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Last Updated : Nov 04, 2015 10:23 PM IST | Source: CNBC-TV18

Investments in digital paying, Cognizant says after hot qtr

US-based Cognizant today posted a strong set of quarterly numbers, and raised its revenue growth guidance to at least USD 12.5 billion, or 20.1 percent to 21 percent.

US-based Cognizant today posted a strong set of quarterly numbers, and raised its revenue growth guidance to at least USD 12.5 billion, or 20.1 percent to 21 percent.

In an interview with CNBC-TV18's Shereen Bhan, CEO Francisco D'Souza said the overall demand remains strong and he expects the IT firm to continue to do well ahead.

"Our investments in digital space are paying off and we are winning in the tech transformation arena," he said. "Our second area of heavy investments is consulting."


The Nasdaq-listed company will continue to look at M&A opportunities, he added.

Below is the transcript of Francisco D'Souza's interview with CNBC-TV18's Shereen Bhan.

Q:  While other peers of your are struggling to meet the guidance that they have held out or meet street expectations, for the third time this year you have hiked your full year guidance as well as your EPS guidance. Are you conservative when you actually put out your guidance and what is the possibility of beating 21 percent as well?

A: We had a very strong Q3 and on the back of Q3 results we have taken our guidance up for the third time this year. Our Q3 revenue grew 3.3 percent sequentially  or 23.5 percent year over year and we beat guidance for Q3 by about USD 45 million. So, overall a very strong quarter, broad based across the business and we are happy with our performance. I think what is really going on out there is that you have a situation where we are in a once in a decade shift in the technology  landscape and there is tremendous amount of opportunity for us at Cognizant to help our clients  manage and make that transition. We are winning in the digital space because of the investments that we have made, the fact that we are innovating at scale and this really broad set of integrated capabilities that we have built in the company to help our clients make the transition from the last wave of technology to new wave of digital transformation. So, we feel great about the business and the performance that we have had year to date.

Q: Do you think you could better 21 percent given the visibility that you currently have and your ability to beat your own guidance three times around this year?

A: We set our guidance based on what our realistic outlook is. For the period that we are giving guidance we feel good about the current guidance that we have provided but the demand environment is certainly strong. We feel very good about how we are positioned and we think we are going to continue to perform well both for the rest of this calendar year and then as we go into next year.

Q: I want to talk to you about digital and you were talking about the opportunity that you see on the digital side and the investments that you have made in order for you to be able to win on that side of the business. Can you take us through further investments that would be required on the digital side and also how you intend to continue to capitalise on us, if you can throw little more colour on the digital side of the business?

A: I would say that success and  winning in digital today requires a broad set of integrated capabilities to address the market demand. There are four key investment areas that I would point out, first is the actual digital capabilities themselves which we are building out whether it is technology or strategy, design, data science, we are spending a lot of time building those core capabilities out. The second is that, over many years we have been investing in our consulting business and consulting plays an absolutely integral part in helping clients navigate these big shifts that take place in the technology landscape. So, second area of investment is in our consulting business. The third area that we are investing very heavily in is in all of the capabilities to help optimise and integrate digital businesses with our clients current legacy systems. The legacy environments form the backbone on top of which digital businesses get built and so that is the third area of investment. Fourth area of investment that we continue to build out is what we call platform based solutions where we can create shared utilities across an industry or even across multiple industries so that investments get shared across multiple clients.

Q: Are you actively looking at M&A to be able to continue to strengthen beef up your capabilities on the digital side? You have ended the quarter with about USD 4 billion of cash, I understand that the Trizetto integration is going at pace which is comfortable for the company. Are you actively looking at M&A specifically in the digital space?

A: We are very happy with the progress of the Trizetto integration and in fact with our M&A programme overall. As a result of that we will continue to look at M&A as we always have on an active basis. Our focus has always been and will continue to be primarily  on small tuck-in acquisition that will help us either add a specific capability to the business, grow our geographic footprint or increase the depth in particular industries that we serve. That pipeline of M&A opportunities continues to be rich and robust and we will continue to look at that as we go forward.        

Q: What can we expect as far as the margins are concerned and also I am looking at what's happened on your utilization rates, utilization is up on a sequential basis as well, pricing I understand is stable for the quarter. Given the current sort of environment, what more can we expect in terms of being able to squeeze out further on margins?

A: Our approach to margins has always been to keep our operating margins on a non gap basis in a 19-20 percent range and reinvest everything above that back into the business and you are going to see us continue that strategy going forward, you will see that margins will remain in the 19-20 percent range as we go forward. This is the time when it is important for us to continue to invest organically in the business because of all of the opportunities that are available out there. So above 19-20 percent, you will see us continue to invest that back into the business. We are happy with the core operating matrix in the business, utilization did go up. We think that there may be a little bit more room for it to go up but then it should stabilize at that level. Taking utilization up was a very conscious effort that we have undertaken over the last couple of quarters and we are happy with the progress that we have made on that front.

Q: What about attrition? Because your annual attrition this year is at 20 percent which is higher than normal. Can we expect some sort of employee retention benefits, schemes etc being given out for in order for you to be able to bring down attrition rates?

A: The high attrition rate is an industry wide phenomenon it is not a phenomenon that is specific to Cognizant, nevertheless something that is of concern to us, but one of the things that we believe is you said is that as the company performs well and as we outperform our own expectations as we did this quarter, we should and we will share that with our employees and so we have talked about today that as part of our results this quarter that we have taken our provision for annual bonuses up considerably and that we expect to pay our employees very healthy bonuses this year as we go into that cycle at the end of the year and the beginning of next year.

    First Published on Nov 4, 2015 09:47 pm