Pecking order in IT changes; Cognizant pips Wipro at No. 3

US-based IT Services firm Cognizant Technology Solutions Corp’s better-than-expected financials in the June quarter of calender year 2011 has changed the pecking order in the Indian IT space. The firm has overtaken Aziz Premji-led Wipro to emerge as the third-largest IT firm after TCS and Infosys.

Cognizant Technology, on Tuesday, reported a rise of 21 percent in profit to $208 million, or 67 cents a share, up from $ 172.2 million for the second quarter ended June 30, 2011 helped by strong demand for its services, and forecast third quarter above market expectations.

Cognizant’s quarterly revenue, which grew 34.4 percent to $1.49 billion, outpaced India’s No 3 software services exporter Wipro’s IT services revenue of $1.41 billion. For current quarter, the company projected per-share earnings of 70 cents on revenue of least $1.57 billion, as analysts polled by Thomson Reuters estimated 70 cents and $1.54 billion, respectively.

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Analysts, on average, were looking for earnings of 70 cents a share, on sales of $1.54 billion, for the third quarter, according to Thomson Reuters .

Teaneck, New Jersey-based Cognizant’s shares, which have lost 16 percent of their value in the last three months, rose 5 percent to $74.49 on Tuesday on Nasdaq.

“If you look at it historically, Cognizant have had industry leading growth rate and they are maintaining that,” analyst Jain said.

For the second quarter, the company earned 72 cents a share, excluding items, surpassing market expectations of 66 cents a share.

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In an interview with CNBC-TV18, Francisco D’Souza, president and CEO of Cognizant said demand in Asian markets grew sequentially by 17-18 percent, which resulted in good volume growth for the IT firm .

[caption id=“attachment_52956” align=“alignleft” width=“380” caption=“Cognizant has not only beaten street estimates, but also scored higher than the top four IT firms in quarterly revenue growth. Reuters”]  [/caption]

The firm is continuing its scorching growth and forecast a strong third quarter, at a time when rival Indian IT services exporters have warned of slowing technology spending.

Discretionary development spending by clients has been spurring growth at Cognizant, while many top players in India’s showcase $76 billion software and services sector have raised concerns over economic uncertainties restricting their growth.

“(Our) clients are spending on discretionary projects. These projects are generally related to innovation and growing their own top line,” Chief Financial Officer Gordon Coburn said. Financial-services revenue, which accounts for the largest share of total revenue, jumped 30 percent on increased spending on “mobile computing and social or cloud-based [customer-relationship management] programmes,” he added during a conference call with analysts.

Revenue from health-care clients rose 37 percent on strong demand for services that use pharmaceutical data for business planning. Cognizant, which saw its revenue jump 40 percent last year, expects 2011 sales growth to be at least 32 percent, outshining Wall Street estimates of 30 percent growth.

“This is way ahead of investor expectations,” Kaufman Bros. analyst Sachin Jain said.

“During the downturn, unlike some of (Cognizant’s) offshore tier-one peers, they invested heavily and probably they are still reaping the benefits,” Jain added.

Global economic uncertainties could lead to lower customer spending and Infosys had warned it could face slow client spending. Tata Consultancy also flagged concerns about economic uncertainty.

Wipro said the uncertain economic environment had resulted in volatility in business, but it was not seeing delays in the IT spending decision making process by customers.

Cognizant has traditionally worked with lower margins than its rivals to gain market share. It has no intention of changing this strategy, CFO Coburn said, adding that he is comfortable with margins of 19-20 percent on an adjusted basis.

(With inputs from Reuters)