Covid Went. Healthcare stayed

A look at the company’s revenue footprints and business strides since 2021 shows that health and products are its new strong lanes now.

Revenue

Rs 340,486 mn

The mark of a good runner is speed. But it has to be underlined with the consistency of performance. Whether in a car, or on its own feet, a good racer never switches lanes too abruptly. That’s exactly what we see when we look at the tracks that Cognizant has been running in. The last few months exhibit a clear commitment to, and gains from, good laps done in circuits that have become particularly pronounced after the pandemic. That’s why you would notice spotlight on health, on product-related revenue, on client wins in insurance vertical – as some examples of a new bend in the road.

Let’s start with some fresh-off-the-press numbers.

Its second Quarter 2022 financial results show that this professional services company attained a revenue of $4.9 billion. This performance was in some correspondence to what the company had earmarked during the previous quarter - when it noted in its guidance that Second quarter revenue is expected to be $4.90-$4.94 billion. The Full-year 2022 revenue as expected in this guidance was noted at $19.8-$20.2 billion.

That dartboard was, more or less, achieved during this quarter. Key things that catch your eye when you look at this pie is the company’s continued momentum in expanding the healthcare and product slices.

Products and Resources revenue, interestingly, showed a notable jump of 8.1 per cent year-over-year with strong support from automotive, logistics, retail and consumer goods clients. Financial Services revenue climbed at less impressive pace – at 2.7 per cent year-over-year but claimed to have some sunny drivers from U.S. regional banking clients, strength in the United Kingdom and solid performance within insurance.

Health Sciences remained rosy with a revenue growth of 6.3 per cent year-over-year. This was fuelled by digital services among pharmaceutical clients and sustained demand for integrated software solutions in the company’s roster of healthcare clients. Cognizant claims to work with each of the world’s top 30 pharmaceutical companies.

“In a period of unprecedented labor market conditions characterized by elevated attrition and significant wage inflation, we focused on our client commitments and delivered balanced financial results in the second quarter.”

What cannot be missed in this report card is that Q2 bookings declined three per cent year-over-year. It led to trailing 12-month bookings of $23.2 billion, which represented a book-to-bill of approximately 1.2x. The company’s CFO reasoned that there has been a disciplined approach on pricing, while managing supply constraints and labor cost inflationary pressure. While quarterly bookings performance was below expectations, the company is confident that the 1.2x book-to-bill supports its revenue growth outlook for 2022.

What lies ahead rhymes well with what has been seen so far. A glance at the Third Quarter and Full Year 2022 Outlook shows some hard-to-miss parts in the company’s guidance ahead. Third quarter revenue is expected to be $4.98-$5.03 billion, at a growth of five to six per cent. Full-year 2022 revenue is expected to be $19.7-$19.9 billion.

A quick peek at the mantelpiece of the company – in terms of new client and partner additions- corroborates that the company is putting its weight behind areas of healthcare- pharma and insurance.

Roses and Brickbats

The fascinating part is that Cognizant is not too far in ratings when compared with Infosys. Incidentally, Forrester ranked Cognizant as a leader in the latest Forrester Wave for its differentiated vision and strong automation engineering capabilities. Gartner reviews show it as a Service provider with strong focus on client relationship & successful business outcomes. It is explained as a strong technology partner in the Data space, with relentless focus on delivering successful business outcomes at the right cost/location mix. As a senior VP in an insurance company describes the user experience here – ‘Cognizant has some fabulous cost advantage; the expertise/cost balance is difficult to beat. Their ability to offer expertise onsite, nearshore & offshore make for very good value proposition, It seems to be willing to make some long term strategic investments in outcomes & grow with the customer.’

But the downside is that the company is largely focused on US, with limited talent available for deployment in EU zone. This may impact the ability to scale support outside US & India. There is also criticism of limited cultural diversity, as the talent pool is primarily from India only. Plus, there seems to be limited focus on systemic organization wide talent learning & development. Analysts have also pointed gaps on not firming up non-linear revenue capabilities- and this makes its Achilles heel more vulnerable when we look at some seriously-slippery attrition numbers.

Conclusion

Struggles and sprains could slow down this good pathway – despite the fact Cognizant has been a good athlete in new lanes. The chief ones being geo-political ripples on IT services industry, loss of market share in key accounts, absence from large deals as well as a rise in attrition rate (Specially onsite). Attrition rate has been hovering in the range of 30 to 36 per cent, as per some media reports. A cut in topline forecast pushed it under the gray sky a bit. Industry watchers like Wedbush have also brought to notice issues like senior leadership flux, and ‘relative underperformance’ compared to tier I offshore and global peers.

But the market is up for grabs. The global software and BPO services market can grow from $2,163.82 billion in 2021 to $2,444.93 billion in 2022 and then, reach $3,862.69 billion in 2026 (as per ResearchandMarkets) – here, new business demand from start-ups would be a good platter to chase. A good book-to-bill ratio, a consistent addition of insurance clients and margin improvement – also make a nice pair of shoes to depend on, as this athlete pulls up its socks.

It would be interesting to see how smooth these new race-tracks become, specially as there are other top runners to overtake, or catch up to, as Cognizant approaches the finishing line of 2022. Starting with a good headway would help. Just how much, the rest of the year will tell.

“I’m proud of Cognizant’s broad-based progress over the past year. We successfully executed our strategy by meaningfully enhancing our digital portfolio, strengthening our international presence, and helping our clients be successful.”

Key Wins

• Here’s the string of main deals won this year and some months before that. Pharma and insurance seem to be recurring themes in this list.

• Recently in 2022 Cognizant signed a new multi-year agreement with Organon, a global women’s health company. In July 2022, Cognizant also extended its relationship with Zurich Beteiligungs-AG, the German subsidiary of global insurance leader Zurich Insurance Group (Zurich).

• Continuing its BFSI traction, it was selected as a strategic technology provider by National Insurance Company Limited (NICL). Fresh from the oven is its win of insurer AXA UK & Ireland.

• But there are other verticals showing action as well. In Feb 2022, Cognizant renewed its contract agreement with Volvo Cars to provide finance and accounting (F&A), and procurement services. In energy and chemical buckets, it added new names too. Like with- Aker Solutions and Cabot Corporation.

• Now let’s reckon what is happening on the back-end – in terms of new capabilities- to support these clients.

Portfolio expansion

Cognizant added a couple of new tools in its digital engineering kit with the addition of Devbridge, Hunter Technical resources. It also inked collaborations in the health space with noticeable accent- like with Microsoft for a virtual healthcare solution and with Philips for digital health solutions. It also completed its acquisition of TQS Integration, a global industrial data and intelligence company based in Lismore, Ireland; and bolstered its smart manufacturing realm. In the automotive space, it added new cylinders with ESG Mobility for strengthening expertise in the lane of autonomous, connected and electric vehicles. With Servian, it expanded its digital portfolio adding data and analytics muscles and market presence in Australia and New Zealand; with Magenic Technologies, it stretched its product engineering network wide; and with the announcement of Linium’s acquisition, it broadened its wings in the cloud transformation area.

Brian Humphries

CEO, Cognizant india

By Pratima H

pratimah@cybermedia.co.in