Cognizant gives tepid revenue guidance of 8-11% for 2022-24

Cognizant CEO Brian Humphries

Trade

• Watchlist
• Portfolio
• Message
• Set Alert

 

 

live

• bselive
• nselive

Volume

Todays L/H

More

×

NASDAQ-listed IT firm Cognizant said it expects revenue to grow 8-11 percent in constant currency for 2022-24, at a time when its peers in India are looking at strong double digit growth.

Cognizant's industry lagging growth forecast is in sharp contrast to its performance few years ago, when it used to grow faster than its peers in the industry. The tepid forecast also comes at a time when Cognizant has seen an outflux of employees, across levels, raising questions on CEO Brian Humphries' reorganization strategy.

During the period, the company expects digital, which includes new age technology such as cloud, AI/ML and cybersecurity, to contribute 55-60 percent of the revenue, growing at high to low teens, from the 45 percent this year. “Digital supports revenue growth, margin goals, increases our relevance to clients, and is core to our employee value proposition,” the company said in its investor deck.

Of the total growth of 8-11 percent the company expects, 6-9 percent organic constant currency compound annual growth (CAGR) and 2 percent would come from inorganic contribution. Cognizant expects to close the year with $18.5 billion.

This guidance is already lagging behind its peers, who expect strong growth momentum, at the back of acceleration in digital adoption. This is also consistent with the company’s lagging performance, since Brian Humphries took over as the CEO in April 2019.

Its Indian peers TCS, Infosys, and Wipro are confident about the double digit growth momentum, and expect it to continue. TCS CEO Rajesh Gopinathan in an earnings call shared that the company is looking at a multi-year technology upgradation cycle that will fuel the growth.

While TCS does not share guidance, Infosys guided for 16.5-17.5 percent in FY22. Infosys and TCS’ year-on-year growth in Q2 FY22 stood at 20.7 percent and 16.7 percent respectively. Wipro does not share yearly guidance. However for the quarter ending September 2021, the company had registered almost 29 percent growth year-on-year. Compared to its peers, Cognizant grew only 11.8 percent in the quarter gone by.

Higher attrition

The company is also facing higher attrition. The company’s attrition stood at 33 percent (37 percent otherwise), highest among its India peers, and a huge cause for concern at a time when the demand momentum is strong.

For reference, its peers Infosys and Wipro posted a little over 20 percent in attrition. TCS and HCL Tech’s attrition rate stood at 11.9 percent and 15.7 percent respectively for the quarter. The company also continues to exit at the senior executives level. According to CFO Jan Siegmund the attrition is high at the mid-junior levels.

To address this the company will on-board 32,000 freshers in 2021, and 50,000 in 2022.

Spending

The company will deploy 50 percent of capital (of annual free cash flow) into acquisitions between 2022 and 2024. So far Cognizant has invested $2.5 billion in digital M&A acquisitions. The firm has also increased its international marketing spending from 10 percent in 2019 to 30 percent in 2021. This has resulted in 30 percent more international deal books, the company said in the investor report.