Cognizant - Soft 2H guidance suggest demand uncertainties - Ambit

Cognizant reported 1QCY13 revenues up 3.7% QoQ (3.1% organic) 100bps ahead of its guidance and 60bps ahead of consensus estimates. Growth was driven by Banking clients and scale service lines (application management, infrastructure etc.).

Importantly, the management indicated no adverse impact from the uncertainties on client decision making arising from the immigration bill, which is positive news for Indian IT services firms. It further highlighted that although the visa reform bill in its current form is clearly detrimental to the Indian IT offshore outsourcing industry it is unlikely to become a law undiluted. It expects the version of its bill that passes through the Senate to remain substantially restrictive to Indian IT firms, while facing substantial dilution in the House of Representatives. It also expects clients to influence the eventual debate on this issue.

Finally, Cognizant guided to 5.4% QoQ /4.8% organic QoQ growth in 2Q whilst maintaining its CY13 guidance (17% YoY, 15.8% organic YoY). Although management accepted possibility of a beat this suggests persisting uncertainties in demand conditions. Clearly, Cognizant's results remain more reflective of company-specific strengths rather than the overall demand environment. We maintain our cautious stance on demand recovery in FY14 and would warn clients against reading the results as a sign of sector strength.

Source : Equity Bulls

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