Cognizant Technology Solutions - PINC Result Update

Revenues surge 15%QoQ, outperformance of its Q2CY10guidance by a massive 8.9%. Full year revenue guidance for CY10 revised upwards yet again; 36%YoY growth.

* Strong sequential growth indicates the robust demand for IT services
* Double digit growth across verticals; a major positive surprise
* Sustainable operating margins in the near term
* Uptick in discretionary spend in US & Europe and strong client addition

Cognizant has reported a very strong quarter; the guidance of 36%YoY revenue growth (CY10) is way ahead of Indian IT bellwether Infosys which has guided for 19-21%YoY revenue growth (FY11). Increased presence in the healthcare vertical, strong demand in BFSI vertical and uptick in discretionary spend will continue to benefit Cognizant.

The increased thrust on offshoring budget of clients is reflected by this strong growth which will benefit other large Indian IT vendors. The top 5 clients for Cognizant grew 22%QoQ who are taking strategic decision and investing in discretionary IT spending. Our assumptions for tier-1 Indian IT vendors of Infosys, TCS, Wipro and HCL Tech include 24-25%YoY revenue growth (FY11) in dollar terms, which appears to be achievable. We continue to be positive on the sector with 'BUY' recommendation on above-mentioned four companies.

Source : Equity Bulls

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