US-based Cognizant Technology Solutions Corp continued its scorching growth and forecast a strong third quarter, at a time when rival Indian IT services exporters have warned of slowing technology spending.
Discretionary development spending by clients has been spurring growth at Cognizant, while many top players in India’s showcase $76 billion software and services sector have raised concerns over economic uncertainties restricting their growth.
“(Our) clients are spending on discretionary projects. These projects are generally related to innovation and growing their own top line,” Chief Financial Officer Gordon Coburn told Reuters.
Cognizant, which saw its revenue jump 40 percent last year, expects 2011 sales growth to be at least 32 per cent, outshining Wall Street estimates of 30 per cent growth.
“This is way ahead of investor expectations,” Kaufman Bros. analyst Sachin Jain said.
“During the downturn, unlike some of (Cognizant’s) offshore tier-one peers, they invested heavily and probably they are still reaping the benefits,” Jain added.
Global economic uncertainties could lead to lower customer spending and India’s No. 2 software services provider Infosys had warned it could face slow client spending. Tata Consultancy also flagged concerns about economic uncertainty.
Wipro Ltd said the uncertain economic environment had resulted in volatility in business, but it was not seeing delays in the IT spending decision making process by customers.
Cognizant has traditionally worked with lower margins than its rivals to gain market share. It has no intention of changing this strategy, CFO Coburn said, adding that he is comfortable with margins of 19-20 per cent on an adjusted basis.
The company, which has not missed market estimates for over two years, projected third-quarter adjusted earnings of at least 76 cents a share, on sales of at least $1.57 billion.
Analysts, on average, were looking for earnings of 70 cents a share, on sales of $1.54 billion, for the third quarter, according to Thomson Reuters I/B/E/S.
Teaneck, New Jersey-based Cognizant’s shares, which have lost 16 percent of their value in the last three months, rose 5 percent to $74.49 on Tuesday on Nasdaq.
Cognizant’s quarterly revenue, which grew 34.4 per cent to $1.49 billion, outpaced India’s No.3 software services exporter Wipro’s IT services revenue of $1.41 billion.
“If you look at it historically, Cognizant have had industry leading growth rate and they are maintaining that,” analyst Jain said.
For the second quarter, the company earned 72 cents a share, excluding items, surpassing market expectations of 66 cents a share.