US-based information technology (IT) company Cognizant Technology Solutions has cut its US dollar revenue growth guidance to 8.5%-9.5% year on year (y-o-y) from 10%-13% for CY2016. Cognizant has forecast revenues from $13.47 billion to $13.60 billion for CY2016 versus $13.65 billion and $14 billion, respectively, earlier. This has been due to demand pressures and slowdown in discretionary spending. Coming to the third quarter, Cognizant has given a muted guidance of merely 1.8%-3% quarter-on-quarter (q-o-q) growth.
Cognizant’s revenues for the second quarter of this year rose by 5.2% quarter on quarter (q-o-q) to $31.4 billion. Its key verticals including healthcare and banking and financial services (BFSI) rose by 4.9% q-o-q and 5.1%, respectively.
According to Religare Capital Markets Ltd, the operating margin (OPM) of Cognizant for the second quarter stands at around 20%. The margins have been stable over the last 10 quarters, hovering at around 19-20%. The net margins too have been stable over the last nine quarters in the range of 12.5-14.8%. However, the net margins have declined to 7.5% in the second quarter of the current calendar year.
The report from Religare concludes that the growth risk for Indian IT remains high, which may translate into margins in the absence of material depreciation in rupee. The q-o-q growth for different segments for the second quarter stood in the range of 4.4%-5.1%. The quarterly growth stood at 5.1%, 4.9% and 4.4% respectively for BFSI, healthcare and manufacturing sectors respectively.
On the positive front, Cognizant, which earns majority of its revenues in India, have grown at a higher pace than the Indian IT sector. Other domestic IT companies too are suffering from a slowdown in revenues. Infosys has also lowered its guidance in constant currency terms earlier. This has been reflected in the Nifty Information Technology (IT) Index, which has been flat this calendar year. In contrast, the benchmark index has risen by 9%. The Nifty IT Index was relatively flat, falling by 0.10% Monday.