IT major Cognizant's March quarter results were decent, with revenue growth beating the top end of its guidance. That said, the growth significantly undershoot peers, analysts said citing that the Calendar 2023 guidance by the Cognizant management was modest at (minus 1 per cent to 1 per cent CC YoY growth.
Bookings were up 28 per cent YoY while the trailing twelve month backlog stood healthy at 1.3 times book-to-bill, they said.
Nirmal Bang Institutional Equities noted that doing a read-through for the Indian IT services industry from Cognizant's performance, guidance and commentary has not been a fruitful exercise in the past, as it has faced issues specific to itself. But the brokerage believes things have been changing.
Fight back
Nirmal Bang said peers such as Accenture, TCS and Infosys had benefited from the loss of share by Cognizant in the last 4-5 years due to poor management and execution.
It said: "The 28 per cent YoY growth in order inflow for Cognizant Technology Solutions (CTS) in the March quarte probably reflects the first positive signs of impact of the new CEO, Ravi Kumar. Cognizant won four large deals with TCV greater than $100 million against nil such deal in the year-ago quarter."
"Also, growth in deal bookings in the financial services vertical was higher than for the
overall company. While it is unlikely to show up materially in the revenue growth numbers in 2023, we believe this represents a leading indicator of the fight back from Cognizant," it said.
Nirmal Bang said the early signs of a fight back do not represent good news to its Indian peers. Also, Cognizant's views on pricing and the impact of Generative AI on the industry too are not very positive, the brokerage said.
Transition
Nuvama Institutional Equities is not as concerned on the sector outlook so far.
It said Cognizant's March quarter performance was decent but the outlook the IT firm provided for June quarter was uninspiring.
"We view it as a reflection of the company undergoing transition (new CEO); and it does not apply to the Indian IT Services sector or peers. The solid bookings (up 28 per cent YoY) point to the demand environment remaining strong—a positive read-across for the sector," it said.
This brokerage has maintained its positive stance on the Indian IT Services sector. We see a sustainable strong demand environment in the form of transformational and/or cost-takeout deals shall drive revenue growth over next two–three years, it said.
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