BENGALURU: is rapidly closing in on Cognizant, and next year could be the tipping point when the Indian IT services pecking order would see a shake-up with Infosys reclaiming its No. 2 spot. Cognizant’s revenue had raced past Infosys’s ten years ago.
Infosys in the September quarter had revenue of $4.6 billion, just $300 million lower than Cognizant’s $4.9 billion. And there’s a huge gulf between the two companies’ growth rates. While Infosys grew at 18.8% year-on-year in constant currency in the quarter, Cognizant’s growth was a mere 5.6%. And while Infosys is guiding for a revenue growth of 15-16% in constant currency for financial year 2022-23, Cognizant is guiding for a 7% growth in constant currency for the calendar year 2022 (which is also the company’s financial year).
TNNCognizant saw searing rates of growth under the previous CEO, Francisco D’Souza, during which the company first crossed in revenue, in 2011, and then Infosys, in 2012. But the growth started slowing in his final years at the helm. Current CEO, Brian Humphries, a former Vodafone executive, replaced D’Souza in April 2019, and since then has undertaken several drastic steps, but that does not appear to have had a salutary impact on revenue. The company’s share price today is lower than when he took over, and there have been occasions during this period when even Wipro’s market cap was higher than that of Cognizant’s.
This year, Cognizant has lowered its revenue guidance three times, and most recently said it was a reflection of macroeconomic challenges, as well as people-related challenges that it is facing, in particular, high attrition levels in the US.
Hansa Iyengar, IT analyst in London-based advisory Omdia, said Cognizant is still struggling with delivery despite a
effort to turn the company’s fortunes around. “Cognizant’s large exposure to verticals that are usually harder hit in recessionary scenarios as well as greater on the US market is a threat that will come into play in the coming year. Infosys, on the other hand, has done a good job of diversifying its portfolio across verticals and markets, which provides some insulation against headwinds. It would be good to see some excitement in the sector in the next couple of quarters!”
Kotak Institutional Securities said in a report that Cognizant has ceded wallet share in key verticals. “Loss of wallet share – it is spreading beyond financial services. Cognizant has been losing share to competitors in large banking accounts. The anaemic growth does indicate continuing loss of share. The healthcare vertical’s growth has also slowed to 5.5%, while peers continue to grow at a higher rate, indicating a relative loss of wallet share,” it said.
Cognizant has had people-related challenges that have affected execution and has led to its inability to capture demand in IT services. The company has had six quarters of over 30% attrition (including involuntary attrition), despite compensation correction, advancing the merit cycle, and skilled-based incentives. The attrition in the September quarter was 35%, including 6% involuntary attrition (a euphemism for sacking).
Phil Fersht, CEO of IT advisory HfS Research, said Cognizant is pursuing more M&A, so a lot will depend on how effectively the new additions impact growth and profitability.
