Higher European demand boosts Cognizant revenue

Wed May 8, 2013 9:19pm IST

Employees work in Mumbai March 19, 2012. REUTERS/Vivek Prakash/Files

Employees work in Mumbai March 19, 2012.

Credit: Reuters/Vivek Prakash/Files

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REUTERS - Cognizant Technology Solutions Corp (CTSH.O) forecast current-quarter revenue above market expectations after an 18 percent rise in the first quarter, helped by strong demand from Europe.

The IT service provider is also benefiting from an increase in demand from its global banking customers, who have stepped up spending to comply with stricter regulations.

"We are now three quarters into pretty good growth in the banking sector, and we expect to continue to see that growth throughout the year," Chief Financial Officer Karen McLoughlin told Reuters.

Financial services contributed 40 percent to the company's sales in 2012, with more than half of that coming from the banking industry.

Cognizant shares rose 6 percent but eased a little to trade up 4.5 percent at $67.80.

First-quarter sales from Europe rose 23 percent, outpacing a 16 percent growth in North America. Europe accounts for nearly a fifth of Cognizant's revenue.

Instability in Europe has forced companies in the region to outsource and cut costs. But Cognizant, which operates on lower margins than its rivals, has been able to win a larger share of the business.

Chief Financial Officer Karen McLoughlin said the company continued to be "really bullish on long-term opportunities" in Europe.

"As we look across our business, while there continues to be pockets of weakness, we are encouraged that the majority of our businesses are experiencing positive demand and growth characteristics," Chief Executive Francisco D'Souza said on a conference call with analysts.

Analysts said the company's focus on the financial services and health care businesses allows it to differentiate itself from other in the industry.

Indian rivals such as Tata Consultancy Services (TCS.NS), Infosys Ltd (INFY.NS) and Wipro Ltd (WIPR.NS) reported mixed results for the first quarter, highlighting a shaky recovery in client demand.

Cognizant, which was founded in 1994 as a captive unit of Dun & Brad Street (DNB.N) in India, forecast revenue of at least $2.13 billion for the second quarter.

Analysts on average were expecting revenue of $2.11 billion, according to Thomson Reuters I/B/E/S.

Cognizant forecast earnings of 97 cents per share, in line with analysts' estimates.

First-quarter net income rose 18 percent to $284.2 million, or 93 cents per share. Revenue rose to $2.02 billion from $1.71 billion.

Analysts on average had expected earnings of 93 cents per share on revenue of $2.01 billion.

VISA SNAG

Shares of IT services companies took a hit last month on news that the U.S. Senate Judiciary Committee was debating a draft immigration bill that could hurt Indian outsourcing firms' businesses in the United States. (link.reuters.com/fug67t)

The proposals, which include a sharp cut in the number of foreign workers who can be sent to the United States by companies such as Infosys and TCS, have won support from rival U.S. firms including IBM (IBM.N) and Accenture (ACN.N).

"Although the recently introduced bill includes some important fixes to the green card process, there are also some clauses that would be detrimental to Cognizant," President Gordon Coburn said on a conference call with analysts.

"These clauses include higher fees on visas, a requirement to pay above market salaries to visa holders, potential restrictions on access to visas, and constraints on the ability to have visa holders serve our clients."

Cognizant is one of the top applicants for green cards in India and analysts have estimated that about 65 percent of Cognizant's employees in the United States work on H-1B or L-1 visas, or work permits.

(Reporting by Sayantani Ghosh and Sruthi Ramakrishnan in Bangalore; Editing by Supriya Kurane and Joyjeet Das)

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