Cognizant - Early signs of recovery visible; Q4CY12 Result Excerpts - Edelweiss

Cognizant's Q4CY12 revenue at USD1948mn, up 3.0% QoQ, was in line with Street estimate and the company's 2.6% QoQ guidance. It has guided for revenue of USD2.0bn (up 2.7% QoQ) for Q1CY13 and USD8.6bn (incl. USD90mn inorganic revenue) for CY13 implying 17.1% YoY growth (15.8% on organic basis). The Q1CY13 guidance implies a 4.9% CQGR for the remaining quarters of CY13, which we believe is achievable. Financial Services (FS) continued to witness traction led by cost optimization and regulatory spend even as outlook for healthcare (HC) remains muted. Even as the company remains cautiously optimistic, we believe the positive commentary on FS, Manufacturing / Retail / Logistics (MRL) and IMS space is a reflection of demand being upbeat which augurs well for Indian IT players.

CY13 guidance inline with estimate

Cognizant's guidance of USD8.6bn (incl. USD90mn inorganic revenue) for CY13 implying 17.1% YoY growth (15.8% on organic basis) is inline with estimate. Based on the 2.7% revenue guidance for Q1CY13 it requires a CQGR of 4.9% for remaining quarters which we believe is achievable based on the improved large deal pipeline. This is further cemented by the fact that it expects pent up demand in FS to be released in CY13 and ramp up of the deals won earlier which will start reflecting Q2CY13 onwards. Its positive commentary on new technologies like mobility, analytics, big data, cloud, etc confirms the trend seen by peers and could provide further impetus to growth in CY13.

All round growth across verticals

FS grew 3.4% QoQ on the back of strong growth of 7.0% in Q3CY12. The management has stated that banking has seen good traction in this quarter with clients focusing on operational efficiencies. HC grew a strong 3.5%QoQ (decline of 0.2% QoQ in Q3CY12). However, management stated it would watch for couple of quarters before turning upbeat on the vertical. MRL continues to see traction and posted 3.1% QoQ growth. Europe posted strong growth of 7.8% QoQ; the company stated its stance of continuing investments in Europe to benefit from the increasing demand for outsourcing projects.

Outlook: Positive on demand; advantage Indian players

Cognizant's improved traction in FS and MRL and improved large deal pipeline stands testimony to the improved demand scenario. Further, increasing traction in new technologies, IMS and BPO space resonates well for Indian IT companies. The Q4CY12 commentary on improved deal pipeline and uptick in FS and MRL endorses our thesis of increased deal activity which could provide further momentum to growth in FY14.

Source : Equity Bulls

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