Despite showing industry leading growth in CY15, Cognizant on Monday surprised everybody with its lackluster revenue guidance for calendar 2016. In an interview with Bibhu Ranjan Mishra, the Nasdaq-headquartered company’s CEO for IT services, Rajeev Mehta discusses the reasons for that. Edited excerpts …
After exciting performance in calendar year 2015, why there is such a slow start to CY16? For the first time, you are talking about numbers which is the lower end of which is even lower that the Nasscom growth guidance for the full year?
Look, in constant currency, we have given a guidance in the range of 11-15 per cent for FY16. So, it’s a range of four per cent. There are few reasons for that. Firstly, we are seeing more number of large deals and those deals have actually wide ranges in terms of upside potential. Also, a lot of discretionary projects are coming in, especially in the digital space. In Healthcare, we are seeing some slowness because of the consolidation that is happening in that space because of mergers & acquisitions, and a lot of projects in that segment are waiting because of that. But as that settles down, we will see demand coming back. In addition that, we are seeing some large opportunities through our Trizetto acquisition which we expect to gain towards the backend of the year.
A growth guidance of 9.9-14.3 % for a company like Cognizant as you have guided, is it not alarming for the industry? Is everything fine?
I think, everything is not fine. We are seeing a lot of softness in the banking (Banking, Financial Services and Insurance) side, and I would imagine that many of our peers would also be seeing that. Because of the broader economic environment, we are seeing some slowdown in terms of discretionary spend. Rest of our industries and geographies are looking very good for the year. The softness that we are expecting in the financial services segment has been reflected in our guidance for 2016.
Why is the financial service space undergoing through this soft phase?
The banking sector has been impacted quite significantly because of the global economic environment. And with that, we are seeing projects are getting delayed and shifted. As the year continues to progress, we do hope that those projects will be initiated, but we started with slow start in the beginning of the quarter.
Does it also mean that the visibility into the full year is somehow low at this point of time?
Assuming that financial services stay soft for the rest of the year, we gave the lower end of the (guidance) range, and we have some M&A type things happening in the healthcare space that gave us a slow start. Overall, for the rest of the year, we still feel that our pipeline is definitely stronger.
Is the deal conversion taking longer time?
We continue to win more than the previous year, and we are winning a good portion of the new types of deals what we call as digital. In healthcare space, the types of deals that we are seeing are surely not the kinds of deals for which we compete with some of our traditional India-based competitors. Those are new types of deals that are coming into the system. So overall, we are still very optimistic for the year 2016. With the exception of banking, everything seems to be showing very good start.
Can you quantify the pipeline you have and how it’s higher than before?
Some of our offerings like BPO, infrastructure and consulting have all reached significant scale which is driving significant downstream revenues. In addition to that, in terms of geographies, we are seeing good growth in rest of the world in addition to Europe. For example, in India, the work that we are doing for companies like Aditya Birla Group gives us opportunity to offer the strong digital capability we have in India market.
But India is very small for you at present?
I would say that the work that we are doing in India is very leading edge, digital type of works which we are offering to very large conglomerates. India, at present, is still a small component, but it’s a very strong growth component for us. It’s not just based on revenue but the type of works we are doing.
Attrition is now showing any sign of coming down at 19 per cent?
Yes, it’s true that the attrition number is still high where we would like it to be. In the past several years, we have been re-skilling a lot of our people in digital service offering skills. Sometimes, because of all these, you end up becoming the prime target for many competitors who prefer to poach our employees. We had a very strong year in 2015 and so our associates would see significantly higher bonuses than the previous years. There are a lot of works we are also doing in terms of enhanced employee engagement.