Cognizant has spelt out that the information technology company has seen some sectors being impacted by revenue softness. While speaking at CNBC-TV18's New York City edition of the show 'On The Record', Cognizant CEO Ravi Kumar S said: "Some sectors are impacted on discretionary spend and it's falling off the cliff in some places — financial services is (one such) sector."

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The CEO said that despite this, the company has a huge presence in healthcare. "In fact, our healthcare economy is one of the largest in the world, healthcare, health equipment devices, and life sciences, we are the biggest provider that is resilient to economic cycles. So, that's an advantage we have. But overall, I've seen a lot of large deals, I think this is how the market is evolving," he said.

As a result of lower administration costs and higher other income, Cognizant's first quarter’s net profit increased 3 percent to $580 million. For the three months that ended in March, revenue declined 0.3 percent year on year to $4.81 billion, beating Street expectations of $4.74 billion. On a sequential basis, revenue fell 0.7 percent while profit grew 11.3 percent.

The company estimated that its revenues are expected to decline in 2023 as a result of the current distress in the industry and economic downturn as the majority of its revenues come from the US.

For the full year, Cognizant has provided revenue guidance of $19.2-19.6 billion. It represents a decline of -1.2 percent to 0.8 percent in reported terms or a growth of -1 percent to 1 percent in constant currency. In constant currency, the company predicts sales of $4.83-4.88 billion in the second quarter, a decline of -1.6 percent to -0.6 percent.

Kumar said the company would continue to look for meaningful acquisitions for "acceleration". "Our capital allocation policy has been stated to do acquisitions. In fact, 50 percent of my cash fee is used for acquisitions. That's the stated policy. I have not changed the policy. I think acquisitions have contributed well to digital capabilities and gaps, which we had. And we've always used that as a way to fill the gaps," he said.

Plan to move work to tier-2 cities in India

Kumar said the company has focused on finding structural shifts that can lead to long-term cost savings to prevent these from resurfacing.

Kumar emphasised the need to strike a balance between flexibility and productivity, leading Cognizant to consider moving work to tier-2 cities. This strategic shift will align the company's operations with the availability of skilled professionals and enable more efficient utilisation of resources.

The US-based software exporter announced in March it would lay off 3,500 employees and reduce office space as part of the cost-cutting measures.

In the IT industry, Cognizant's margin is among the lowest at 14.6 percent. The company anticipates an adjusted operating margin of 14.2-14.7 percent for the full year.

It did beat analyst expectations in the first quarter of FY23, which was the first quarter new CEO Ravi Kumar S was in charge of most of the time. As CEO, he assumed control on January 12 following the "involuntary termination" of former CEO Brian Humphries. A hard time for the industry, which is experiencing multiple headwinds, coincides with the shift in the company's leadership and chairman of the board.

First Published:Jun 16, 2023 11:50 AM IST