With over 100 development and delivery centres worldwide, Cognizant has about 2.18 lakh employees as of June 30, 2015.

Offshore utilisation increased by almost 300 basis points to about 73%, while onsite utilisation was about 93% during the said quarter.

"While attrition historically is seasonally higher in Q2 due to the timing of bonus payouts and associates leaving for higher education, second quarter annualised attrition this year, at 19%, was higher than normal," McLoughlin said.

Cognizant is working to improve retention levels through a number of employee engagement initiatives, she added.

Cognizant added seven strategic customers in the quarter, defined as clients that have the potential to generate at least $5-50 million or more in annual revenue, bringing the total number of strategic clients to 285.

"Our balance sheet remains very healthy. We finished the quarter with approximately $3.57 billion of cash and short-term investments," McLoughlin said.

In June 2015 quarter, consulting and technology services and outsourcing services represented 57% and 43% of revenue, respectively.

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