Cognizant Technology Solutions (CTSH) - PINC Result Update

Revenues outperformed its guidance by 0.8% to achieve 4.6%QoQ growth to USD1,371mn, in-line with other large Indian IT vendors. Raised full year revenue guidance to 29%YoY growth to USD5,925mn.

- Robust revenue growth, operating margin increased
- Traction in discretionary IT spend in US
- Manufacturing, Logistics, Retail and Hospitality surprises
- North America leads while Europe lags but deal pipeline robust

Cognizant will surpass Wipro in revenue run-rate in the current year. Cognizant continues to show positive momentum and increased revenue guidance by USD135mn for CY11 (from USD5,790mn to USD5,925mn), with an assumption that North America will have better growth ahead and deal pipeline will result in better growth from Europe and Rest of the World. The discretionary IT spending is particularly showing good signs of growth which in turn will be a positive factor for Infosys and HCL Tech which draws maximum revenue from such services among the top 4 Indian IT firms apart from Cognizant.

Our assumption of 26-27%YoY USD revenue growth seems achievable for the next fiscal for top tier IT companies except Wipro which is likely to show revenue growth of 20-21%YoY, which is struggling at present and guided weak revenue growth in Q1FY12. We remain positive on the large cap IT firms with a BUY recommendation on Infosys, TCS, HCL Tech and Wipro with a target price of Rs3,690, Rs1,350, Rs630 and Rs515, respectively.

Source : Equity Bulls

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