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Last Updated : Feb 08, 2013 10:26 AM IST | Source: CNBC-TV18

Cognizant bullish on demand; sees uptick in client budgets

Cognizant continues to be bullish on the path ahead with better-than-expected fourth quarter revenue to its credit. R Chandrasekaran, group chief executive officer (tech & operations) of the company is positive on the demand environment.


Cognizant continues to be bullish on the path ahead with better-than-expected fourth quarter revenue to its credit. R Chandrasekaran, group chief executive officer (tech & operations) of the company is positive on the demand environment.

"The sense of optimism comes from several factors. The year 2012 panned out to be exactly the way we wanted. Our customer satisfaction is on an all time high in the last four years," he said in an interview to CNBC-TV18.


The company's full year revenue at USD 7.35 is in line with the company's own estimates.The company's net income rose 16 percent to USD 278.8 million, or 92 cents per share, in the fourth quarter, from USD 240.1 million, or 78 cents per share, a year earlier.


Chandrasekaran is also optimistic on an increase in clients' budget. He expects the company's offshore spending to grow significantly "because the customers want to run better and run different".

Below is the edited transcript of Chandrasekaran's interview to CNBC-TV18.


Q: You have given a guidance of atleast 17 percent growth for CY13. What are you basing this confidence and optimism on? What is the outlook like from clients in terms of budgets, have you actually seen an increase in budgets from your client?


A: We feel pretty good about the demand environment. The sense of optimism comes from several factors. The year 2012 panned out to be exactly the way we wanted. Our customer satisfaction is on an all time high in the last four years. In one of the independent reports from Europe, KPMG has ranked us number one in terms of customer satisfaction and relationship. The investment that we have made in all service lines is helping us gain significant market share and mind share across our client engagements. The horizon one services which is application outsourcing, helps our customers in terms of getting better cost optimisation and helping customers run better. The focus that we have on horizon two which is BPO, infrastructure services and consulting, it is giving us significant market share within all the client engagement and helping the customers run differently.


Q: Are you actually seeing an uptick in client budgets? What is the situation? You have guided much higher than what the street was expecting. The street was expecting 10-12 percent. You have guided 17 percent plus?


A: The customer's budgets are freezing and its turning out to be the way we wanted. It is pretty flat to slight uptick.We expect the offshore spend to grow significantly because the customers want to run better and run different. That is where the investment that we have made and the capabilities that we take to our client engagements are making a significant difference. It is helping us to get a lot of business traction in all the engagements and also win new customers. That is why we feel pretty good about the demand outlook for our services in 2013.


Q: Where are you seeing the new customers coming in from? Can you give us a sense of the size of this new acquisition, client acquisitions?


A: We are seeing new client additions in all the industry segments that we service. We have converted almost six customers into the strategic bucket in the last quarter. So, the total number of strategic customers, where the revenue potential is anywhere between USD 5-50 million has gone up to about USD 240. We have won significant number of transformation deals in Europe. We have publicly announced the transmission deals with Phillips, Rabobank and all these things are expected to ramp up in 2013. So, I am really positive on the significant wins that we have announced from all the geographies.


Q: Do you see a significant ramp up in the transformational sort of deals as well?


A: Yes, definitely. The deal sizes are increasing and it is not just traditional cost optimisation. Customers want us to make a business impact through our services. That is why we are focusing a lot on transformation type of deals, bringing multiple service lines, offering a very unique value proposition. That is why we are able to gain significant market share. Through consulting we are able to win the mindshare of the customers as well.


Q: You said USD 90 million of the CY13 guided revenue is likely to come from anticipated acquisitions which pretty much means that you have zeroed in on potential target companies. Share some light on what kind of acquisitions we are likely to see when you are going to close this anticipated acquisition or acquisitions. What about the size of these acquisitions?


A: The USD 90 million out of the 8.6 billion that we have guided in 2013 is going to come through the two acquisitions that we have already publicly announced. One is the medical acquisition which is the US healthcare services company with a significant presence in Philippines. We have already closed the deal. It closed towards the late fourth quarter of 2012. So, we expect about USD 15 million revenue to kick in during 2013.


The other acquisition, C1 Group of companies out of Germany and Switzerland, is yet to close. We expect that to close late Q1 2013. We expect about USD 77 million revenue from the C1 group of companies that we announced recently. So, together that makes it about USD 90 million and that is what we have baked in our revenue guidance of USD 8.6 billion for 2013.


Q: Are you going to be aggressively scouting for new acquisitions?


A: We are always on the market look out for good acquisition possibilities. Our acquisition strategy has not changed. It is to fill some of the gaps that we have in our service lines. It helps us to penetrate newer geographies. C1’s acquisition is going to help us get lot more traction in continental Europe and particularly in Germany and Switzerland. We will look for some consulting type of skills where we can move up the value chain. So, that has always been the acquisition strategy and that has not changed.


Q: Give us a snapshot in terms of pricing volume growth as well as margins?

A: The pricing has been stable last quarter. That is what we expect going into 2013 as well. Given the stable pricing and very little movement in the forex , we announced sequential growth of almost 2.3 percent last quarter. So, we expect that to continue in 2013 as well.

First Published on Feb 7, 2013 10:05 pm
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