Cognizant Technologies has declared its Q4FY08 numbers. The company’s revenues are up 7% at USD 600 million. Its non-GAAP OPM is at 20.3% above the company's target of a 19-20% range.
R Chandrasekaran, President & MD, Cognizant Technologies Solutions said that they are likely to achieve their 2008 revenue guidance of USD 2.95 billion, up 38%. In an exclusive interview with CNBC-TV18, he said that the company’s budget spends are likely to tighten. He added that their average realised price went up 2% in 2007 and that the trend will continue in 2008. According to him, they are likely to maintain operating margins at around 19-20%.
Excerpts from CNBC-TV18’s exclusive interview with R Chandrasekaran:
Q: Reiterate your revenue guidance first; are you indeed saying that in calendar year 2008, Cognizant will grow in dollar terms by revenue by 38%?
A: Yes, that’s what we believe we will do in 2008. We have a done a number of surveys in the past three or four months, we also had a field kick-off meeting in the US earlier this month where we interacted with partners of our top fifty engagements and everyone has come back very positively about 2008. So that’s why we fell very confident about meeting the guidance which we have given, which is about USD 2.95 billion for 2008, it's about 38% growth above 2007.
Q: Can you give me some indications of what you expect to see in calendar year 2008 with operating margins and your profitability picture versus this 38% top line growth?
A: Our operating margins and profitability outlook is always been in the range of 19% to 20%, historically that’s what we are always telling our investors and we hope to live up to it in 2008.
Q: What is the sense that you get by IT spends in terms of budget spends this year though, is it going to be flat or marginally lower and what kind of pricing do you think its going to attend into it.
A: Most of the surveys and data points show us that the IT budgets for 2008 will be either flat or marginally going up and what we hear from most of our customers, everyone is really going to tighten their belt. But they don’t want to cut down on all the discretionary spends or really they want to support the business going forward in 2008, and they are really looking forward to off shoring more during the current year - so that’s what has given us a good upside for 2008.
As far as the pricing is concerned, we saw an average price go up by 2% for 2007 and we expect the same trend to continue in 2008 as well.
Q: For some of your domestic listed peers, they are a bit reticent to talk about right now in terms of what happens with spends because the situation is a bit fluid for most people, are you confident that you can maintain this kind of guidance, if the situation for the US economy remains the same way and do you think spends will remain intact?
A: Our guidance really factors uncertainty in the market place and based on our interaction with our customers as well as all the client partners who are managing some of the large engagements, we feel pretty confident in meeting the guidance that we have put out there.
Q: A large peers of yours in India have about 30% plus kind of an operating margin profiled - what is your observation as an industry player, do you think a 30% operating margin profiles are sustainable in the current foreign exchange and pricing environment or will they all drift down to your 19%-20% kind of a profile?
A: Over the years, it has been drifting down a little bit and that’s why when we went public in 1998, we have always said that we maintain a margin of 19% to 20% - that would really free up some dollars to reinvest back in the business so that we can grow the business faster than the peers in the industry and that we are been able to maintain till date and that’s what we will do going forward as well.
COGNIZANT
Q4FY08
-Revenues up 7% at $600 m
-Non-GAAP OPM at 20.3% above company's targeted 19-20% range
-In 2007 built infra to capture economies of scale & position Cognizant for long-term revenue growth
-Generated approx $150 m cash from operations in Q4
-After acquisition of marketRx and buyback of 3.39 m shrs for $105.4 m ended year with over $670 m cash
CY07 Performance
- Revenues higher at 50% to $2.136 bn
-GAAP OPM at 17.9%
- Non-GAAP OPM at 19.8%
CY08 Guidance
-Revenues seen 38% higher at $2.95 bn
-Headcount expected to reach 72,000-75,000 from 55,000 worldwide
Growth Strategy
-Continue to invest for future growth & create deep domain knowledge
-Good operating environment
-Market RX acquisition continues to add value, integration continues
-BFSI revenues grew by 9%
-Expect strong growth in Europe to continue in CY08
-Focus on mkts in France and German
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